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MMS seminars on the new public procurement remedies regime
On 20 December 2009 new rules entered into force, greatly enhancing the remedies available to bidders for public contracts.  The changes mean that public sector buyers face considerably higher risks if mistakes are made in the procurement process.

Some of the consequences of the new rules are:

• Contracts awarded in breach of the rules could be declared ineffective, and the authority forced to retender - up to 6 months after the contract has been concluded
• Authorities breaching the rules could also face fines
• Contracts cannot be awarded if court proceedings start within the standstill period
• More extensive debriefing requirements at the start of the standstill period
• Standstill may also be advisable for some awards under framework agreements.

"In-house awards": European court takes pragmatic approach
Ponte Nossa: Direct award to shared services body
OK despite potential for private shareholding
An Italian company, Sea Srl, challenged the direct award of a contract for waste services by the municipality of Ponte Nossa to Setco.  Setco was owned by a number of municipalities in Lombardy and Ponte Nossa had become a shareholder shortly before awarding the contract.  Ponte Nossa argued that this was an in-house contract award and permitted.  A key issue in the case was the possibility, under Setco's statutes, for a private entity to be a shareholder.

The European Court held that the future possibility of private investment in Setco should not prevent the contract being viewed as an in-house award unless there was a real, short-term prospect of this happening.  As there was no sign or suggestion that there were any plans for a private party to take a shareholding in Setco, Ponte Nossa's award of the contract was lawful.

The case is interesting because the European Court took a pragmatic approach and was unwilling to say the contract award was unlawful simply because Setco's statutes permitted something (a private shareholding) that was not actually being contemplated.  This can be contrasted with the earlier case Mödling, where a contract was directly awarded to a public body with the intention that private investment take place shortly afterwards, i.e. a ruse to get round the procurement rules.  It is also important to note the Court's view, in Ponte Nossa, that if a contract is lawfully awarded as in the present case, but a private entity takes an interest in the body awarded the contract some way down the line, this event should be regarded as a material change requiring the contract to be brought to an end and a tendering procedure carried out.

Click here to read the judgment in case C-573/07, Sea Srl v Comune di Ponte Nossa



Hamburg Waste: Cooperation between
local authorities ruled permissible
Four German administrative districts signed a contract with the Hamburg cleansing department relating to the disposal of their municipal waste at a new incinerator.  The European Commission investigated this contract award and brought a case before the European Court.  It was clear that the four administrative districts did not exercise control over the Hamburg cleansing department or over the operator of the incinerator (a private sector entity).  Therefore, there was no question of the Teckal exception for in-house contract awards applying.

Notwithstanding this, the Court found that the contract must be viewed as part of a process of inter-municipal cooperation to ensure a public task was carried out.  The contract was between public bodies and the Court considered it did not prejudice the award of any contracts that mighty be necessary in relation to the construction and operation of the incinerator.

The case is a welcome decision and grants public bodies a considerable degree of flexibility to cooperate with each other in delivering services and perhaps signifying a shift to a form over substance approach from the Court. 
However, the full implications and meaning of the case may take some time to become clear.

Click here to read the judgment in case C-480/06, Commission v Germany



Commission closes infringement
proceedings against "in-house awards"
In October, the European Commission decided to close an infringement case brought against Germany regarding public cooperation on IT contracts in Hamburg and North Rhine-Westphalia.   The Commission had objected to a German practice of awarding IT contracts to jointly-owned public bodies.  The case closure was a direct result of the judgments in the Ponte Nossa and Hamburg Waste cases.  In Hamburg, the Commission took the view that the IT contract in question complied with the requirements for in-house contracts clarified in Ponte Nossa.  The North-Rhine Westphalia contracts concerned the transfer of public tasks between public entities and cooperative structures around this.  Following the Hamburg Waste judgment, the Commission elected to drop its objections.   

Click here to read the press release.



ECJ avoids need for double-tendering
An Italian province - Ragusa - and its municipal councils entered into a co-operation agreement establishing a body responsible for the province's integrated water service.  The body decided that management of the water service should be entrusted to a newly created semi-public company.  An OJEU-advertised procedure was commenced to identify a private sector partner to act as minority shareholder in the company.  Only one company, Acoset, responded to the ITT, upon which the authorities became worried that they might risk breaching EU law and abandoned the tender.   Acoset challenged that decision in the Italian Courts and certain questions were referred to the European Court.

The European Court noted that directly awarding a public contract to a semi-public company would breach EU law.  However, this would not necessarily be the case if the private sector participant in the company had been selected in an equal, transparent and non-discriminatory way.  If the selection was made not only on the basis of the ability to inject capital, but also on technical capacity/ability to carry out the relevant services, the later award of a contract to the semi-public body can be considered to be a follow-on result from the identification of the private sector partner.  In such circumstances, the Court did not think a second round of competitive tendering to award the contract was required.

One of the key reasons behind this sensible judgment was the Court's concern that a requirement for double-tendering would deter interest in forming such partnerships and lead to delay/legal uncertainty.

Click here to read the judgment in case C-196/08, Acoset SpA v Conferenza Sindaci e Presidenza Prov. Reg. ATO Idrico Ragusa and Others 



The dangers of blanket exclusions from tenders
The procurement rules lay down certain circumstances where bidders must be excluded (e.g. fraud convictions) and others where a contracting authority may exclude bidders (e.g. if they are insolvent).  There are however, other reasons, not expressly addressed by the procurement regulations, why contracting authorities might want to exclude bidders.  Three recent cases illustrate the problems contracting authorities can run into.

In the first case, a Greek law prohibited entities with media interests from being awarded public contracts.  The award of a construction contract was challenged by another bidder, alleging the winning bidder, Sarantopoulos, held media interests.  The European Court held that it was possible to have an exclusionary rule such as the Greek law which aimed to ensure equal treatment and transparency, provided it was proportionate.  However, the Greek law in question was simply a blanket ban on anyone with media interests bidding for public contracts and could not be regarded as proportionate.

In the second case, an Italian law prohibited undertakings linked by a relationship of control from participating, as separate bidders, in the same tender procedure.  A courier services contract had been awarded to SDA following a tender procedure.  A rival bidder, Assitur, challenged the contract award on the basis that another bidder, Poste Italiane, indirectly controlled SDA.  The European Court considered that the aim of the Italian law was unobjectionable - it was intended to prevent collusion between bidders and ensure equal treatment and transparency.  However, it objected to the sweeping nature of the ban and ruled it was not proportionate.  The reason for this was that linked companies bidding for a contract were not given the opportunity to demonstrate that they had commercial autonomy.  The blanket nature of the ban was once again the problem.

Finally, just before Christmas in another Italian case, the European Court held that an Italian law prohibiting a consortium and a member of that consortium from participating in the same tender process was disproportionate as it did not give the consortium and the member the chance to show that their respective bids had been prepared independently and the competitive process thereby protected.

These cases are important for any contracting authority who is considering adopting particular measures or additional exclusions in a tender process.  The first question to be asked is essentially whether the exclusionary measure is in pursuit of a permissible aim.  The second step is to assess whether the provision goes no further than is necessary.  It's clear (as Italy and Greece discovered) that swingeing prohibitions will almost certainly fall foul of the proportionality rule.

Click here to read case C-213/07, Michaniki AE v Ethniko Simvoulio Radiotileorasis and Ipourgos Epikratias 

Click here to read case C-538/07, Assitur Srl v Camera di Commercio, Industria, Artigianato e Agricoltura di Milano 

Click here to read case C-376/08, Serrantoni Srl and Consorzio stabile edili Scrl v Comune di Milano



New guidance on development and land agreements, but uncertainty continues
In October, the Office of Government Commerce issued initial guidance on how, following the Roanne/Auroux case, it considers the public procurement rules apply to development agreements and arrangements relating to land.  The guidance specifically states that it may change depending on feedback from the European Commission.  It also emphasises that the relevant authorities are likely to look at the intent and purpose of arrangements and that artificial solutions intended to get around or avoid the rules are unlikely to work.

It is also worth mentioning that there are cases pending before the European Court the outcome of which will affect best practice in this area, most notably Helmut Müller, where a non-binding opinion of the Advocate General (a legal adviser to the Court) was published in November.  In the Advocate General's view, there is a requirement for a direct link between the contracting authority and the development in question for the procurement rules to apply, and the procurement rules do not impact on the exercise of normal town planning powers. 

Therefore, much remains to be clarified but nevertheless, the guidance will undoubtedly prove helpful to contracting authorities in giving a steer as to what arrangements are likely to fall outside the rules and as to when tendering is required.

Click here to read the guidance.



Greek selection criteria deterring foreign bidders impermissible
A Greek rail company published an advert in the Official Journal seeking offers to provide various engineering services.  As part of the legal, economic, financial and technical information which candidates were required to provide, the notice stated that expressions of interest would be accepted from Greek consultancy firms enrolled in the relevant national register.  Non-Greek consultants were obliged to have qualifications corresponding to those required for Greek consultants.  So far, so good; however, the notice went on to state that foreign firms who had submitted expressions of interests in tenders by the same company in the previous six months and who had declared different qualifications would be barred.  Two complaints were made to the Commission who brought the matter before the European Court.  The Court considered that the words in question were clearly likely to be dissuasive to foreign engineering firms and did not allow them to enjoy equal treatment with Greek companies.

Click here to read the judgment in case C-199/07, Commission v Greece 



English court of appeal: Procurement rules
do not apply to establishment of academy
Ms Chandler, an aggrieved resident of Camden, challenged her local council's decision to establish an academy to be sponsored by University College, London (UCL).  She was opposed to the institution of academy schools and applied for the decision to be judicially reviewed, arguing that the EU procurement rules had been breached.

Much of the case is concerned with a detailed discussion of whether the arrangement between the Secretary of State and UCL amounted to a contract.  Ultimately, the Court concluded that this was a "philanthropic" arrangement and was not caught by the procurement rules, but this point was hotly disputed between the parties and much in the judgement can be usefully considered in a variety of other contexts to consider whether a contract has been awarded.

However, the most important aspect of this case is the Court of Appeal's ruling that, in some circumstances, individuals who are not economic operators can bring proceedings under the procurement regulations to challenge the award of a contract.  The Court considered that Ms Chandler (who had brought the challenge only because of her views on academy schools) did not have standing to bring an action, but a person who had a "sufficient interest" that the rules should be complied with could do so.  The door has therefore been left ajar to judicial review challenges of procurement decisions beyond the scope of the new remedies rules. 

Click here to read the Court of Appeal's ruling in R. (Chandler) v Secretary Of State for Children, Schools and Families [2009] EWCA Civ 1011  



Opting for trouble?
In January 2009 Clackmannanshire Council published a contract notice for a works contract in the Official Journal.  The notice specified that the restricted procedure would be used.  However, the contract notice was below the works threshold so OJEU advertising was not required.  Due to an error in faxing the result of the award process to the wrong number, Sidey Limited, an unsuccessful bidder, was not informed of the result until 29 June 2009 with the contract being concluded three days later on 2 July 2009.  Key issues were whether the Regulations and the minimum 10 day standstill period applied to this contract and whether it could be set aside.

Unusually, the Council admitted a breach of the Regulations.  Moreover, the judge was of the view that the Council had considered whether there was any cross-border interest in the below threshold contract and, having opted to apply the Regulations, it was bound to abide by them.  The judge considered that it was possible for him to order remedies other than damages, since the contract had been entered into before the end of the standstill period (as a result of the faxing error).

To an extent this judgement has already been superseded by the new remedies regime which came into force a matter of days after the judgment was published.  However, there is still much of interest in the case including the discussion on below thresholds contracts and a clear lesson that if authorities "opt into" following the Regulations for below threshold procurements they will be held to the letter of them.

Click here to read the judgment in Sidey Limited v Clackmannanshire Council and Pyramid Joinery and Construction Limited [2009] CSOH 166 



New financial thresholds now in effect
Finally, the biennial change to the financial thresholds above which the detailed procurement regulations apply has taken place with effect from 1 January 2010.  There has been a slight upwards revision of the thresholds.

Click here to check the new thresholds.



Contact us
If you think your business may be affected by any of the above, or if you have any other questions, please contact:
 
Michael Dean
Partner
0141 303 2415
michael.dean@mms.co.uk

Catriona Munro
Partner
0141 303 2385
catriona.munro@mms.co.uk

David McGowan
Associate
0141 303 2482
david.mcgowan@mms.co.uk