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Landmark judgment in OCS -v- Dublin Airport Authority Procurement contracts at risk of being grounded

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The Eversheds Procurement Update aims to provide a comprehensive and concise summary of important developments in procurement law and practice which are relevant to the public and private sectors and to utilities in Ireland and Northern Ireland.

It has been an eventful few months. Since December 2014 there have been some significant developments in the Courts. The decision of the Supreme Court in OCS -v- Dublin Airport Authority plc is one of the more significant judgments in the area of procurement law to be handed down in Ireland and its implications are profound. There have also been a number of interesting cases decided in Northern Ireland, England and Luxembourg concerning, among other things, the concept of material change, limitation periods and the disclosure of prices in debriefing letters.

On 26 February 2015, all changed in Northern Ireland when the new Public Contracts Regulations 2015 replaced the Public Contracts Regulations 2006. Contracting Authorities in Northern Ireland should now be getting familiar with the new regulations and making the necessary changes to their tender processes. There does not appear to be any sign of equivalent regulations being introduced in the Republic of Ireland before the end of this calendar year.

Peter Curran Partner and Head of Procurement +353 1 6644 990 petercurran@eversheds.ie

Contents Case-law round-up

Ireland 3

Northern Ireland 3

England 4

European Courts 6

Other developments

Ireland 8

Northern Ireland, 10England and Wales

Welcome

2 Procurement Update Spring 2015

Ireland

Irish Courts have no power to lift automatic suspensionThe reasoned judgment of the Supreme Court in OCS -v- Dublin Airport Authority plc was delivered on 30 January 2015 following the Court’s earlier ruling last July. This is one of the more significant Irish procurement decisions in recent years. The Court ruled that: (1) once legal proceedings are commenced by a complainant making an application to the High Court pursuant to the EC (Award of Contracts by Utility Undertakings) (Review Procedures) Regulations 2010, the contracting authority is automatically precluded from concluding the contract with the preferred tenderer (even if proceedings are commenced outside the standstill period, but within the statutory time limit) and a specific application need not be brought; and (2) the Irish Courts do not have jurisdiction to lift the automatic suspension in these circumstances on an application of the contracting authority concerned. This is a very significant decision which is based on the wording of the Regulations in question (of which the Supreme Court was quite critical). It is likely to have profound implications on the Irish procurement sector unless and until new legislation is introduced to change the current status quo.

Case-law

Northern Ireland

‘RWIND’ test relevant to limitation periodIn a recent Northern Ireland case, ROL Testing Limited -v- Northern Ireland Water, a preliminary issue arose as to when precisely time starts to run on the 30-day limitation period for challenging procurement breaches. The Public Contracts Regulations 2006 (in force at the time of the tender) provide clearly that time runs from when a challenger knew or ought to have known that grounds for starting proceedings have arisen. This case focused on what the second part of this test means – when can it be said that a challenger “ought to have known” that grounds have arisen?

The Court decided that an objective test applies, ie would a “reasonably well informed and diligent tenderer”

have known that grounds for commencing legal action had arisen?

This is known as the ‘RWIND’ test. Importantly, as this is an objective test rather than a subjective one, it is not relevant what the actual challenger ought to have known. Based on this test, the Court determined that the two claims of the plaintiff in this case were both brought within the 30-day limitation period.

Significantly, the Court also decided that, in relation to one of the plaintiff’s claims, time did not start to run when the relevant tender documents were issued to the plaintiff (30 May). Because of the complexity of the issues in the tender documentation, the limitation period did not commence

until the plaintiff’s accountant had reviewed the documentation and had an opportunity to determine if there was an error (judged to have occurred on 6 June). This was a critical decision because proceedings were not commenced until July 4 and so if time had started to run from the date the documents were issued (30 May) or first downloaded (2 June) the claim would have been barred as it would have been outside the 30-day limitation period. This is interesting because it appears to open up the prospect that, in certain cases, time may only start to run once expert input (eg external legal or financial advice) is obtained.

Procurement Update Spring 2015 3

England

Damages are not a discretionary remedyIn the English case of Energy Solutions EU Ltd. -v- Nuclear Decommissioning Authority, the plaintiff, an unsuccessful bidder, commenced legal proceedings against the awarding authority after the standstill period expired (but within the 30 day limitation period generally allowed for procurement challenges). The defending authority argued that since the claim was brought outside the standstill period the plaintiff had acted unreasonably and therefore any award of damages should be reduced. Following the expiry of the standstill period, the contracting authority had entered into the contract with the preferred tenderer. The contracting authority argued that the plaintiff should not have been allowed to avoid giving an undertaking in damages by delaying bringing its claim until after the standstill period had expired, and that the losses it suffered arose as a result of it not being awarded the contract.

The High Court held that questions about whether the plaintiff could have avoided loss by bringing the action during the standstill period were questions of fact that could not be determined as a preliminary issue. However, it doubted that the issue of proceedings outside the period could be said to be unreasonable. It also held that there is no discretion in relation to the award of damages for losses suffered as a result of a breach of public procurement rules. Where a duty of care was owed by the contracting authority, the calculation of any damages owing should be by reference to ordinary principles. The Court decided that damages are not dependent on the level of gravity of the breach.

Intra-Government arrangements and material changeIn R (Edenred (UK Group) Limited) -v- HM Treasury, the Plaintiff challenged a decision by HM Treasury to award a contract for the administration of childcare accounts to an existing service provider instead of tendering pursuant to the Public Contracts Regulations 2006. HMT had decided to use NS&I (a government department) to administer the provision of a tax-free childcare scheme. There was no contract entered into between HMT and NS&I. However, a memorandum of understanding (MOU) was signed by the parties. NS&I, which had previously awarded (following a lawful procurement process) an outsourcing contract to Atos UK arranged to provide the MOU services to HMT through their contract with Atos. The Plaintiff argued that this arrangement involved the conclusion of a public service contract which had not been put out to tender or, alternatively, the changes required to the Atos contract to allow the MOU services to be performed constituted a material variation of that contract.

On the first point, the High Court considered that the MOU between HMT and NS&I was not a ‘public services contract’ governed by the Regulations. In order to fall within the Regulations, a public services contract must be legally binding and made in writing with a ‘person’ who has a distinct legal personality from the contracting authority. The Court held that the MOU was not a legally binding contract and that the parties were not legally distinct from each other. Furthermore, the Court noted that no material variation to the contract between NS&I and Atos arose. All the services required to administer the provision of the scheme were within the scope of the contract notice for the original tender which Atos had won. The fact that the contract did not specifically state that Atos would be supplying services to support the provision of a tax-free childcare scheme did not affect the NS&I’s ability to use the outsourcing contract for the provision of the services to HMT. The case provides an interesting analysis of how the rules on material variation may be applied in practice.

Case-law

4 Procurement Update Spring 2015

Material changeIn a second recent case on the issue of material change, the English High Court has found that Winchester City Council breached procurement rules by making material variations to a Development Agreement without holding a new procurement competition (R (Kin Alexander Gottleib) -v- Winchester City Council). In mid-2014, the developer obtained permission from the Council for a number of variations to an existing Development Agreement that had been in place with the Council since 2004. Applying the principles set down by the European Court of Justice in the Pressetext case, the Court held that the variations altered the economic balance in favour of the developer and amounted to a fundamental change to the terms of the Development Agreement. Failure to carry out a fresh procurement process in such circumstances constituted a breach of procurement law.

The Court ruled that the variations largely removed the unprofitable elements of the development, affording the developer a greater opportunity to increase its profits from third parties. The Court confirmed that in the case of Development Agreements (or concession contracts), the commercial value to the developer will be judged by the potential profits to be obtained from third parties, such as rental income or profit from the sale of residential

units, not just the value of the contract with the awarding authority. As such, the financial terms between the parties remain relevant but they are not the only factor to be taken into consideration when considering the impact a variation may have on the ‘economic balance’ of a contract.

The Court did not accept the Council’s argument that it was merely invoking the variation clause in the Development Agreement. The Court ruled that the variation clause relied on by the Council was broad and unspecific. Allowing contracting authorities to rely on such clauses would enable authorities to avoid their procurement law obligations.

The Court also ruled that it was not necessary for the complainant to identify other economic operators who would have competed for the opportunity presented by the varied Development Agreement had it been put out to tender. Challengers to decisions of this nature are required to satisfy the Court, on the balance of probabilities, that a realistic hypothetical bidder would have applied for the contract had it been advertised, but no more.

Case-law

THE COURT RULED THAT THE VARIATIONS LARGELY REMOVED THE UNPROFITABLE

ELEMENTS OF THE DEVELOPMENT, AFFORDING THE DEVELOPER A GREATER OPPORTUNITY TO INCREASE ITS PROFITS

FROM THIRD PARTIES.

Procurement Update Spring 2015 5

European Courts

Prior performanceThe issue of prior performance continues to generate case-law. In Case C-470/13 (Generali), the European Court of Justice considered questions on this subject referred to it by the Hungarian national court. Generali was excluded from a national tender competition for the provision of insurance services in Hungary because it had previously been convicted of breaching national competition law. Generali appealed this decision to the Hungarian courts which sought guidance from the ECJ on whether Public Sector Directive 2004/18 permits national legislation which excludes bidders who have infringed competition law from participating in competitive tendering procedures.

The ECJ stated that the concept of ‘professional misconduct’ in Public Sector Directive 2004/18 covers all wrongful acts which have impacted the professional credibility of the operator and not only infringements of ethical standards in the strict sense of the profession to which the operator belongs. The ECJ noted that Recital 101 of the new Public Sector Directive 2014/24 provides that contracting authorities should be able to exclude economic operators for infringements of the competition rules, as such misconduct may render an economic operator’s integrity questionable. The ECJ ruled that Public Services Directive 2004/18 also allows contracting authorities to exclude for professional misconduct those tenderers who have previously been convicted of a breach of competition law.

Case-law

De-briefingAwarding authorities should take note of a recent European case concerning the extent to which pricing information must be disclosed to unsuccessful bidders during the statutory de-briefing exercise that follows an award decision.

In Case T-667/11 (Veloss International) the General Court considered whether the actual pricing submitted by the successful tenderer ought to be disclosed to the unsuccessful tenderers. The case concerned the financial regulations governing the institutions of the EU. However, it is also relevant to debriefings under the Public and Utilities Directives. The General Court reiterated existing case-law by affirming that awarding authorities must disclose to unsuccessful tenderers “clearly and unequivocally” the reasons for the award decision. Any statement of reasons must include the characteristics and relative advantages of the successful tenderer. The Court ruled that, in the particular circumstances of this case, this included the actual price offered by the successful tenderer where this amounted to one of the key advantages of the successful tenderer over the unsuccessful tenderers (price accounted for 40% of the overall marks). It rejected an argument that the applicants could have established the price offered by the tenderer who was ranked first by reverse engineering the information provided to them using the published pricing formula.

The law on de-briefing unsuccessful tenderers is evolving as the Courts continue to provide guidance on the scope of the legislation. Many contracting authorities struggle to keep up with developments and continue to issue non-compliant standstill letters. We would always advise authorities to exercise caution and seek advice on their debriefing obligations, particularly given the potentially serious implications of getting it wrong. Equally, unsuccessful bidders should be aware of their legal rights and always ensure that they receive the information that they are lawfully entitled to.

MANY CONTRACTING AUTHORITIES STRUGGLE TO KEEP UP WITH DEVELOPMENTS AND CONTINUE

TO ISSUE NON-COMPLIANT STANDSTILL LETTERS. WE WOULD ALWAYS ADVISE AUTHORITIES TO

EXERCISE CAUTION AND SEEK ADVICE ON THEIR DEBRIEFING OBLIGATIONS, PARTICULARLY GIVEN

THE POTENTIALLY SERIOUS IMPLICATIONS OF GETTING IT WRONG.

6 Procurement Update Spring 2015

Case-law

Right to terminate tender processIn Case C-440/13 (Croce Amica), the Court of Justice considered whether, in circumstances where there is only one eligible tenderer and there are no grounds for its exclusion from the competition, it is permissible for an awarding authority to abandon the tender procedure (following an initial decision to award the contract to that tenderer).

The Court ruled that Member States are not precluded from permitting awarding authorities to terminate competitions where that may be expedient from the point of view of the public interest and having regard, among other things, to any changes that may arise in the economic context or factual circumstances, the needs of the authority or there being an insufficient degree of competition (for example, because only one tenderer remained in the competition).

Consequently, a contracting authority cannot be compelled to conduct a tender procedure to its conclusion and award a contract, including when there is only one tenderer in contention.

Evaluating personnel at award stageIn Case C-601/13 (Ambisig), Advocate General Wathelet provided an opinion on whether it is permissible to evaluate the composition of bidders’ teams, their proven experience and their CVs at the award stage of a competition for services of an intellectual nature. This is an issue which contracting authorities commonly seek advice on and this case is the latest in a line of European cases to provide guidance.

The Advocate General considered that Directive 2014/18 does not preclude, in some circumstances, the use of such award criteria, provided that the specific characteristics and qualities of personnel working within the team are a key component of the economic value of the submitted bid. He was of the view that in the context of a contract for intellectual services, the professional experience of staff performing the contract has a direct influence on the quality of the services provided and in these circumstances the experience of the staff who will actually provide the services may be used to assess the most economically advantageous tender. In order to be compatible with the objectives of Directive 2004/18/EC, the specific characteristics and qualities of personnel working within the team must be an intrinsic element of the economic value of the bid, such that the unauthorised replacement during the performance of the contract of any team member would be likely to reduce the value of the bid from the point of view of the contracting authority.

This ruling is another example of a shift away from the rigid distinction between selection and award criteria which will be further relaxed in the new procurement rules. Article 67(2)(b) of the new Public Sector Directive 2014/24/EU permits contracting authorities to consider, at award stage the “organisation, qualification and experience of staff assigned to performing the contract, where the quality of the staff assigned can have a significant impact on the level of performance of the contract”.

Procurement Update Spring 2015 7

Ireland

Public Services and Procurement (Social Value) Bill 2015The Public Services and Procurement (Social Value) Bill 2015, (which mirrors aspects of the Public Services (Social Value) Act 2012 applicable in England and Wales), aims to impose an obligation on public bodies to consider how certain public contracts will benefit society and the environment.

The Bill provides that where a public body proposes to procure certain contracts it must, before the procurement process commences, consider how the contract will meet ‘community benefit requirements’ (including training and recruitment, sub-contracting opportunities and SME involvement), and improve the economic, social and environmental well-being of the area. It must also consider how, in conducting the procurement process, it might act with a view to securing that improvement. This Bill was introduced on 4 February 2015, and it is only at First Stage in the Seanad. It is a Private Members Bill which can sometimes take longer to go through the various stages before it is passed, if it is to become legislation at all.

Other developments

New Tender Advisory Service launched by OGP The Office of Government Procurement (OGP) has launched a pilot Tender Advisory Service (TAS) which aims to assist suppliers, especially SMEs, who have concerns about live tender processes. The informal manner in which queries can be raised by telephone or e-mail should encourage suppliers to use the service. TAS will liaise with contracting authorities on behalf of suppliers to clarify or query tender documentation and will in turn make suggestions and recommendations to the contracting authorities in order to try and resolve the concerns that have been raised. This service is only available before tenders are submitted to the authority.

8 Procurement Update Spring 2015

Consortium biddingA guide for SMEs wishing to make joint bids for public contracts has been issued by the recently established Competition and Consumer Protection Commission (formerly the Competition Authority). Often SMEs do not have the financial or technical capacity to undertake large public contracts and so it often makes sense to form a consortium for the purposes of submitting a joint bid for a contract. However, consortium bidding may give rise to concerns, particularly where operators who are normally competitors join forces to tender together.

The guide sets out the circumstances in which a consortium bid will not breach competition law – ie where the consortium members are not actual or potential competitors or the consortium members are all owned by the same parent company. In all other circumstances, the consortium members should carry out a self-assessment as to their compliance with competition law to identify the pro-competitive benefits that result from joint bidding and assess whether or not these outweigh any anti-competitive effects.

In weighing the pro- and anti-competitive effects, the consortium bid must apply four factors: (1) does the consortium bid produce real efficiency gains? (2) Do consumers benefit from these efficiency gains? (3) Are restrictions of competition involved in the consortium bid indispensable to the achievement of the efficiency gains? (4) Does the bid substantially eliminate competition? Consortium members must also always ensure that the consortium is not used as a vehicle to facilitate anti-competitive collusion between the members concerned in relation to other contracts or other markets.

OFTEN SMES DO NOT HAVE THE FINANCIAL OR TECHNICAL CAPACITY TO UNDERTAKE

LARGE PUBLIC CONTRACTS AND SO IT OFTEN MAKES SENSE TO FORM A CONSORTIUM FOR THE PURPOSES OF SUBMITTING A JOINT BID

FOR A CONTRACT.

Review of Public Works ContractsSimon Harris, Minister of State in the Department of Finance, has welcomed the publication of a Report on the Review of the Performance of the Public Works Contract, published by the Office of Government Procurement in December 2014. This report sets out interim recommendations for amendments to the contracts. It further provides a framework for a medium term strategy to promote engagement between industry stakeholders. These interim recommendations aim to rebalance the risk currently transferred to contractors under the contracts, recognising the different economic climate that prevails now as compared to that which existed when the contracts were introduced in 2007. It is anticipated that these recommendations will be implemented later this year.

Procurement Update Spring 2015 9

Northern Ireland, England and Wales

New Public Contracts Regulations in force from 26 February 2015The Public Contracts Regulations 2015, which implement the new Public Sector Directive 2014/24/EU, came into force on 26 February 2015 replacing the Public Contracts Regulations 2006. Legislation transposing the Utility Contracts Directive 2014/25/EU is expected later in 2015, with the Concessions Directive 2014/23/EU being implemented in 2016.

The new Public Contracts Regulations will apply to all new procurements from 26 February 2015 and in certain respects the changes are significant. Contracting authorities now have to get to grips with the new regime and modify their processes and documentation to become compliant.

The Cabinet Office has also recently published guidance that certain contracting authorities must have regard to. This relates to the light touch regime, pre-qualification stage and payments to contractors. It is important that the new legislation is read in conjunction with this guidance.

Eversheds has produced separate briefing notes on the new legislation which we are happy to provide to clients on request.

Unfortunately, Ireland is lagging behind England, Wales and Northern Ireland on its implementation of the new Directives and there is nothing currently in the legislative programme up to Summer 2015 to suggest that legislation is imminent. The deadline for implementation is 17 April 2016.

Other developments

10 Procurement Update Spring 2015

Other developments

Providing references to suppliersThe Crown Commercial Service in England has received complaints from suppliers who have been refused references by various contracting authorities who believe that as a matter of policy and procedure they are unable to furnish these. As a result, the Cabinet Office has issued guidance in the form of Procurement Policy Note 11/14. The note explains how commercial staff in contracting authorities can provide references for suppliers. It recommends that references be furnished when they are specifically requested and where the supplier has performed well and exceeded expectations. References should be given in writing and only by staff who are formally authorised to act on behalf of the contracting authority. Given that many authorities also often request tenderers to provide references, it makes little sense that the same authorities would refuse to provide these to suppliers who have served them well. A successful contract with the public sector is invaluable to many SMEs and any refusal to provide references can act as a barrier to their growth and success with future public contracts.

Beware supplier bid-riggingThe UK’s Competition and Markets Authority (CMA) has advised public sector procurers to beware of anti-competitive supplier bid-rigging. This involves groups of businesses which would otherwise compete, secretly conspiring to raise prices or lower the quality of goods or services offered in public tenders. Such anti-competitive practices may take several forms including:

> bid rotation – where firms agree to take it in turns to submit the lowest bid

> bid suppression – where one or more firms agree not to submit a bid or to withdraw their bids

> cover pricing – where bidders arrange for one or more of them to submit an artificially high bid, distorting the authority’s impression of the competitive price.

Such anti-competitive practices continue to cost governments and taxpayers millions every year. They also exclude potentially efficient competitors and reduce suppliers’ incentives to compete. The CMA guidance provides tips for how public authorities can spot suspicious bidding patterns, for example similar or unusual bid wording, identical prices, lack of detail, absence of bid from a likely bidder, lowest bidder not taking the contract, sub-contracting between bidders, last minute changes, suspiciously high bids or evidence of discussions between bidders. The guidance also recommends that public authorities consider requiring the bidders to sign a non-collusion clause and/or provide a certificate that their bids are independent.

Procurement Update Spring 2015 11

Upcoming workshops

Eversheds is currently running a series of workshops on ‘smart and effective tendering’ for private sector organisations. These workshops are designed to provide bidders with valuable insights into the tender process and enable them to gain an advantage in the procurement process. For more information, or to reserve a place, please contact Rosemarie Pollard at RosemariePollard@eversheds.ie, or your usual Eversheds contact.

Peter Curran Partner +353 1 6644990 petercurran@eversheds.ie

Angelyn Rowan Senior Associate +353 1 6644270 angelynrowan@eversheds.ie

Anna McGrath Solicitor +353 1 6644397 annamcgrath@eversheds.ie

Totis Kotsonis Partner +44 845 497 0700 totiskotsonis@eversheds.com

Aisling Garry Solicitor +353 1 6644357 aislinggarry@eversheds.ie

Suzanne Farrell Solicitor +353 1 6644266 suzannefarrell@eversheds.ie

www.eversheds.ieEversheds Ireland is a member of Eversheds International Limited.

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The information in this bulletin does not constitute legal advice. Specific advice should be sought before taking any action.

ContactsFor more information on any aspect of procurement law in Ireland or the UK, please contact: