New rules for challenging the awarding of public sector contracts are increasing the disclosure obligation on contracting authorities, writes David Gunn

The new Remedies Directive gives more scope to unsuccessful bidders for public sector contracts to challenge the award of those contracts. This is done by:

- strengthening the right of bidders to
challenge a contract award in the period
after it has been awarded but prior to it
being signed. The protection of the 14
day Alcatel standstill period which is
already provided for in the Irish
regulations is enhanced; and

- new provisions to challenge signed contracts
in certain circumstances through the
sanction of “ineffectiveness”.

Standstill period

The new Remedies Directive requires a 10 or 15 day minimum standstill period between the decision to award a contract and it being signed. The period starts on the day after the decision and “relevant reasons” are sent to tenderers. “Relevant reasons” must convey all information for a person to seek effective review.

Ireland will have the option to adopt a one or two stage review procedure. A two stage procedure would require the unsuccessful tenderer, during the first standstill period, to apply to the contracting authority to review the contract award.

A further standstill of 10 to 15 days applies from when the contracting authority responds to the request. Regardless of whether a one or two stage procedure applies, an unsuccessful tenderer may have the award reviewed by the Courts. The contract cannot be concluded until the Court’s decision has been made.

Ineffectiveness

“Ineffectiveness” is a new sanction which can be imposed by the Courts when:

- a contract is illegally awarded without prior
publication of a contract notice in the
Official Journal of the EU; or

- the contracting authority fails to apply the
standstill period if this is combined with
another breach of the EU procurement rules.

The Court will render the contract ineffective unless there are “overriding reasons in the general interest”. Economic interests would only be considered “overriding reasons” in exceptional circumstances.

Member states will have the option to retroactively cancel all contractual obligations or cancel the obligations yet to be performed. The latter option will be combined with fines or a shortening of the contract duration.

Failure to apply the standstill period (where the substantive Directive is not breached) allows a member state the option to apply ineffectiveness or provide for alternative penalties.

Alternative penalties can be fines or shortening the contract but not damages. An ineffectiveness claim must be filed within 30 days of a contract award notice being published in the Official Journal, or where none is published, within 6 months of contract signing.

The new Remedies Directive increases the possibility of a contract being set aside. It will apply to all tender procedures which are live on 20 December 2009.

Following the Lianakis and Others v Dimos Alexandroupolis case earlier this year, public sector bodies are going to have to take extra care in deciding on award criteria in their tender documents.

The EJC ruled that a contracting authority cannot take account of a tenderer’s experience, manpower, equipment or ability to perform the contract by an anticipated deadline as award criteria. The ECJ found that these criteria could only be considered in determining the tenderer’s ability to carry out the contract (“selection criteria”).

The effect of this is that the selection criteria specified by the ECJ (or criteria generally considered to be selection criteria) can only be relied on to shortlist contractors.

Those selection criteria cannot then be taken into account as award criteria when evaluating the tender itself. Even award criteria which are expressly permitted to be used by the Directive such as “delivery date and delivery period or period for completion” seem to breach the ruling in Lianakis.

In Lianakis the ECJ also found that all elements to be considered by the contracting authority in determining the most economically advantageous tender must be disclosed to bidders.

The ECJ ruled that a contracting authority cannot during the evaluation of tenders subsequently apply weightings or sub-criteria to the award criteria that were not set out in the tender documents.

The result of this is that the disclosure obligation on contracting authorities has effectively increased, as has the potential for challenges. It may even be necessary in some circumstances for a contracting authority to disclose part of the contract methodology, in so far as it could affect a tender.

An example where this would be necessary is where a contracting authority previously had an existing service provider but was then required to put the contract out to tender again.

The contracting authority would be required to disclose all relevant information so that a reasonably informed bidder would not be at a disadvantage as against the previous service provider, even if this involved disclosing some of the contract methodology. There are many pitfalls in the procurement process.

To a certain extent they have been increased following the Lianakis ruling as it has removed some of the flexibility which contracting authorities previously enjoyed in setting its award criteria.

Contracting authorities and bidders should also be aware that all relevant information should be disclosed so that bidders are on an equal footing. Contracting authorities must ensure transparency by adhering to the stated requirements in the tender documents.

This article was written by David Gunn at O’Donnell Sweeney Eversheds Solicitors

This article appears in the December 2008 edition of Irish Construction Industry Magazine