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Hobson's choice: public procurement gets a competition law makeover

Bus iStock 000003775433XSmall 146x219A recent High Court case should serve as a reminder of the need to consider whether competition law issues may be relevant when organising a tender process, argues Helen Prandy.

Here in Cambridge there are many memorials to Thomas Hobson, the city innkeeper who used to tell customers that they could have any horse as long as it was the one closest to the stable door, an option which became known as Hobson's choice. Exhausted passengers arriving at Luton airport might have felt the same about their bus service to London had the basis on which the contracts were awarded not been successfully challenged recently in an interesting way from a public procurement perspective.

Although the principles behind the Public Contracts Regulations and Utilities Contracts Regulations (both) 2006 are to facilitate competition throughout the European Union, public procurement and general competition law are usually regarded as two quite separate regimes which, historically, have rarely had an impact on each other. In particular, competition law only applies to 'undertakings', that is, bodies engaged in economic activity generally involving competition on a market, and will look at how undertakings operate in the market including whether those that enjoy a dominant position, abuse that position to influence the market. In contrast, procurement law applies to public bodies or utilities who, depending on their activity, may or may not be treated as an undertaking for competition law purposes.

Increasingly, however, bodies subject to procurement law may also be undertakings (and this is especially the case in the utility sector) and a High Court judgment at the end of January 2014 shows how a competition law claim in the context of a procurement exercise might arise.

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In Arriva the Shires Ltd v London Luton Airport [2014] EWHC 64 (Ch) ("Arriva") the company which operates Luton airport (a utility for the purpose of the Utilities Contracts Regulations) was looking to award a concession to operate the coach service between the airport and London. The concession was extremely lucrative and the claimant was the incumbent provider. The concession included a 7-year exclusivity on the route plus a right of first refusal over new routes. Unfortunately for the claimant it lost out on the award of the contract by a process which, to public procurement lawyers at least, looks very far from ideal.

For the purpose of the trial the defendant accepted the assumption that it had a dominant position in the relevant market for the supply of facilities at the airport. The claim was brought on under two main grounds: (1) Abusive conduct relating to the tender process; and (2) Abusive conduct arising from the terms of the concession.

As far as the tender process was concerned, it was also recognised that this was a concession and therefore outside the scope of the Regulations so although there were many aspects of the tender process which would have been considered unfair in the context of a traditional public procurement the judge found no fundamental issue describing it simply as "perhaps less than fair". The judge's conclusion on this point appears to have been heavily influenced by the claimant's bid being so far behind the winning bid that the defects in the tender process could not have changed the outcome, and thus that the claimant had suffered no loss.

However, in relation to the terms of the concession, and in particular the 7-year period of exclusivity, the judge made a clear finding that this amounted to an abuse of dominant position, that there was a clear distortive effect on the market, that the process had inappropriately emphasised the return to the defendant rather than the benefit to consumers and that there was no objective justification for the grant of exclusivity over a period of seven years. It is worth noting that under the new Concessions Directive which has been approved by the EU and is awaiting implementation in the UK that the benchmark for the length of a concession contract is 5 years unless a longer period would reasonably be required by the concessionaire to recoup its investment. Seven years therefore looks out of line with what the EU considers to be 'best practice' on concession contracts.

The case is a timely reminder of the need to consider whether competition law issues may be relevant when organising a tender process. This will particularly be the case for utilities, public bodies who are competing in the market and when considering the award of a concession. It raises three key points:

Firstly, because one of the bases of complaint in Arriva was the fairness of the tender process, the case indicates that the conduct of tenders may be scrutinised under the prohibition on abuse of dominant position.

Secondly, at least for now while we wait for the new Concessions Directive to come into force, the tendering of concessions may be more prone to competition law principles than a 'standard' procurement.

Thirdly, the judge in this case appeared to be strongly influenced by the evidence (relevant to competition claims) of the benefit to consumers and whether this was secured by the granting of an exclusive concession for such a long period. He considered that in this case, bids should have been evaluated on the basis of consumer benefit rather than the financial return to the defendant. This may mean that, where competition law does bite on the award of a concession, the evaluation of tenders and the terms of the concession should address the benefit to consumers.

So competition law is yet another factor which may need to be kept in mind both if you are an undertaking/contracting authority planning a procurement or a bidder who feels it has been unfairly excluded from a market.

Helen Prandy is an associate at Mills & Reeve. She can be contacted on 01223 222344 or This email address is being protected from spambots. You need JavaScript enabled to view it.. This article first appeared on the firm's Procurement Portal.


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