Procurement Act 2023 – One Year On - When it starts to get contentious

Remedies for exempted procurements

By what route should a potential claimant challenge a decision that a contract is exempt under Schedule 2 of the Procurement Act (i.e. it is not a public contract) and what remedies are available to a claimant challenging such an award before the contract is entered into?

Schedule 2 lists the categories of "exempted contracts" under the Act. Such contracts are exempt from the vast majority of the obligations because they are not "public contracts". This includes vertical and horizontal arrangements in addition to some contracts which are exempted on the basis of the goods/services being procured. If a contract is exempt under Schedule 2, no obligation exists to publish a tender notice, run an advertised procurement process, or publish a contract award notice (CAN). 

Part 9 of the Act only sets out the remedies available to a bidder for breach of the Act, where it applies to public contracts. If an economic operator considers the authority has wrongly decided that a Schedule 2 exemption applies and concludes a contract on that basis, should the claimant seek a judicial review of the decision that the contract is exempt or is it a claim for breach of the PA23, or both?

Crucially, remedies only apply to incorrectly awarded public contracts. However if the dispute relates to whether the contract is a public contract, that issue must be settled first. But by what method, and whether a potential claimant can stop it being signed until the court has established whether it is a public contract or not, needs to be determined.

The automatic suspension applies where a) there is an applicable standstill period b) proceedings are commenced under Part 9 and c) the contracting authority is notified (s.101(1) PA23). The mandatory standstill period lasts eight working days from the date on which a CAN is published. The contracting authority must not enter into a contract before a) the end of the mandatory standstill period, or b) if later, the end of another standstill period provided for in the CAN (s.51(1) PA23). However, in the case of an exempted contract, no CAN is required to be published. Therefore, there is arguably is no standstill period and therefore no automatic suspension.

What does a disgruntled provider do about the decision?tor

In relation to remedies, S.101(1) states that “a contracting authority’s duty to comply with Parts 1 to 5, 7 and 8 is enforceable in civil proceedings under this Part”. However, a decision as to whether a contract is exempted is not covered by these parts and does not seem to be guided for by the Act at all.

In practice, it is likely that a claim will be brought by a bidder alleging breach in the contracting authority having not complied with the duties under the Act, and that the contracting authority’s defence that the contract was exempt, is wrong. Another option is that a claimant may seek to bring a judicial review in respect of the contracting authority's decision that it was an exempted procurement.

However, in either case, the bidder is unlikely to have the benefit of the automatic suspension when a claim is issued as this will not have taken place in any applicable standstill period. Here, bringing either a High Court claim or a judicial review would not trigger an automatic suspension, so a bidder would likely need to apply for an injunction to stop the contracting authority entering into the contract.

Call-off under frameworks

Another area where remedy issues might also apply is in respect of call-offs under frameworks.

The Public Contracts Regulations 2015 (PCR) will continue to govern call-offs from frameworks established under the PCRs. If the call-off being objected to is a call-off under a framework established by the PCR, the provisions of the PCR in relation to remedies will apply. But what if the provider argues that the framework has been so improperly used to be outside of the framework all together? Will the PCR or the Act then apply? 

There are arguments that if the contracting authority’s purported call-off cannot be justified by the framework at all (for example, if the scope terms or process depart so materially from the framework that it can’t be lawfully used), then the contracting authority has in effect made a new public contract entirely outside of the framework. In such cases, the applicable regime is the Procurement Act 2023 and the remedies contained therein.

Practically speaking, bidders may run these arguments in the alternative depending on whether they are a framework supplier (i.e. if they are a unsuccessful framework supplier they may argue there has been a breach of the PCR framework rules pertaining to frameworks and in the alternative that it was an unlawful direct award under the Act). If a claimant is not on the framework then only the second argument is likely to allow them to demonstrate a loss because if the breach is only a breach of the framework agreement then only other framework suppliers could show they would have potentially won had the breach not occurred. 

Does it matter which regime applies?

Which regime applies may be relevant to the ability to show loss arose because of the breach. A contracting authority defending such an argument brought under the PCR will want to consider whether there is a benefit in arguing that the Act applies because of the greater flexibilities the Act offers. There may be a benefit if, for example, there is a Schedule 2 or Schedule 5 (direct award justification) ground that might assist such that the 'counterfactual' would still have been a lawful procurement.

If it is not clear which regime applies, issues may also arise for a claimant in determining whether the automatic suspension will be in place if a claim brought before the relevant contract is actually signed. The automatic suspension only applies under the Act if a claim is brought prior to the end of the "applicable standstill period" (s101). But for call-offs from frameworks under the PCR there would not necessarily be a "relevant" standstill period under the Act because the authority would not have published an Act CAN containing one if it felt it was operating under the PCR regime. Therefore if a claimant seeks to argue that a call-off contract from a PCR framework is essentially the unlawful direct award of a new contract and the Act applies, can an authority argue there is no automatic suspension and only damages should be available?

Extending the standstill period and IT headaches

In procurement disputes, because a claim must be issued within the standstill period to benefit from the automatic suspension, the authority may agree to extend that period to resolve the unsuccessful bidder’s concerns. However, recent practical issues faced by procurement litigators include i) when does standstill start to run  if the assessment summaries are not compliant and ii) the technical difficulties in extending standstill under the Act. Some readers may have faced the unfortunate response of "computer says no" (literally) when trying to agree to this.

In order to enter into a public contract, the contracting authority must publish a CAN. Before doing so, it needs to provide an assessment summary to each supplier that submitted an assessed tender.

While the standstill period runs from publication of the CAN for the eight-day period set out within it, what if a non-compliant assessment summary has been sent to bidders and the CAN is then published, starting the mandatory standstill period? And if the assessment summary is not compliant, has standstill even started? 

Disgruntled bidders may argue that the standstill period has not commenced if they consider that a non-compliant assessment summary has been provided. Many contracting authorities are already finding themselves on the receiving end of letters asking for confirmation that the CAN was not lawfully published and the standstill period not commenced until a compliant assessment summary has been received.

Depending on the circumstances, a contracting authority may be well advised to agree that standstill has not commenced, provide a further assessment summary and publish a further CAN. But many clients are finding difficulties with their IT systems in withdrawing or modifying CANs – particularly if late on a Friday when IT support can often be hard to secure.

Can the standstill period be extended?

Previously under the PCR, the automatic suspension was enforced if proceedings were issued before the contract was entered into. Now under the Act, proceedings must be issued within “any applicable standstill period” (s.101(1)) i.e. it does not matter when the contract is entered into; the bidder loses the right to the benefit of the automatic suspension when the standstill period ends even if the contract has not been entered into. 

As the "applicable standstill period" is defined by reference to what was put in the CAN – and that is a question of historical fact – there is an argument it could not be amended retrospectively. Indeed, was this Parliament's intention when the Act was being drafted? (i.e. a claimant needs to quickly "put up or shut up"). The non-statutory guidance gets around this by suggesting the CAN can be modified by agreement and this will restart or amend the standstill period. However as this is not statutorily binding guidance, there remains a question as to whether the standstill period can be extended at all beyond what was in the initial CAN. 

What we are seeing is that most potential claimants are happy to follow the guidance but they are insisting that the contracting authority publishes an amended CAN before the end of the standstill period in order to extend it. 

Contracting authorities should be mindful of the potential for such requests from bidders and the practical and technical difficulties in publishing CANs at short notice on procurement portals.

Increase in protective claim forms

Another change under the Act is that claims no longer need to be served within seven days of issue (as they did under the PCR). This was previously the case due to regulation 94(1) of the PCR which states that “where proceedings are started, the economic operator must serve the claim form on the contracting authority within seven days after the date of issue”. Particulars of claim also had to be served within the same timeframe (i.e. within seven days). As such, a great deal of work was required within a short period of time on issuing a claim in respect of a breach of the PCR. 

Under the Act, there is no equivalent to regulation 94(1) or requirement that the claim form be served within any particular period of time. Therefore, the standard Civil Procedure Rules apply which state that a claim form must be served within four months of issue (CPR 7.5).

Accordingly, a bidder could issue the claim and gain the benefit of the automatic suspension (in respect of which the claim form only needs to be notified to the contracting authority and not "served") without great cost and then pause in preparing particulars of claim and serving the claim form. 

Ultimately, how such issues will be played out in the courts and the courts' approach remains to be seen. Currently there have been no published judgments, which has raised a number of questions. But authorities can plan for them with awareness, transparency and certain risk mitigations.

By Jo Dumphy (legal director) and Katherine Calder (partner) – DAC Beachcroft LLP

In the first article from DAC Beachcroft, Katherine Calder and Sarah Foster focused on changes to procurement design at selection and tender stage in three key areas of change that the Act introduced, namely: excluded and excludable bidders; differing approaches to the competitive flexible procedure; and the flexibility to change rules, scope or criteria mid procurement.

In the second article, Katherine Calder and Victoria Fletcher considered some of the Act's practical impact and implications, including how to choose the right regime, how authorities are tackling the notice requirements, considerations when making modifications, and setting and monitoring KPIs.