Is the tendering process being undermined by increased litigation from losing bidders?

In recent months, the examples of Bristol’s Hengrove Park leisure centre and the Greater Manchester waste PFI have shown that incidents of legal action brought by losing bidders are on the increase. Allied to this is the implementation of the new EU Remedies Directive, which could make it easier for contract awards to be challenged. In this edition’s Digest, The PPP Journal investigates the challenges facing future PFI and PPP deals.

Add your comment below

The short answer to the question above is – 'No'. However, if there is increased recourse to legal action by bidders, this raises some fundamental questions about the competency and approach of both public sector procurers and the bidders.

Those engaged in public procurements should not expose themselves to the risk of legal challenge from any quarter. This is not a call for a totally risk averse approach, which could strangle progress and innovation, but a call to better manage the risk of challenge.

It is essential to ensure that due process is followed in accordance with the law. Furthermore, there is a need to ensure that the tender process is robust and that specifications issued are consistent throughout the tendering and evaluation process, up to and beyond letting contracts.

There is much to be gained from early dialogue with potential bidders pre-procurement – on a fair and equitable basis, of course – to ensure a good understanding of what might be possible, what the bidders' commercial considerations would be and to test the serious intent of bidders. There is equally a need to spend time and effort on the specification of the outcomes and outputs being sought, including full engagement of end-users and other interested stakeholders, in order to minimise the risk that these will have to change at some stage in the process.

If companies have been eliminated before such changes are made, or if contracts are let and then there are significant changes, there may be the foundation for a challenge. There is a need to be transparent about the tendering, evaluation and rewarding processes and to stick to these so that no one can shout 'foul' post-contract award. Indeed, all parties must be honest and transparent and work to create mutual trust.

If unsuccessful bidders are feeling the need to make legal challenges post-contract, this will be for a number of key reasons. They feel able to bear the negative reputation or that it is worth risking reputation with the client community to demonstrate to funders and shareholders that they will not be rolled over, especially in current markets. And, of course, funders may be more supportive of challenges than contractors.
It may also be that they are unhappy with bearing the not inconsiderable pecuniary and opportunity costs of unsuccessful bids and the pain is greater if there appears to be a flaw in the procurement process. Or it could be that these companies know that they can play in larger international markets and do not have to dance to the tune of nationally-based public sector clients.

Whatever the reasons for an increase in litigation, it will inevitably slow the pace of market and the application of public procurement; it will make the public sector think twice, given the costs involved; and it will sour relations in areas where competition is sought as a means to partnership.

Whilst the current position may not be undermining the market, if it were to continue and the use of legal challenge was to grow, the 'no' with which opened this commentary could turn to a 'yes', which is neither in the public sector clients' nor the bidders' interests.
John Tizard - Senior Director, Centre for Public Service Partnerships

Litigation arising from procurement is undoubtedly on the increase, fuelled by a number of factors including the recession and credit crunch, increasing bid costs and improved remedies, but also by the fact that there seems less concern on the part of potential claimants that they will ultimately suffer reputational risk in the market if they pursue such challenges.

At the same time, there is greater awareness of procurement law and its requirements, both on the part of public authorities, who are striving to comply, and from bidders, who are more aware than ever of their rights of redress and to require transparency as to how their bids have been assessed and evaluated. Some of this litigation may also be due to experiences of bidders who come from other member states where such challenges historically have been more commonplace than in the UK.

The procurement rules remain poorly suited to the delivery of the most complex and innovative projects, despite recent changes. They reflect a position that has much more to do with suspicion about misuse of the rules than about facilitating project delivery. Getting the balance right between fairness and transparency of process on the one hand, and speedy and efficient contract award processes, on the other, is a difficult task to achieve. Given the increased risk of litigation, all parties are giving much more attention to demonstrating compliance with the rules and fairness at the outset. That, perhaps, is no bad thing.
Jonathan Davey - Chairman, Procurement Lawyers'' Association

Contracting authorities have recently seen an increase in court proceedings brought by losing bidders, and signs are that this is set to continue. The courts nowadays often provide greater latitude to bidders on time limits for bringing proceedings and impose increased obligations on contracting authorities to provide significant and detailed feedback to bidders. They have also been more willing to intervene in the overall conduct of the procurement process.

The introduction of the Remedies Directive into UK law in December is likely to accelerate this trend. Under the new law, the launch of a claim by a failed bidder will now automatically prevent a public authority entering into the contract pending the outcome of court proceedings. Previously, a failed bidder had to seek a court injunction to obtain suspension. But from December, the onus would be on the contracting authority to seek court intervention once proceedings have been served, or the procurement process is automatically suspended. In addition, there is also an entirely new remedy called 'ineffectiveness', which, for the first time, will enable contracts to be effectively cancelled by the courts, even after they have been signed.

This will not necessarily place increased strain on the overall tendering regime, but with this new power for losing bidders, contracting authorities need to be more careful than ever to follow correct procedure from start to finish, in the knowledge that they are more likely to receive a claim if they are in breach. In particular, they will need to ensure that their evaluation and scoring methodologies are compliant, the requisite notices have been published in the OJEU, the relevant debrief information has been provided to all bidders, and that there are no material changes to the scope of the contract before or after contract award. If their tendering processes become fully compliant and efficient, the volume of claims and threatened claims will decrease.
Neil Harrison - Associate, Dickinson Dees LLP