More flexible dispute resolution in procurement challenges – the case for reform

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At the Transforming UK Public Procurement webinar we hosted earlier this month, a panel of lawyers and industry experts discussed the Government’s Green Paper on Procurement Reform.  One of the key themes explored during the webinar was the panel’s views on the current procedures for procurement challenges and the fact that the current one-size-fits-all full High Court litigation procedural model is clearly ripe for review.

In this context, Valentina Sloane QC suggested that the current system is not operating effectively.  From the perspective of contracting authorities there are too many spurious claims; from the perspective of economic operators, the chance of maintaining the suspension is becoming remote and the onerous cross-undertaking in damages hinders access to an effective remedy.  If vexatious or spurious claims really are a problem, as the Green Paper suggests, one option would be to introduce an expedited leave phase (equivalent to that required for judicial review) so that the court could eliminate unmeritorious cases at an early stage at limited cost, but where a case was granted leave then the suspension of any new contract would be maintained and an expedited process followed to determine the case.  In reality, most challengers want a fair chance to win a contract and are not motivated by pursuing damages as a primary remedy.  This approach could create a more efficient system for managing cases up front, without allowing a flood of unmeritorious cases to get traction in the system, and certainly a fairer one.  It is imperative that an effective remedy of obtaining the contract is available if the level of compensation challengers can recover is to be capped, as is proposed by the Green Paper.

However, there are other ideas for reform of the way some or all procurement challenges are managed that may also be worthy of consideration.

Regulation 91(2) of the Public Contracts Regulations 2015 explicitly provides that procurement challenges “must be started in the High Court, and Regulations 92 to 104 apply to such proceedings.”  This stipulation makes it clear that currently the sole effective forum for determining procurement challenges is the High Court and that the sole procedural framework for the determination of such disputes is that provided for in the PCR.  In that context, the extremely tight time limits for initiating any form of legal challenge without encountering limitation problems mean that the scope for any form of ADR process prior to starting a formal court challenge is effectively non-existent.

Conversely, the Practice Direction in relation to Pre-action Conduct and Protocols published by the Ministry of Justice provides that litigation should be a last resort, and requires parties to consider whether ADR might enable them to settle their dispute without commencing proceedings.  The inability to be able to do this is a clear weakness in the current regulatory structure.

This begs the question whether, given the current focus on the reform of the PCR Post-Brexit, a more flexible regime would not be preferable in certain contexts, and more consistent with the Ministry of Justice’s strong preference for avoiding litigation through encouraging ADR.

The first point to note is that in the case of Fulham Football Club -v- Sir David Richards and the FA Premier League, 3 March 2011, Court of Appeal, the Court determined that as a matter of law there was no ‘in principle’ impediment to shareholders in a company determining that an Arbitrator should have jurisdiction to determine questions relating to a company arising from the specific statutory remedies created by the Companies Act 2006.  In particular, the Court determined that an Arbitrator could effectively determine the question of whether or not there had been unfair prejudice in the conduct of the Company’s affairs pursuant to section 994 of that Act and then, only if necessary, could the decision of the Arbitrator be referred to the High Court if any form of consequential order relating to the winding up of the Company or otherwise was required to give effect to that determination beyond an award of damages.  It was made clear that there was nothing inherent in the determination of specific statutory remedies under the Companies Act that meant that the Courts alone had to  retain exclusive jurisdiction over such matters.

This decision was a reversal of the received wisdom on such matters whereby it had always been assumed that the Courts alone had jurisdiction to grant relief based on the statutory remedies under the Companies Act and related legislation.  This decision represented a significant policy shift by the judiciary and a clear freeing-up of what had hitherto had been thought to be an exclusive jurisdiction. That said, one is not aware of a stampede by corporate lawyers to build arbitration provisions into articles of association or shareholders agreements following the Fulham decision, however the option is clearly there.

If one now refers across to procurement law it is clear that the mandatory nature of Regulation 91(2) does currently preclude any prospect of arbitrators exercising any form of jurisdiction in the context of challenges that come within the scope of the PCR.  This begs the question whether or not retaining the mandatory exclusive jurisdiction for the High Court in the context of all such challenges is indeed appropriate or desirable or whether, as has clearly been determined in the context of Company Law, allowing a parallel jurisdiction for Arbitrators to evolve might ultimately have some benefit.  In this context, using the logic from the Fulham case, it may be that certain decisions, such as the actual making of a declaration of ineffectiveness or other consequential orders flowing from such a declaration, would still properly be reserved to the High Court but all the decision making and dispute resolution leading up to such a final declaration could be  determined through arbitration.

The possible introduction of a form of arbitration as an alternative means of dispute resolution does not inevitably conflict with the Government’s stated policy objective in the Green Paper to increase transparency.  Transparency does not require that the substance of a dispute has to be litigated on a wholly open basis.  Instead, what is required is that the fact of a challenge is a matter of public record and that the final outcome of the challenge and the nature of that outcome are recorded publicly in a manner analogous to the way the final outcome of court proceedings should be public (which for smaller cases is often only recorded in the briefest and most opaque of terms in any event).  In particular, there is no reason why the final reasoned awards of arbitrators should not be published if that was thought to be in the public interest.

This thought leads on to a second related point.  It may well be that arbitration would not be considered to be appropriate for all procurement challenges.  However, if serious consideration is going to be given to the potential of developing a Tribunal system for all procurement disputes below a certain value threshold, then in parallel with that consideration and as a possible alternative to it, consideration could be given not only to allowing arbitration to be built into tender documentation but also for other forms of alternative dispute resolution to be considered as well.  This could allow for the creation of a privatised and cheaper alternative to a Tribunal system but with many of the same advantages.

In this context, for example, it is clear that the intention behind the PCR was that the level of regulation required in respect of mini-competitions under Framework Agreements should be lighter touch with both lighter touch feedback requirements and other derogations from the requirements relating to full procurements.  If that is the case, then it might well be considered to be advantageous and possibly cost effective for procuring authorities to be permitted to build into their Framework Agreements, a form of adjudication or lighter touch arbitration that would allow the parties to such Frameworks to resolve their differences in a quicker and a more cost effective manner with Adjudicators being empowered to compel appropriate feedback/clarification and to act in a more inquisitorial manner in order to intervene to resolve potential procurement problems efficiently and in a manner that allows the Framework to be operated in an efficient and responsive manner.

If in principle this idea is to be entertained then it does open the door to a range of other subsidiary ideas.  In particular, it would, for example, be possible for the Cabinet Office to produce a model set of adjudication rules or guidance and it could also sponsor a central panel of approved procurement law specialist adjudicators for such purposes. This latter initiative would add value as it would ensure that all stakeholders could have confidence in the expertise and objectivity of the panel. Further such Adjudicators could be required to provide an outline report on any determinations made so that the performance of individual Frameworks and of individual authorities could be subject to another element of centralised scrutiny.

Authored by Paul Stone and Martyn Scott.

 


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