The Process of Challenges under the Procurement Bill – Summary of our view
The choice not to progress the full range of potential reforms set out in the Green Paper could be argued to be a lost opportunity. The Green Paper proposals in respect of challenges were designed to reduce delay and encourage more claims pursuing pre-contractual remedies (i.e. encouraging challengers to seek the contract itself as opposed to pursing a claim for damages). A quicker litigation process would have reduced the impact of delaying contracts whilst litigation is pursued. Such an approach may have also increased competition – by ensuring that SMEs had access to a cost effective method of challenging procurements and may have encouraged more of these smaller businesses to compete for procurements in the first place.
We do not believe that the reforms which have made it into the Bill will drastically alter the challenge system. When one considers that all procurement claims (no matter what size) will be heard in the court, all claims will, subject to expedition or significant changes in the court rules, be faced with the relatively lengthy litigation process and relatively high litigation costs. Such an approach will not be appropriate for all contracts, many of which will be significantly lower value than those high value and high profile procurement contracts which are rightly contested in the courts. Against this background however, it is difficult to see how there will be a shift towards providing a remedy which enables the right party to secure the contract more often rather than obtaining damages. As such, we do not see the Bill as being a driver to implement significant change in the regime to provide a different balance to the remedies available through procurement litigation.
The apparent drive for change
Following Brexit, the intention behind public procurement reform has been to create a quicker, simpler, more flexible and transparent system which remains compliant with international obligations but is not based on EU Directives.
On 11 May 2022, following an announcement in the Queen’s Speech 2022, the government introduced the Procurement Bill 2022-23 (the “Bill”) to Parliament. The Bill reflects over two years of intense policy development, a Green Paper, government responses and consultation with hundreds of stakeholders. It will regulate public procurements from inception throughout the procurement process, contract award and the duration of the contract up to the point the contract expires or is terminated. It also provides remedies for breach of the core statutory duties contained within the Bill.
In respect of challenges, the consultation response indicated that the Government no longer intended to take forward many of the proposed changes to the challenge system and the Bill has confirmed this approach. The consultation response indicated that there was an intention to focus on alternative measures such as working with the Civil Procedure Rules Committee. Remodelling the Guidance Note on procedures for Public Procurement Cases, contained in Appendix H of the Technology and Construction Court (“TCC”), has been suggested and is to be explored by the TCC, Ministry of Justice and Civil Procedure Rules Committee. The following proposals have been earmarked for exploration, with a clear focus on enabling faster and more accessible challenges:
- A fast track system for expedited trial processes;
- Greater use of written only pleadings;
- A clear early disclosure regime;
- Increased use of the TCC district registries outside of London; and
- An emphasis on agreeing timetables at the outset of a claim.
The Cabinet Office has indicated that it is aware of the need to progress these changes and it is understood that this is something it is looking to progress as soon as possible. It is hard to know how many of these changes will be pursued and how dramatic any changes will be but it is clear that the position regarding available remedies has not changed significantly within the Bill and it is hard to see how any of these proposed procedural changes will alter the position on remedies significantly.
Green Paper proposals which have not been brought forward in respect of the challenge system
| No independent contracting authority review |
| No cap on damages |
| No uniform approach to calculating bid costs (not needed as there is no cap on damages) |
| There will be no cap on profits for contract extensions where the incumbent has challenged which was an idea raised to dissuade incumbents from bringing opportunistic litigation in order to secure profitable contract extensions |
The Bill’s proposed changes to the challenge system
The Standstill Period
In order to enable unsuccessful bidders to consider whether they have a potential claim before the contract is signed, the current regime provides for a standstill period after the contracting authority issues award letters to all bidders. The new regime has maintained the provision of a standstill period however it is now 8 working days from the date of the Contract Award Notice (currently it is 10 days following the issue of the award letters). Under the Bill, the Contract Award Notice is to be issued before the contract is entered into and has to be sent out following the assessment summary (bidder feedback). At the moment, the amount of information that bidders are going to get is unclear but it seems that it will be similar to what is currently provided in the award letters. However, we will have to wait for secondary legislation and guidance to fully appreciate whether this will change and if so, what the impact of that will be.
The timing changes may, in theory, give bidders more time to consider whether there is a potential claim before time starts running. However, it is not clear in practice how long the gap will be in each procurement between sending out the assessment summary containing bidder feedback and the Contract Award Notice. This seems to create a major element of uncertainty as bidders could receive the Contract Award Notice immediately after the assessment summary which will start the clock running on the standstill period or there could be quite a gap between the two.
The Automatic Suspension
The automatic suspension, which is a key feature of procurement challenges, is effectively an injunction and requires the contracting authority to refrain from entering into the contract with the winning bidder if a claim is issued before the contract is entered into. The automatic suspension is key for many bidders who want to unpick the result and go after the contract as a remedy – the automatic suspension maintains the status quo whilst the claim is considered. The Bill has rightly retained the principle of the automatic suspension however, it has changed the timing – it appears that the automatic suspension will only apply if a claim is issued before the end of the standstill period (i.e. 8 working days from the date of the Contract Award Notice).
This change potentially forces an earlier decision on whether to issue a claim. Currently bidders and contracting authorities will often agree to extend the standstill period so as to engage in pre-action correspondence and to allow the bidder time to assess its position and seek early disclosure of key documents. This creates little prejudice as the contract is often not ready to be signed in any event. Under the Bill, when the standstill period ends, the remedy of pursuing the contract is lost whether or not the contract has been signed off. The rationale behind this change is not understood as the drive in the Green Paper seemed to be towards encouraging a remedy which results in the right party securing the contract rather than relying on damages as a remedy but this change cuts short the time when this remedy is available. It is unclear whether an agreement to extend the standstill period under the new regime will ensure that the remedy of pursuing the contract is also preserved, we presume it would be but this may need judicial conformation when the point is raised. Even if a challenger knows the contract is not being signed off and that it is going to receive more documentation, it may still feel obliged to protect the availability of this remedy of pursuing the contract by issuing a protective claim which isn’t required if the contract isn’t yet being signed off under the current rules.
Further, contracting authorities may feel obliged to formally extend the standstill period for all bidders rather than simply giving comfort to a potential challenger that the contract will not be signed off until further information has been provided and considered, and that step may encourage other bidders to consider maximising pressure on the contracting authority if they know there is already a potential challenge. If parties do agree to extend the standstill period, they should also expressly provide that they intend for the automatic suspension provisions to still apply if a claim is issued in the extended standstill period and confirm that the remedy of pursuing the contract remains available.
These changes could mean that more bidders issue protective proceedings and commence actions in situations where, under the current regime, the parties would have agreed an extension and resolved the dispute through pre-action correspondence within the 30 days of the limitation period. As such, instead of reducing the amount of claims, this change may do the opposite and increase it. Much will depend on what is contained in the secondary legislation under Regulation 86 and or in guidance which may clarify exactly how these changes will work in practice.
As with the current regime, once the automatic suspension applies, the contracting authority must decide whether to apply to lift the suspension. The Bill changes the test the courts will apply to decide whether the suspension will be maintained. Under the current regime, the court will consider i) whether there is a serious issue to be tried (normally this is agreed by consent), ii) whether damages are an adequate remedy for either party and iii) the balance of convenience. This test is not specific to procurement and in practice it has been difficult for an unsuccessful bidder to show that damages will not be an adequate remedy or that there isn’t an overriding public interest in getting the contract signed off without substantial further delay and as a result, the automatic suspension is often lifted and the contracting authority is then able to enter into the contract. The bidder is then left with pursing a claim for damages only. This outcome doesn’t align with what we understood were the aims of the procurement reform – to reduce damages claims and encourage more pre-contractual claims. This seems a sensible goal as successful damages claims result in the public purse paying twice for the same contract (the winning bidder gets paid to perform the contract and the successful challenger obtaining its lost profits through a damages award).
The new test requires the court to have regard to:
- the public interest, including (but not limited to) the principle that public contracts should be awarded in accordance with the law, and the need to avoid delay in the supply of goods, services and works;
- the interests of suppliers, including whether damages are an adequate remedy for the supplier (not expressly for the contracting authority); and
- any measures the Court considers appropriate.
The Green Paper proposal to amend the test and address the balance to make it easier to retain the automatic suspension was made in the context of the other proposed reforms (many of which have not been taken forward). All the proposals as a whole were intended to introduce a quicker remedy system (for example the proposed tribunal system) and reduce the attractiveness of damages (capping the level of damages). As these other proposals have not made their way into the Bill, it is yet to be seen how a court would apply this new test in circumstances which remain very similar to the current environment. The wording of the new test is not very different to the current test. We will still be relying on the courts, which is the gold-plated system but costs and the duration of cases are both considerable and it is against this backdrop that the new test will be applied. In our view, it is hard to see how this new test will drastically alter the approach of the courts to date. Similarly, given that bidders will, we presume, normally still have to provide a cross undertaking for the suspension to remain in place, the litigation risk can be considerable with challengers at risk of high legal costs and potentially responsible for both the contracting authorities losses and in some circumstances, the losses of the successful bidder caused by the delay resulting from the litigation. This makes the challenge system less accessible for SMEs who may not be prepared to accept the financial risks.
Authors
Previous commentary from DLA Piper on the Procurement Bill can be found at the following links:
Same as it ever was? Has the Procurement Bill seized a once in a lifetime opportunity?