The scrutiny of the UK Government's decision to directly award a number of ferry services contracts for Brexit continues. The owners of Eurotunnel have now launched a procurement challenge in the High Court (Channel Tunnel Group LTD & Anr v. The Secretary of State for Transport, Case No. HT-2019-000028)
The case raises a wider question about what can be done to award unexpected contracts (whether as a result of Brexit or otherwise) lawfully in accordance with the Public Contracts Regulations 2015.
1. Run a (quick) procurement
The standard minimum timescales in the procurement rules can be brought down to as little as 15 calendar days for tender in an open procedure. There are urgency grounds available, and sub-central (non central government etc) can even agree a shorter tender deadline with the bidders. A standstill period of a further 10 calendar days must be run at the end of the process.
In practice, often this approach will be quicker than off market individual negotiations. A lack of competitive tension can make agreeing contract terms and prices more time consuming than running a process.
2. Direct award
This was the UK Government's approach for the ferry contracts. Regulation 32 of the Public Contracts Regulations 2015 permits a direct award of an above threshold public contract in very limited scenarios. Our previous briefing on this topic (https://bit.ly/2I9rT83) looks at the grounds in full.
The European Court of Justice has repeatedly stated (and the underlying procurement Directive 2014/24/EC is clear) that this is a "derogation" from the standard obligation to openly compete public contracts. It should be used sparingly and only where the grounds are made out.
The risk in using regulation 32 is that, if the grounds are not made out, the resulting contract will be an 'illegal direct award' in procurement law terms. This exposes the contract to the remedy of cancellation (ineffectiveness) up to 6 months after it has been awarded. This can be reduced through the publication of notices in certain cases.
3. Use a framework agreement
Pre-procured framework agreements often allow direct awards as well as mini-competitions. These can be a useful way to award contracts quickly. It's important to ensure that the framework meets your needs and you are entitled to use it.
4. Concession contracts
Often, a contract will be let for use by third parties. If the arrangements amounts to a "concession" where the operator will be exposed to risk and competition in the market, there is a much higher financial threshold (£4,551,413 ex VAT) and there are no rules in relation to below threshold competition requirements (unlike in the Public Contracts Regulations 2015).
5. Vary an existing arrangement
There is no free hand to "materially" extend existing public contracts. If the changes are substantial for the purposes of regulation 72 of the Public Contracts Regulations 2015, a new procurement process can be required and a failure to do so carries a risk that the whole arrangement is an "illegal direct award". There are a number of safe harbours in the procurement rules that do allow certain types of changes. Many long term existing contracts will have specified change mechanisms, and which we would always recommend are looked at before contemplating a direct award under regulation 32.
The ferries case highlights the importance of following the public procurement regime to ensure competition. Brexit, in itself, may not give sufficient "unforeseen urgency" to justify an increase in direct awards and many more challenges seem inevitable - particularly from EU based suppliers - if this approach is adopted widely in the UK and without a risk assessment.
The case also poses wider questions about state aid, which is likely to arise where there has been no procurement process to establish the market price.
For more information or advice on any procurement law issues or Brexit related advice, please contact David Hansom, Partner on email@example.com / 0207 876 4127 or your usual contact at Clyde & Co.
Eurotunnel says the first time it heard about the three Brexit ferry contracts was when the Department for Transport announced they had been awarded in December, judge Peter Fraser said as he summarized the case at the hearing. A four-day trial on the dispute will start March 1, Fraser said, because “the urgency of the matter is in my judgment somewhat obvious