In the continuing spirit of welcoming guest entries, this contribution comes from a colleague at the English Bar, Jorren Knibbe. Jorren is a barrister at Guildhall Chambers in Bristol, practising in public contracts, competition and privacy. His contribution adds to the debate about the possible shape of procurement law once we move beyond the current Brexit transition. When I get a moment - and who knows when that will be - I plan to expand upon comments I have made on these topics in this blog and in various other contexts this year. In doing so I will come back to this comment from Jorren and will also address further some of the issues covered in the more recent papers on these subjects from Professor Arrowsmith. All that follows is from Jorren and I hope you find it provocative. For those of you considering responding to the various questionnaires and surveys being undertaken on these topics, I hope that you find the material in this and other entries on this blog helpful.
As Professor Arrowsmith has outlined, moves are afoot to reform UK public procurement law once the Brexit transition period ends.
This provides an opportunity to reconsider what the public procurement rules are for, and what they should achieve. These questions affect both the substantive rules (such as requirements of transparency and equal treatment) and the focus of this post: the remedies regime.
Broadly speaking, EU law requires that a public authority which breaches the procurement rules pays damages to a bidder that can show that its chances of securing the contract were affected. This is incorporated into current UK domestic legislation (most notably the Public Contracts Regulations 2015) and will continue post-transition unless reformed.
The same is not true of the GPA regime, which will underpin UK law post-transition absent more specific agreement with the EU. Article XVIII(7)(b) of the GPA requires that States provide for “corrective action or compensation” (which needn’t extend to lost profits) in the event of a proven breach - it doesn’t necessarily require damages.
The case against damages
The availability of damages skews public procurement. For authorities, it exacerbates the risk of challenge, creates defensiveness and impedes creativity in designing procedures and specifications. It also greatly increases the public money spent on procurement. On the bidder side, damages can create “might as well have a go” situations and incentives to pursue questionable claims in the hope of negotiating payouts. And in many situations damages are not what the disappointed bidder actually wants.
In policy terms, the availability of damages is wrong on many levels:
1. It makes no economic sense. Paying out lost profits to a company that hasn’t done what it bid to do is a waste of money.
A disappointed bidder doesn’t have an “expectation interest” like a party to a signed contract, that can justify up-front investment in the expectation of return. For the most part, the disappointed bidder which proves that the procurement process was flawed and it should have won, and so is in principle (under the current law) entitled to its lost profits from the contract, will have done nothing other than write a bid.
2. It makes no sense in the context of UK public law. Decisions taken by UK public authorities in contravention of rules of public law do not normally lead to damages. There is no good reason why procurement should be different.
There are good reasons why public procurement should be subject to different substantive rules from private procurement – principally because of the risk of politically motivated (or influenced) decisions. But those substantive rules are imposed because of the public nature of the purchaser – and they are rules of public law.
3. It’s a disproportionate sanction for getting the process wrong. In a complex purchasing exercise, full compliance with transparency and equal treatment can be near-impossible to guarantee. In practice authorities can only try to minimise the scope for error, while hoping that any errors do not affect the outcome – then pay out if they do. The consequences are risk-aversion that hampers innovation and creative solutions, and a waste of money.
4. It means that procurement litigation is treated as normal civil litigation (rather than public law judicial review). This brings with it extensive disclosure of relevant materials and cross-examination of procurement officers as to what they did or did not think or decide while marking bids. This degree of scrutiny is unique among challenges to public authority decisions. It greatly increases the chance that the claimant’s lawyers will be able to cast sufficient doubt on the authority’s decision. It also greatly increases the cost of procurement challenges.
5. Most bidders don’t want damages – they want a fair chance at the contract. Damages if they lose are just a windfall.
So UK public procurement law should be reformed to remove the right to damages. This can be done compatibly with the GPA, while permitting the UK to pledge in its negotiations with the EU (if it so desires) to preserve mutually acceptable substantive rules – such as requirements of transparency and non-discrimination.
Abolishing the damages remedy can – and should – go hand-in-hand with reforming the procedures for procurement challenges.
The case for judicial review
Once the right to damages is abolished, public procurement laws should be enforced in the same way as other rules of public law: in judicial review proceedings.
There could – and should – be specific provision in the Civil Procedure Rules for procurement judicial reviews, dealing principally with the following:
1. Disclosure of specific records to enable scrutiny of the decision. This could occur automatically, to limit the risk of disputes about disclosure and pre-trial court hearings to determine those disputes. Court rules could dictate which records are disclosed and how, in a manner designed to strike a balance between the various interests.
2. Time limits for challenging decisions (which probably need a separate post)
3. The consequences of a challenge for the authority’s decision. At present, if proceedings are commenced, the authority is automatically “suspended” from signing the contract with the winning bidder until either the proceedings are resolved or the court “lifts the suspension”. In practice, early applications to the court to “lift the suspension” are the general rule, and those applications are normally successful (or conceded) – following which the proceedings are limited to a dispute about damages. Removing the right to damages would focus the proceedings on whether the contract can be signed, or whether the decision to award the contract must be set aside (which is what most claimants want). As a consequence, in the new judicial review regime the “suspension” must last until trial – potentially with an exceptional power for the court to permit the authority to sign a limited contract to cover the interim where necessary.
4. Cross-examination of witnesses. This is only permitted exceptionally in judicial review, where most evidence before the court is on paper (while it is the rule in civil proceedings). Procurement-specific judicial review proceedings could permit cross-examination exceptionally and subject to specific guidelines.
5. The timetable for trial. Because the “suspension” will be maintained in all cases, the timetable must be strict, and quick. This could realistically bring about a resolution within three to four months of proceedings being started.
The advantages of these proposals
Removing the right to damages, and enforcing public procurement laws by judicial review, will have a number of advantages:
1. Procurement litigation will be focussed on whether the decision to award the contract was right, or should be re-taken – not on whether the authority should pay damages.
2. Procurement judicial review will cost less, because it will be fast and involve fewer disputes about disclosure and (in the normal course) less cross-examination of witnesses. This will facilitate access to review procedures for SMEs. It will also save public money.
3. The degree of scrutiny of public procurement decisions will be much closer to the scrutiny of public authority decisions generally – which will help reduce defensiveness on the authority side.
4. Because of the more appropriate degree of scrutiny (and in particular reduced cross-examination), there should be less “might as well have a go” litigation.
5. Bidders will get what they want: the opportunity to argue that the decision should be re-taken (rather than a claim for damages after the court has lifted the “suspension”).
6. There will be no windfall payouts of lost profits to private sector bidders who have done nothing.
Other ideas
There seem to be relatively few voices in favour of retaining damages in public procurement. Telles and Sanchez-Graells have suggested (here, at p.29) that removing the damages remedy may weaken the entire system of public procurement regulation – but this can only be true if the new system of remedies isn’t strong enough. If judicial review is strong enough to enforce public law generally, it’s strong enough for public procurement.
There are more voices in favour of a specific tribunal for public procurement claims. But to justify the establishment of a new body, it would need to be somehow better than procurement-specific JR. It’s doubtful whether a tribunal system could be significantly quicker or cheaper, or lead to better decisions. The public procurement rules are rules of public law, and whether they have been breached must be determined in a judicial process. Appropriate procedural innovations can equally be achieved in the context of procurement-specific JR.
The proposal for a specific tribunal is often justified on the basis that it could best deal with disclosure. Among their other problems, these arguments tend to assume that something like the current model of disclosure and cross-examination is appropriate in public procurement claims. The current model derives from normal civil proceedings, and (in essence) applies in public procurement because of the damages remedy. Once the damages remedy is abolished, extensive disclosure and cross-examination are open to question: as a departure from normal public law practice, they require justification. Many of the routine justifications amount to little more than “cross-examination makes it easier for claimants to win”.
The current government’s ideas should become clearer when the planned green paper on public procurement reform is published – apparently expected later this year or early next.