17 February 2011 | David Hansom

The repercussions of the Remedies Directive are only now being felt by public sector buyers. David Hansom explains how to deal with the consequences.

The EU Remedies Directive took effect in December 2009 but the impact of the changes is only just being felt. Recent case law indicates the start of a tide of litigation.

The rules increase the range of remedies available to dissatisfied bidders. The main changes are the introduction of “ineffectiveness”, or cancellation of a contract, up to six months after it has been entered into, and the ability to halt an award process through automatic suspension. There are other changes to both the standstill regime and the information that must be provided when bidders are deselected.

Ineffectiveness arises in three circumstances – where there has been an “illegal direct award”, where the standstill or automatic suspension rules have not been followed or where an above threshold framework (or dynamic purchasing system) call off is made but not in accordance with the rules. 

Authorities can reduce the six-month period to ten days by publishing a notice in the OJEU stating why it considers a direct award to be justified. This seems a popular approach as the number of voluntary transparency (“VEAT”) notices in the UK has soared over the past year. But VEATs are not for the fainthearted as they can act as a flag and draw out a challenge.

This area is tricky because an illegal direct award is not just failure to advertise a contract in the OJEU. It can also arise, for example, where material changes are made to a contract during the procurement or during its term, where the changes render the contract effectively a new opportunity which should be readvertised. This is a major issue given current pressure to renegotiate contracts. It can also occur where authorities make mistakes in the classification of contracts, thinking that a contract is for “Part B” services or a concession, when it is not. Any such award is vulnerable to cancellation, together with fines, likely damages claims and bad publicity.
Automatic suspension is also having an impact. In any claim (for ineffectiveness or damages pre-award), all that is needed to stop the award process is a claim form issued and served on the authority. Limited work and costs can be incurred in issuing a claim, and if an authority proceeds regardless, the award is automatically ineffective. This approach is gathering momentum as can be seen from three recent cases, Exel Europe Ltd v University Hospitals Coventry & Anor, Indigo Services UK Limited v Colchester Institute Corporation and the most recent, Halo Trust v The Secretary of State for International Development (2011).

In all three claims, the automatic suspension was lifted in favour of the authority. However, it can only be a matter of time before this has a real impact on procurement activity.

Challenges are on the rise because of a lack of new opportunities in the public marketplace, and the fierce competition for those that remain. The unintended consequences of the Remedies Directive may be to make procurement processes and professionals more cautious at a time when austerity measures require innovation to bring forward the desired efficiencies.

☛ David Hansom is an associate at Eversheds