Public bodies, including most obviously the NHS, are awarding a significant number of contracts directly, without holding a competition, to meet the needs of the current crisis.
This is permitted under the procurement rules ‘insofar as is strictly necessary where, for reasons of extreme urgency brought about by events unforeseeable by the contracting authority, the time limits for the open or restricted procedures or competitive procedures with negotiation cannot be complied with’.
Scope for challenge
If a contracting authority makes a direct award in circumstances where this exception does not apply, it may face claims brought by companies who may otherwise have bid for the contract had a competition been held, on the basis that there has been a breach of public procurement rules. If it appears the rules have not been followed, challenges may also be made on the basis that the direct award distorts competition and constitutes state aid (at least until the end of the transition period on 31 December 2020).
All exemptions from running competitive tenders are narrowly construed and the onus is on the public body to establish that the conditions are met. Procuring essential personal protective equipment, drugs and hospital equipment to safeguard care workers and treat patients appears demonstrably necessary and the reputational risks of challenge, particularly for purchases in the health care sector, are real. Nevertheless, companies may be missing out on significant opportunities, particularly where those being awarded contracts may gain the advantage as incumbent for follow-on supplies and further awards.
There is scope for questions to be asked:
- What unforeseeable events are relied upon by the contracting authority? It was known as early as January that there was a risk of COVID-19 transmitting to the UK. Indeed, the UK government has been criticised for its slow response to the situation and the failure to equip hospitals to deal with the crisis at an earlier stage. Is there scope for an argument that, while COVID-19 and the scale of the pandemic were unprecedented, from the point the virus was detected in Europe and/or the impact on healthcare resources in other countries became clear, the need to prepare and stock up on essential supplies became foreseeable?
- What is the scale of the procurement? For example, if hospitals are buying supplies that will meet requirements for six months, is that purchase ‘strictly necessary’ such that the time limits for competitive procedures cannot be complied with at least for the later months?
- Could an accelerated competition have been run for some or all of the requirements? Government guidance issued on 18 March 2020 (see our blog) reminded contracting authorities of this option, as well as the possibility of calling off supplies or services from existing framework agreements or dynamic purchasing systems or modifying existing contracts (provided there is no material change).
Bid challenges require very rapid decisions to be made even where competitions are held. Losing tenderers have just 10 days – the so-called ‘standstill period’ – from the date of notification of the winning bidder to start a claim in order to prevent the signing of the contract. Those difficulties are exacerbated where urgent direct awards are involved because there is no obligation on the purchasing body to operate a standstill period. Once a contract has been entered into where the claimant can establish there has been an unlawful breach of the procurement rules, the remedies potentially available are limited to:
- damages, provided the claimant can prove it would have had a real chance of winning a competition had one been run; and
- ineffectiveness. This remedy is very rarely awarded and the court retains a discretion, even where it has been established that there has been an illegal direct award, to maintain the contract in place for its full term or such period as is necessary to hold a lawful competition to enter into a follow-on contract.
In theory, a purchaser can take steps to mitigate the risk of ineffectiveness by publishing notices either:
- before entering into the contract and then waiting 10 days to provide an opportunity for challenges to be made – in effect operating a voluntary standstill period; or
- after the contract has been signed, in which case, if no claim is brought within 30 days of the notice, the remedy is limited to damages.
We have been unable to find examples of such notices being issued in relation to direct awards to meet needs presented by the pandemic.
What should suppliers be doing in the current market to best position themselves to secure contracts?
- Stay close to your clients and would-be clients: ensure you are in dialogue with those making the purchases so they are aware of what you can offer. This is particularly important where new needs have to be met (for example, to cater for home schooling). Market testing is permitted by the procurement rules provided it does not distort competition.
- Keep your compliance teams close to any new and evolving interactions with contracting authorities.
- Consider joining with other market participants either in proposed joint ventures or as part of their supply chain. The European Competition Network (the network of all EU national enforcement agencies, including the UK’s Competition and Markets Authority) has made clear that it will allow co-operation to deal with short term deficits in the supply chain (see our blog), which would result in companies no longer being able to meet existing demand (although it will not allow collective cooperation to remedy over-capacity). The UK government has also granted temporary exclusions for certain collaborations to deal with short term deficits in supply in the medical and groceries sectors.
- Monitor trade press and procurement portals for news of upcoming purchases.
If a contract has been awarded directly, what should companies do next?
Any companies involved in bringing or defending a bid challenge will need to act fast.
Our client briefing (PDF) sets out the steps that should be followed by those considering challenging a direct award and to whom a contract has been awarded directly, who are seeking to protect their position.