PFI/PPP Disputes - Part 3

Procedural requirements

Claimants are required to inform the contracting authority of

the nature of the alleged breach and that they intend to commence

proceedings. This is a strict requirement and failure to adhere to

it will render any action inadmissible.

The Regulations require that proceedings be brought promptly

and, in any event, within three months from the date when the

grounds for commencing the action first arose save where the court

believes that there is good reason for allowing an extension to

this period. The UK courts (See Jobsin Co UK plc v Department

of Health [2001] EU.L.R 685) have determined that even in

circumstances where the three-month time limit is met such actions

may not be prompt enough. Accordingly, a party meeting the

three-month time limit is no guarantee of the courts allowing the

proceedings to commence. In Holleran v Severn Trent Water

[2004] EWHC), it was held, in respect of an application for an

injunction, that "prompt" meant that a complaint should

be brought within a "few days". However, where the

claimant brings an action seeking damages and not an injunction to

restrain a contract award, it is likely that the courts will not

take such a strict approach. The limitation period set out in the

Regulations has no regard to whether or not the potential claimant

had relevant knowledge that he was in a position to commence

proceedings.

Overlap with Judicial Review?

The remedies set out within the Regulations are expressly

provided to be "without prejudice to any other powers of the

courts". Seemingly, therefore, tenderers are able to seek to

challenge public sector procurement decisions by way of judicial

review. In order to do so the claimant would need to establish that

the decision made had a sufficient public law element so as to give

rise to judicial review proceedings. The disgruntled party must

have a "sufficient interest" in the matter. The central

question is, therefore, what amounts to a "sufficient

interest"?

The UK courts gave consideration to the availability of judicial

review in Hibbert & Sanders [1992] COD. The court

held, in that case, that judicial review was not available

principally because the decision in question was not a matter of

public law but was one that sat entirely within the realm of

private law. The court considered that there must be a specific

element of public law to ensure that the decision could be

challenged in this way following the decision in R v East

Berkshire Health Authority ex parte Walsh [1985] 1 QB 152. The

courts concluded that simply because the Regulations impose

obligations on a public body, that does not in itself mean that

judicial review would be available. Rather, Judicial Review will

only be available where the courts can find some special

"public law interest" to justify a judicial review. A

different approach was taken in the Northern Irish case of

Leonard Personnel Limited [2008] NIQB 63 where the

Northern Irish High Court accepted that the fact that the

regulations impose a duty on public authorities to act objectively,

fairly and transparently may give rise to the requisite public law

interest. It will be interesting to see if the courts adopt the

position taken in Leonard Personnel. Professor Sue

Arrowsmith has been critical of the decision in Hibbert &

Sanders. Her view is that the UK courts have been inconsistent

in their approach. She suggests that the better approach would be

that, in principle, contracting powers are subject to public law

principles of judicial review in exactly the same way as all other

powers of government.

The CPR pre-action protocol for judicial review states that

where an alternative procedure is available which has not been

used, the court has a discretion to refuse leave for judicial

review. The judge's decision as to whether or not leave should

be given would depend upon the circumstances of the case in hand,

which would include consideration of the nature of the alternative

remedy available.

Non-financial remedies

Specific provision is made in the Regulations for an injunction

to suspend the award procedure or suspend the implementation of any

decision and also for an order which would set aside a decision

made by a contracting authority. This is discussed above in the

context of the Alcatel judgment. One important exception

to the prohibition of setting aside a contract which has already

been awarded may exist in circumstances where there might have been

some bad faith or collusion between the contracting authority and

the contractor, so as to breach the procurement laws.

The current legal position is, generally, that once a contract

has been concluded, a claimant is limited to damages as its remedy.

Once Directive 2007/66 has been introduced into English law,

however, this position will change. The Directive requires member

states to allow claimants to seek a declaration that a concluded

contract is ineffective, where the contracting authority has either

awarded a contract without holding a competition at all, or where

it has concluded the contract without observing the ten-day

"Alcatel" standstill obligation (see above). The

OGC is currently consulting stakeholders over how

"ineffectiveness" should be implemented into national

law. There are two possibilities as to the meaning of

"ineffectiveness": the existing contract could be

ineffective from the start, as a matter of retrospective effect; or

it could be ineffective as to the future from the time of the

decision of the court. The OGC does not favour the former approach,

because of the legal and practical difficulties surrounding a party

who, without fault, has been operating under a contract wrongly

awarded by the contracting authority. The latter approach, which is

favoured by the OGC, would be easier to administer.

There is some evidence that, even in advance of the

implementation of the Directive, courts will be willing to set

aside concluded contracts if certain key aspects of the procurement

rules are not observed. In the unreported, Scottish case, D.R.

Plumbing & Heating Services v. Aberdeen City Council

(2009), the Court of Session cancelled a concluded agreement as the

contracting authority had not observed the Alcatel obligation in

the foregoing award procedure.

Damages

The Regulations do not set out in any detail the basis upon

which damages for breach of the procurement rules could be

quantified. Case law suggests that there are two main heads of

potential loss. These are loss of tender costs and loss of profit.

As stated above, the Court's approach in Aquatron was

to take the approach that as a successful tenderer re-coups its bid

costs as part of profits made in performing the contract, the

correct approach was to allow a claim for loss of the

claimant's profits on the contract.

English courts will take into account the probability

that, but for the breach, the entity claiming damages would have

succeeded in being awarded the contract. The courts will look at

what profit the claimant might have made from the contract had it

been successful and then will assess the claimant's chances of

being awarded the contract in question. By way of example, the

court might decide that there was a 60 per cent chance that the

claimant would have been awarded the contract and therefore award

60 per cent of the calculated profit as damages. The aim of the

court is to reduce the value of the benefit which has not been

received or the full cost of the risk incurred in a manner

proportionate to the degree of likelihood that the benefit or risk

would have been gained or indeed avoided. (Additional judicial

guidance on the evaluation of a loss of chance was given in the

Harmon case referred to above.)

Article 226 proceedings

In addition to an action in the national courts either by way of

the regulations or by means of a judicial review, a disgruntled

party has the option to lobby the European Commission so as to

encourage them to act as a consequence of the breach of the

procurement rules. If the Commission is of the view that a member

state has failed to fulfil its obligations under the EU Treaty,

there is a possibility that it would commence proceedings under

Article 226. In practice, because of the Commission's extremely

limited resources, relatively few Article 226 proceedings are

commenced.

Benchmarking and market testing

Benchmarking

Benchmarking and market testing are terms applicable in the

context of the work of the FM provider in relation to soft

services. "Benchmarking" means the process by which the

SPV derives information about costs in the market place as a basis

for comparison with its own costs or those of its FM provider

sub-contractor for the provision of soft services. This may lead to

either an adjustment in the payments to the SPV and therefore the

FM provider, or it may lead to the provision of soft services by

others. Soft services need not be included at all in PFI/PPP

projects; the government department has the option of not

transferring soft services staff for PFI/PPP projects, if it is not

considered necessary or desirable in the overall interests of the

project, or value for money. Where soft services are included,

benchmarking and/or market testing may be, but need not be, part of

the contractual terms of the project agreement.

The PFI/PPP market in the UK has only recently begun to attain a

level of maturity such that the earlier projects have reached the

stage at which benchmarking and market testing are undertaken.

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