Procurement Problems In The Credit Crunch

Tender procedures for public contracts in this country are

regulated by the Public Contracts Regulations 2006, which

implements the European Directive 2004/18. Until recently, unlike

in the rest of Europe, there have been few challenges to tender

procedures in the UK courts. However, over the last few years

disappointed tenderers have become less reluctant to take their

complaints to the courts. But has or will the credit crunch affect

this trend? And what sort of issues is the credit crunch throwing

up for procurements?

The indications so far are that the credit crunch is unlikely to

reduce the number of procurement challenges. With work thin on the

ground, the importance of winning new contracts increases. If a

tenderer is unsuccessful, contrary to its expectations, it may need

to review the reasons for failing to win the contract more

carefully than in a more buoyant market.

Inadequate Disclosure

One of the most fruitful areas of challenge recently has been

inadequate disclosure by the employer of the intended basis for

evaluation of tenders in advance. Where the evaluation is to be

carried out to establish the most economically advantageous tender,

the Regulations require disclosure at the outset of the criteria

(such as price, quality and delivery period) on which the

evaluation will be based, together with (in all but exceptional

circumstances) the relative weightings of these criteria. However,

case law has also established that the general European Treaty

principles of equal treatment and transparency (set out in

Regulation 4) require disclosure of all the elements to be taken

into account by the contracting authority and their relative

importance: see Case C-532/06 Lianakis v Alexandroupolis

(2008). These principles have also been relied upon by the UK

courts to find that employers who did not disclose sub-criteria and

their weightings were in breach of the Regulations: see Letting

International Ltd v London Borough of Newham (2008) and

McLaughlin and Harvey v Department of Finance and

Personnel (2008). Whilst there may

still be an argument that information need not be disclosed to the

nth degree (e.g. sub-sub-sub criteria), in the light of

the courts' decisions so far, the message seems to be: Play

safe and don't rely on undisclosed factors.

In the current economic climate, it is to be expected that

disappointed tenderers will continue to scrutinise award processes

to ensure that the evaluation matrix which was ultimately used was

made known to them at the outset.

The Need For Change

The credit crunch is also raising its own issues. In particular,

it is throwing up the need for change. The economic climate may

require changes to deal with the insolvency of the contractor; the

wish to re-scope a project to change the mix between residential

and commercial property or affordable and private housing; or the

need to increase the price.

The need to change may arise before or after the contract has

been awarded. Whilst employers no doubt expect European law to be

concerned with pre-contract changes, they might be forgiven for

thinking that, once they have successfully carried out the

procurement, without breaching the relevant Regulations, they are

home and dry. Not so! Further pitfalls for the unwary arise if and

when changes are made to an existing, properly procured

contract.

There are two overlapping factors in determining whether changes

are permitted, both of which arise from the need for transparency

and equal...