Public Contracts Regulations 2015 - Regulation 103

Regulation 103 - Ineffectiveness etc. in relation to specific contracts based on a framework agreement

This Regulation defines rules that are applicable only to contracts tendered via a framework agreement. As in other regulations, this one starts with a definition, in this case of "specific contract" - any contract based on a framework and entered into before a declaration of ineffectiveness was made in relation to the framework agreement itself.

If a declaration of ineffectiveness is produced against the framework, contracts that have already been entered into are not affected automatically. The Regulation is very assertive in the way that the declarations of ineffectiveness may be produced.  There are only two ways to do so. As a first (paragraphs 3 to 5), the Court must declare  a claim must be brought against it within the time limits of Regulation 93 even if done so outside the action brought against the framework. This reference to the time limits of Regulation 93 is crucial as even in the most generous scenario, the action needs to be brought within 6 months of the contract being entered into. In a country with a tradition for longwinded contracts, this is an important limitation. Additionally, the exceptions of Regulation 100 also apply here, so there may be grounds to avoid declaring ineffective a contract tendered via a framework agreement.  Regulation 101 is also applicable (consequences of ineffectiveness) but there is no requirement to impose a financial penalty under Regulation 102(1), which makes sense assuming that the ineffectiveness of the framework agreement led to it.

Under this "ground for ineffectiveness" in case the Court decided no to declare the ineffectiveness of a specific contract due to the rules of paragraph 5, the contract may be shortened instead under paragraph s 9, 10 and 11. While paragraph 9 says "must be shortened" instead of "may be shortened", paragraph 10 leaves it to the discretion of the Court if contract is to shortened at all. According to this paragraph, the maximum extent that the contract may be shortened to depends on what the Court considers to be possible bearing into consideration the overriding reason that was used to forestall the declaration of ineffectiveness in the first place.

As an alternative possibility, this Regulation only allows for declarations of ineffectiveness against contracts specifically on the second (partially) and third grounds of ineffectiveness of Regulations 99, that is paragraphs (5)(6)(7).

Public Contracts Regulations 2015 - Regulation 101

Regulation 101 - The consequences of ineffectiveness

In Regulation 101 we can find the consequences of a declaration of ineffectiveness. Contrary to other jurisdictions where contracts are considered to be null and void from the start because the award decision was illegal, in England, Wales and Northern Ireland, ineffectiveness only produces effects for the future.

The main rule above is excepted when the court has previously issued any staying orders before the final ineffectiveness decision has been produced. In that scenario the contract ineffectiveness is deemed to start at the earlier date (at least that is my interpretation of paragraph 2 but I am not 100% sure).

In addition to the declaration of ineffectiveness the Court may make any order to address the particular circumstances of a case or deal with the matters arising from the declaration. Paragraph 4 provides a non-exhaustive list of examples covering potential issues such as restitution or compensation as to achieve a just outcome.

The final two paragraphs of this regulation refer to the situation whereby contracting authority and contractor agreed on contractual provisions to deal with a potential declaration of ineffectiveness. If that is the case, the Court's ability to issue orders under paragraphs 3 and 4 is limited to the extent of those contractual provisions being incompatible with the objectives of the declaration of ineffectiveness.

Public Contracts Regulations 2015 - Regulation 100

Regulation 100 - General interest grounds for not making a declaration of ineffectiveness

Regulation 99 establishes a number of limited grounds whereby the court may declare the ineffectiveness of a contract. Regulation 100 establishes exceptions to those grounds effectively mandating the court not to declare ineffectiveness if there are overriding reasons owing to a general interest requiring the contract to be maintained (paragraph 1(a)(b)).

The rest of the Regulation is focused on helping the court establishing parameters to determine overriding reasons owing to a general interest. Paragraph 2 establishes that the economic interests in the effectiveness of the contract may be considered an overriding reason but only if in exceptional circumstances ineffectiveness lead to disproportionate consequences. We can argue therefore that the court will have to apply a proportionality test to measure both outcomes.

This limitation to the grounds for ineffectiveness is restricted by paragraphs 3 and 4 whereby it is established that economic interests directly linked to the contract do not constitute overriding reasons. Costs such as the delay on contract performance, starting a new procedure, changing contractors or legal costs incurred with the process are considered to be direct economic costs and as such not eligible defenses against the declaration of ineffectiveness. If on the one hand I expressed concerned on Regulation 99 regarding the very limited grounds for ineffectiveness, on the other hand it appears that the potential exceptions or defenses have been clearly restricted as well.

It therefore appears that it may be easier for a contracting authority trying to avoid a declaration of ineffectiveness to put the emphasis of its arguments on the effects upon the potential beneficiaries of what is being procured than the direct economic costs of correcting a mistake.

Public Contracts Regulations 2015 - Regulation 99

Regulation 99 - Grounds for ineffectiveness

Regulation 99 provides the three grounds for ineffectiveness that can be used to annul a contract already entered into. This is an exclusive list and only the grounds herewith contained can give rise to a declaration of ineffectiveness under Regulation 98.  The three ineffectiveness grounds are:

i) contract awarded without prior publication of notice when it was mandatory to do so;

ii) contract entered into in breach of Regulations 87, 95, 96(1)(b), 89 or 90

iii) contract with value above thresholds awarded via framework agreement or dynamic purchasing system in breach of Regulations 33(11) or 34(21) to (24)

As we will see the way the grounds for ineffectiveness are construed in this Regulation look like a veritable tough mudder for any disadvantaged economic operator. Having worked on both sides of the table with public and private clients I am torn on my opinion on the difficulties imposed in the pursuit of a declaration of ineffectiveness. On the one hand, there are huge transaction and opportunity costs for a contract to be annulled and having it re-tendered (from the start or the moment the decision that gave rise to the ineffectiveness occurred). On the other hand, reducing access to ineffectiveness provides an incentive to contracting authorities to misbehave as the alternative (damages) is less damning for their reputation and (eventually) cheaper. As one of the smartest persons I ever worked with (an engineer) once told me: "we could not care less about the damages [positive or negative interest], what we want is to keep our workforce and machinery busy. That's our core business." Harsh.

First ground: contract awarded without prior publication of notice when it was mandatory to do so;

This first ground applies in the situations where the the contracting authority awarded a contract without providing a prior publication notice. The textbook case example is if a negotiated procedure was used instead of an open/restricted procedure. This ground however does not extend to the situations whereby the contracting authority used the wrong procedure, say a competitive dialogue outside the situations set in Regulation 26. For these, only penalties and damages are available.

There is no ground for ineffectiveness either if the contracting authority considered the procedure to not warrant a contract notice but published a ex-post voluntary transparency notice in accordance with the requirements of paragraphs 3 and 4. As an additional requirement for excluding the possibility of ineffectiveness, the contracting authority must as well comply with a 10 day standstill period.

Second ground: contract entered into in breach of Regulations 87, 95, 96(1)(b), 89 or 90

The second ground is only applicable in case the cumulative requirements are met. The first requirement set in paragraph 5(a) is a breach of either Regulation 87 (standstill), Regulation 95 (contract-making suspended by challenge to award) or Regulation 96(1)(b) (interim order). For the breach of any of these Regulations to constitute a valid ground it must have deprived the economic operator of the possibility of starting proceedings or pursuing them before the contract has been entered into (paragraph 5(c)). In other words, not every violation of the aforementioned Regulations will give rise to

Additionally, as per paragraph 5(b) and (d) there must be a breach of the duty owed to the economic operator in accordance with Regulation 89 or 90, except standstill or any duty imposed by Chapter 6 (Regulations 88 - 104) and this breach must have affected the chances of the economic operator winning the contract. Again, not any violation of the duty will allow for a declaration of ineffectiveness, only when said breach affected the chances of the aggrieved economic operator. How do we interpret "chances" then? Must it be a clear chance? Or even a long shot will be enough?

Third ground: contract with value above thresholds awarded via framework agreement or dynamic purchasing system in breach of Regulations 33(11) or 34(21) to (24)

The third ground is only valid for contracts awarded under framework agreements or dynamic purchasing systems. As with the other two grounds, some limitations are applicable here, the first being that only actual contracts above the financial thresholds of Regulation 5 can be subject to ineffectiveness. This is a very substantial limitation as even if the framework agreement itself was subject to the rules of Part 2 (for being deemed valued above the financial thresholds) ineffectiveness will only apply if subsequent contracts have a value above the thresholds as well. Related with this issue I can think about another question: are framework themselves subject to the declaration of ineffectiveness? If there is a realm where this remedy would make sense is framework agreements as they tend to last for a long period and while they are in force it is not necessary for contracts to be performed (contrary to an awarded contract) so  declaration of ineffectiveness downsides are lower here. Interesting.

In addition to the requirements above, the contract awarded must have breached Regulation 33(11) and 34(21) to (24) whether it was awarded via a framework agreement or a dynamic purchasing system.

Finally, paragraph 7 establishes some cumulative restrictions to the application of the third ground. First the contracting authority must have considered that the award was in accordance with the provisions of Regulations 33(11) or 34(21) to (24). That it may have been wrong in its assessment appears to be irrelevant...

Second, that the contracting authority voluntarily complied with the requirements of Regulation 86(1) to (4) - notices of decisions to award a contract or conclude a framework agreement - and did not use any of the exemptions allowed for in Regulation 86(5).

Third, that the standstill period was respected.