Public Contracts Regulations 2015 - Regulation 102

Regulation 102 - Penalties in addition to, or instead of, ineffectiveness

Regulation 102 defines the situations whereby the Court may (or has to) apply penalties to the contracting authority for the breach of its duties which lead (or could have led) to a declaration of ineffectiveness. For the administrative civil lawyer in me, this Regulation reads like a small section on public sector liability which includes the penalties while guiding the Court on how to apply said penalties.

Paragraph 1 mandates the Court to determine the payment of a civil financial penalty to the contracting authority that has been subject to a declaration of ineffectiveness. This penalty of paragraph 1 constitutes a penalty in addition to ineffectiveness. Paragraphs 7 to 10 establish that the value of the penalty is to be paid to the Consolidated Fund, although the "route" of the payment depends on the contracting authority involved. The actual Consolidated Fund also depends on the authorities involved, as in Northern Ireland the payments are made into the Consolidated Fund of Northern Ireland. Wales, however, appears not to have a consolidated fund so it would seem that a Welsh contracting authority would have to send the civil financial penalty to the one operated by Central Government.

In what concerns penalties instead of ineffectiveness paragraphs 2 and 3 allows the Court to establish those in case that a declaration of ineffectiveness could not be produced due to Regulation 100 or in the situation whereby Regulations 87, 95 or 96(1)(b) have been breached and no declaration of ineffectiveness produced. If any of those two situations occur the Court must either order the shortening of the contract or a financial penalty and can even order both.

Both sets of penalties (in addition and in alternative to a declaration of ineffectiveness) are subject to constraints, namely that the penalty must be effective, proportionate and dissuasive (paragraph 4), with these limitations being applicable to all cases surrounding the same contract (paragraph 6). In consequence, paragraph 5 sets a number of parameters/factors that must be taken into account:

- seriousness of breach of duty (Regulation 89 or 90);

- behaviour by contracting authority;

- remaining duration of contract (in case the penalty is shortening its duration, as per paragraph 3).

Contract shortening is dealt with paragraphs 12 through 16. The Court may take any order to restore any imbalances created by the contract shortening. For example, it should deal with issues such as restitution and even compensation for the parties aggrieved (ie, contractor). It is not clear to me if this balancing out of competing interests also includes sub-contractors as the Regulation refers clearly on paragraph 13 to "parties to the contract." I see this issue coming about particularly on works contracts. By definition sub-contractors are not parties to the main contract, although in scenarios where direct payments are made, they may have a claim that they actually are.

Finally paragraphs 14 and 15 deal with situations whereby the parties have contractually agreed any provisions foreseeing the possibility of a contract shortening order being made. If this happens, the Court order must be limited to the objective it wanted to achieve vis the shortening of the contract.