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Government Contracts awarded without competition - is this lawful?

There is a growing amount of concern about government contracts awarded without competition allegedly due to the urgency of the coronavirus situation.  Is this lawful?

While the procurement rules do allow for direct award of contracts in situations of “extreme urgency”, the courts have traditionally interpreted this exemption very narrowly.  There must genuinely be extreme urgency; the situation must not be attributable to the public body; it must not be possible to comply with the time limits for competitive procurement; and the events causing the urgency must not have been foreseeable.  If a public body directly awards a contract on the basis of extreme urgency when it is not entitled to do so, there is a risk that a court will set aside the contract and potentially award damages to businesses which would have wanted the opportunity to compete for the work – Eurotunnel was awarded £33m last year after not being allowed to compete for the no-deal ferries contracts.

Difficult for public bodies to ensure compliance

There are obviously cases where there is genuinely a situation of extreme urgency – contracts for PPE, the construction of temporary hospitals and urgent clinical services spring to mind.  But contracting authorities should consider carefully whether they are entitled to use this exemption from their obligations to conduct a competitive procurement.  Apart from the possibility of the contract being set aside, it can be difficult for public bodies to ensure compliance with State aid rules where there has been no competition as demonstrating that they have contracted on commercial, market terms can be difficult.  Urgency is an evolving issues dependent on changing circumstances – what may have been satisfied the “extreme urgency” test in the procurement rules 8 months ago may no longer do so now.

Where a public body has an urgent requirement which does not satisfy the test in the procurement rules, alternative approaches include calling off under third party frameworks; modifying existing contracts (although the procurement rules in this regard will require to be complied with and State aid considered); or conducting a new procurement using the accelerated procedure.

Public procurement concerns during the pandemic

Public procurement concerns during the pandemic are not limited to the award of new contracts.  Public bodies should be looking at the resilience of their current suppliers and are often being asked by those suppliers to modify current contracts – often to lower service levels/ KPIs; make more payment in advance; or delay delivery.  There are good reasons why public sector purchasers would want to adhere to such requests (including the ongoing financial viability of their suppliers; and retention of staff and supply chain by such suppliers).  Any such measures require to be assessed against the procurement rules and State aid considerations, however.  There are some contracts which are no longer viable or relevant, even if they are modified and this raises issues of force majeure and frustration of contract.

Important practical considerations for public bodies to consider

Looking forward, before undertaking any new procurement procedure, there are important practical considerations for public bodies to consider.  Relevant markets may have changed significantly over the recent past and may not be able to meet the requirements of the public body as before; specifications will require to be reviewed and updated to take account of, for example, reduced permitted physical contact, possible delays in freight transport; increased or reduced demand within the sector.  Bidders may require more time to submit tenders if staff are furloughed or have been made redundant; there is likely to be an increased use of technology during the procurement procedure and public bodies may wish to include more emphasis in their selection and award criteria on supplier and supply chain resilience.

Change to procurement rules brought about by Brexit

As if navigating the procurement challenges of the pandemic was not enough, public bodies will also have to deal imminently with change to procurement rules brought about by Brexit.  The immediate changes will be relatively minor including no longer using OJEU and EU forms to advertise contracts.  If a procurement procedure is started before 31 December 2020, it will continue to be governed by the current procurement rules.  Assuming there is no requirement for the UK to adhere to EU procurement rules as part of any trade deal, in the future it is entirely possible that procurement rules could diverge significantly from the EU directives (subject to compliance with the UK’s WTO obligations contained in the General Procurement Agreement).

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