14 May 2019 #Public Procurement
Last week it was reported that the Department for Transport was cancelling two contracts to provide cross-Channel ferry services it hastily entered into in January, in anticipation of a no-deal Brexit. The cancellation of the contracts is expected to cost more than £50million.
A third contract, awarded to Seaborne Freight, a company which did not own and had never sailed any ferry, had already been scrapped in February, after a challenge brought by Eurotunnel which resulted in a £33million settlement. The terms of that settlement, which included Eurotunnel agreeing to make improvements to its terminal, are now themselves subject to a legal challenge brought by P&O, which argues the settlement puts Eurotunnel at an unfair competitive advantage.
In entering into the ferry contracts without following a proper procurement process, the government left itself vulnerable to legal challenge. Except in the case of low value contracts, public bodies must follow one of the regulated procurement procedures set out in the Public Contracts Regulations 2015 when awarding contracts. There are limited exceptions, and the DfT purported to rely on an exception contained in Regulation 32, which permits the direct award of a contract when the following requirements are satisfied:
The European Court of Justice has made it clear that these requirements will be interpreted strictly. In a previous Scottish case, the direct award of a contract for the supply of rock salt for road gritting purposes was ruled to be unlawful, because the need for increased supply of salt in a bad winter was not unforeseeable. In light of that decision, many have queried whether the prospect of a no-deal Brexit, which had been a possibility for at least two and a half years by the time the ferry contracts were awarded, could really be described as an unforeseeable event.
In light of these cases, public bodies should be wary of using direct awards in all but the most extreme circumstances, while potential bidders who discover that a contract has been awarded without a full procurement process should take urgent legal advice if they wish to consider bringing a legal challenge.