Virgin have, following the decision of the Department for Transport to award the West Coast franchise to FirstGroup, lodged proceedings challenging the award. The precise basis of the claim is unclear but it is reported that the application seeks judicial review of DfT's decision.
Tendering procedures are primarily governed by the EU Public Sector Directive 2004/18 as implemented in the UK by the Public Contracts Regulations 2006. These rules impose duties of non-discrimination and transparency of dealings on government departments and public authorities awarding substantial contracts, and will be highly relevant to any claim.
According to these rules, after notification of a bid being unsuccessful, the Department must wait for 10 days before it can enter into a contract in order to give any unsuccessful tenderer an opportunity to challenge the decision. Where legal challenges are raised during this standstill period, the contract award is automatically suspended until such time as the court orders it should be lifted (on application by the authority) or the legal challenge is otherwise disposed of.
Courts are generally reluctant to second guess the judgement of the panel regarding the application of evaluation criteria save in cases of manifest error. Where the challenge is on the basis that the successful tender appears to be abnormally low (or not credible), as the law stands, it appears unlikely that an authority would be obliged to investigate and/or reject tenders on such grounds.
Where a court finds in favour of a complainant after the contract has been signed then it may award damages. Reported damages awards have been rare in the UK but cases have settled out of court and amounts recovered can be substantial. Damages are available in respect of bid costs, loss of opportunity and/or loss of profit if the claimant proves he would have won the contract but for the breach - or had a substantial chance of winning it, damages being reduced proportionally in such a case.
In this instance, the contract with FirstGroup has not been signed so if Virgin's challenge is successful or DfT takes the view that there have been irregularities in its contract award procedure, the contract award procedure would be conducted afresh. This would be likely to involve a fresh prequalification process.
An option open to DfT for ensuring continuity of service pending the resolution of any dispute would be the conclusion of an interim contract with Virgin for a short period of time on grounds of urgency. If this is done one would expect a Notice to be published in the Official Journal of the European Union giving notice of this (probably a 'VEAT' notice) and a 10 day standstill period for any challenge to be raised.
For further information on any point raised in this update, please contact:
Partner, EU Competition