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Public procurement update: a wave of new procurement challenges from COVID-19?

  • Market Insight 21 July 2020 21 July 2020
  • Coronavirus

The COVID-19 pandemic has led to unprecedented state intervention in the global economy. One way that Governments have attempted to support business is by encouraging public sector buyers to take full advantage of the flexibilities in the public procurement regime.

Public procurement update: a wave of new procurement challenges from COVID-19?

In the United Kingdom, the Government has issued a range of Procurement Policy Notes (PPNs) to contracting authorities to help them to support their supply chains during the pandemic. The European Commission has also provided guidance to all member states on the flexibilities that can be used. The guidance affect public bodies and their suppliers on both new and operational projects.

We are starting to see procurement challenges being brought in the market where there are concerns that the guidance may have been misinterpreted, or relied upon incorrectly. The guidance does not change the law; and public bodies and suppliers alike should be alive to the risk of procurement challenge (whether under the Public Contracts Regulations 2015 or judicial review).

The main risk areas appear to be in what have been a large number of directly awarded (non-advertised) contracts to suppliers which may not have the track record or the ability to deliver.

A contract which is awarded without an OJEU contract notice when one is required is an 'illegal direct award' unless it can be justified under one of the safe harbours in the law. These safe harbours are intentionally narrow and are strictly interpreted by the Courts. Under the main public sector regulations, a direct award of a new contract is permitted only under regulation 32 of the Public Contracts Regulations 2015 i.e.:

  1. where the public body has tried to procure the contract and there has been no interest or no suitable tenders (regulation 32(2)(a);
  2. where only one supplier can deliver the contract for any of the following reasons:

    a. it is unique;
    b. competition is absent for technical reasons; or
    c. to protect exclusive rights, including intellectual property rights (regulation 32(2)(b).

    ​The exemptions to the obligation to procure in limbs (b) and (c) only apply where there is "no reasonable alternative or substitute". The absence of competition must not be " the result of an artificial narrowing down of the parameters of the procurement".
  3. only where strictly necessary where, for "reasons of extreme urgency brought about by events unforeseeable by the contracting authority", such that the tender time limits in the rules cannot be complied with (regulation 32(2)(c).

Many public bodies have been relying on the regulation 32(2)(c) exemption for a range of large contracts. However, the guidance is clear that the exemption should only apply to contracts where there is a direct causal link to the pandemic. Using the exemptions as a justification for contracts which should otherwise be procured runs the risk of successful challenges from both suppliers and the public.

There are also provisions in the law which regulate changes to existing contracts. Here, there are a number of safe harbours in regulation 72 of the Public Contracts Regulations 2015 which the change must fit into. If the changes fall outside of these justifications, in law, it is a 'new' contract. In these cases, the contract should be procured in accordance with the rules unless exempted under regulation 32.

For suppliers who are concerned that a contract has been unlawfully awarded to a competitor, and for public sector buyers looking to quickly make changes to their supply chains, the guidance is not a magic bullet. The strict time limits in the procurement rules to challenge or complain mean that swift action is necessary to protect the supplier's position. Public buyers will want to ensure that any direct awards are time limited, capped in scope ,and to consider the use of transparency notices or other steps to minimise procurement challenge risk.

For more information or advice please contact David Hansom, Partner on +44 0207 876 4127 / or your usual contact at Clyde &Co.

This article was written by David Hansom

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