Authority Alert: Capital investment cuts – the legal options

The Government’s recent announcement about the Building Schools for the Future programme could be the first of other similar statements withdrawing funding for capital projects. Authorities will also, in the light of the funding cuts hitting councils, want proactively to review their capital commitments.  Here are our top questions and answers on the impact of such changes on your existing procurements.

What action may a contracting authority take to challenge a decision?

If a capital programme has to be stopped or fundamentally changed as a result of a Government decision, there may be grounds to bring a claim for judicial review of the decision.  The claim would be based not on the merits of the decision (in which the courts will be reluctant to interfere), but on any failure to follow due process, or the perversity or irrationality of the decision (including the issue of legitimate expectation). Any claim would have to be brought promptly and in any event within three months of the decision complained of.  A Freedom of Information Act request would assist in obtaining information about the decision.

Can a contracting authority "suspend" schemes mid-procurement?

If a scheme is frozen for a short period, it may possible to suspend the procurement(s) temporarily.  Before taking any such decision, authorities should assess the potential impact of the delay and consider whether it would affect the outcome of previous evaluation rounds and also whether it would be likely to have affected the decision of other bidders in the market to submit a tender.

Where authorities do decide to suspend a process, they should notify bidders as soon as possible and take practical steps to mitigate the risk of challenge, e.g. put procedures in place to closely monitor the length of the suspension. Where the suspension is longer than anticipated, authorities should take stock and re-assess the potential for the delay to prejudice third parties - for example, where the delay is substantial and there are new entrants to the market who would be interested in the contract if it was retendered or where the delay to the procurement process is now of a nature that the evaluation of previous rounds can no longer be considered “safe”.

What if a contracting authority has already identified a preferred bidder?

In addition, authorities in these circumstances should immediately inform the preferred bidder not to undertake any further work or incur costs of any kind in connection with the contract. They should make it clear that the authority will not be liable to compensate the preferred bidder for any bid or other costs should the project be abandoned. An authority should emphasize to the preferred bidder (in writing) that it should not rely on the contract being awarded and that the appointment is subject to the authority’s right to terminate the process for objectively justifiable reasons if necessary.

Alternatively, where the authority is confident that the delay will be short term and there is a desire for the timetable to be adhered to or a strict deadline to be met, it could consider entering into an agreement with the preferred bidder that would govern the liability for any costs incurred post-appointment by the preferred bidder for work carried out by the at the request of the authority (e.g. continued design development).
Finally, authorities would also need to consider the tender validity period and seek confirmation that the price put forward in the final tender/offer made by the preferred bidder will remain fixed.

What should a contracting authority do if it is stopped or suspended prior to appointing a preferred bidder?

Again, authorities will need to consider the likely length of the freeze and the other factors identified above, and take the action suggested in relation to warnings to bidders on costs and the authority’s right to terminate.  

What should a contracting authority do if it is stopped or suspended prior to OJEU?

If a short term delay is envisaged, authorities should consider interim arrangements to enable continuity of services until the procurement process can be re started.  An authority may need to review whether it is able simply to extend an existing arrangement or whether it needs to advertise and compete short term arrangements. It could consider sourcing through pre-existing framework agreements or whether it has capacity to perform the services itself.

If an existing type of procurement or contracting model is suspended in the longer term, then authorities may wish to seek advice as to available alternative procurement models that would integrate well with its existing arrangements and deliver new policy objectives.

What if the scheme is completely abandoned?

As a matter of procurement law, contracting authorities are entitled to terminate a tender procedure at any time prior to the execution of a formal contract where there is some objectively sustainable reason(s) for the decision.  The withdrawal of funding for a project would be a legitimate basis upon which to terminate an existing

procurement process provided it is objectively justifiable and proportionate and does not offend the principles of equal treatment and transparency.  In order to comply with the procurement rules, authorities will be required to notify promptly both participating tenderers and the OJEU of the decision not to award a contract and/or to recommence the procurement and to give reasons.

What if a scheme is allowed to proceed but the scope of the scheme is changed?

For those projects which do continue but with a material variation in terms of scope, there is a risk that the project should be retendered in any event.  Variations which bring this risk would include (but are not limited to) changes to the essential terms of the contract, where the new terms would have led to different results at PQQ or tender evaluation stage, and where a different range of tenderers would have been interested in the contract if it had been advertised in its amended form.  Failing to retender could bring a risk of damages, an injunction to “halt” the project before any amendments are signed, or even set aside of signed documents.  As an alternative to starting the procurement process again, authorities may be able to take practical steps to protect themselves by publishing transparency notices in the Official Journal. 

Could contracting authorities be liable for wasted bid costs?

Under the Procurement Regulations, authorities must notify bidders as soon as possible when a decision has been made to abandon a project and a failure to do so may result in a breach of the regulations and a liability for further bid costs incurred after the decision was made.  Even if a firm decision has not been made to abandon, authorities must take care not to mislead bidders as to the financial stability of the project to avoid possible claims in negligence and misrepresentation.  At worst, a failure to keep bidders informed or giving misleading information could amount to misfeasance in public office. 

In these litigious times, a prudent authority should check the terms of its caveats relating to bid costs and keep bidders well informed by way of written updates as to any problems foreseen in the run-up to contract award.  Now more than ever, the message should be clear:  bidders participate at their own risk.

How we can help?

Bevan Brittan has extensive experience and expertise in the field of capital projects and procurement.  Please do not hesitate to contact a member of the Procurement team if you would like further information or advice about the implications of capital spending announcements or about any other procurement related issues.