What can you do when a contractor is unable to deliver?

Reports published this week suggest that G4S, the private security firm tasked with keeping the London 2012 Olympics safe and secure, may be unable to supply all the guards it was contracted to deliver for the games. Just 15 days before the opening ceremony, Theresa May has asked the British armed forces to provide a further 3,500 troops to fill the feared shortfall.

13/07/2012

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Emily Heard

Partner

Reports published this week suggest that G4S, the private security firm tasked with keeping the London 2012 Olympics safe and secure, may be unable to supply all the guards it was contracted to deliver for the games.  Just 15 days before the opening ceremony, Theresa May has asked the British armed forces to provide a further 3,500 troops to fill the feared shortfall.

This situation highlights a problem that any contracting authority can face - what to do if a contractor cannot deliver.  As the Government will be well aware, a perceived failure on the part of a contractor can lead to a hefty share of the blame falling on the shoulders of the contracting authority.  Service users inevitably turn to the authority in charge for answers about what is being done to put this right.  As the example of the Olympic Games clearly illustrates, the show must go on.  

This article looks at the practical steps a public body can take when a contractor is unable to deliver. 

Prevention is better than cure

There are steps that can be taken to mitigate the risk of a contractor not performing even before the contract is awarded.  Following up references at selection stage may reveal previous implementation or service delivery problems, and authorities are entitled to reject bidders who do not have the capacity and standing to perform the proposed contract. 

At the invitation to tender stage, consider asking potential suppliers how they will react when faced with problems such as a shortage of staff or supplies and what steps will they take to mitigate this to ensure that the contract is delivered.  Include this in the evaluation criteria and ask bidders what implementation steps they will be taking and when.

Are tenders at very competitive rates really deliverable?  If the price is too low, there is an increased risk of non-performance.  Further, if the contractor later seeks to amend the terms of the contract (for example to increase the price), this may expose the authority to the risk of challenge from other suppliers who were interested in winning the work.  Regulation 30 of the Public Contracts Regulations 2006 (as amended) (“the Regulations”) allows a contracting authority to reject an abnormally low offer if, after giving the bidder the chance to justify the tender, it comes to the conclusion that the offer is too low and that there is therefore a risk of non-performance. 

Once the contract is up and running, a systematic approach to monitoring and regular performance reviews can allow both parties to identify problematic areas and take early remedial action. The early identification of issues and regular discussion about both parties’ expectations will help to ensure that obligations are met on both sides and that the contract runs smoothly. 

Remedial steps

If a contractor is under-performing, check the terms of the contract.  There might be clauses in the contract to help bring the contractor into line.  A common contractual mechanism is for a series of breach notices to be served on the contractor requiring it to remedy a breach within a specified number of days.  Such notices are often linked to a failure to meet key performance indicators and/or defined targets.  If the contractor does not comply, then depending on the wording of the contract it may be possible to withhold payments and/or, in serious cases, terminate the contract.

   
Step-in rights

In the case of a contractor default, some contracts allow the authority to step in and provide the services either itself or through another contractor.  In such a case, you would expect to be able to sue the original contractor for the costs of the step-in.  While this may be an attractive remedy for some authorities, many will find that they do not have the expertise or resources to be able to step in at short notice. Further, there may be other factors that the authority needs to bear in mind, such as TUPE implications if the service transfers back to the authority.

 

Termination

Even where the contract does not mention termination, there may still be an implied right to terminate upon giving reasonable notice.   Where there has been a repudiatory breach (i.e. a sufficiently serious breach), the innocent party should be able to terminate with immediate effect and claim damages.  Clearly what is a sufficiently serious breach can be open to interpretation between the parties.  Depending on the wording of the contract, it should be possible to sue the contractor for direct losses flowing from the breach of contract and in some cases consequential losses in special circumstances which were foreseeable on entering the contract.

The contracting authority should act quickly when it thinks a contractor might be in breach to avoid inadvertently waiving its termination rights.

 

Re-procuring the services

In situations of urgency, contracting authorities should consider using the accelerated restricted procedure which enables a procurement to be carried out from start to finish in around a month including the standstill period.  In situations of “extreme urgency”, Regulation 14 enables contracting authorities to follow a speedy negotiated procedure without publishing an OJEU contract notice which can lead to an even quicker contract award. 


Final thoughts

The Government is in the fortunate position of being able to call upon the armed forces to help with security at the Olympics.  Whilst the Government is literally able to call in the troops, other contracting authorities will need to think creatively and practically to find a way to provide urgent services or supplies at short notice. 

 


 

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