Procurement: a new trap?

The hullabaloo surrounding the award of the west coast mainline franchise is a reminder that procurement can be a tricky business. The Public Contracts Regulations 2006 impose a number of mandatory technical requirements that contracting authorities have to comply with and the rise in the number of procurement cases shows that many authorities encounter ‘trips and slips’ along the way. It is, therefore, unsurprising that, where possible, parties try and avoid the Regulations. A common way is to package a development deal as a land deal, as land deals (where structured correctly) fall outside of the Regulations. However, care should be taken to ensure that the principal agreements do not include any legally enforceable direct or indirect obligations to carry out works. If they do, they will be caught by the Regulations.

Just as contracting authorities rely on clever development strategies to avoid the Regulations, unsuccessful bidders and other disgruntled parties rely on clever legal arguments to demonstrate why the Regulations and other aspects of procurement law apply.  In AG Quidnet Hounslow LLP v Mayor and Burgesses of the London Borough of Hounslow [2012] EWHC 2639 (TCC), Quidnet attempted to introduce a new trap for the unwary: Article 56 of the Treaty on the Functioning of the European Union. Article 56 promotes the free movement of services within the EU and it may apply to development projects. For the purposes of this blog, Article 56 broadly applies where:

• the Directive on Public Works Contracts does not apply because the value of the relevant contract falls below the minimum threshold identified in the Directive; or

• the contracting authority grants a concession.

If Article 56 applies, although no formal procurement process has to be followed, in order to demonstrate that the process is transparent, “a degree of advertising” is required, to enable the market to be opened up to competition. This is easy to overlook and may invalidate the process. In the Quidnet case, Hounslow entered into a lease agreement with L&G. Quidnet argued that the nature of the agreement and the manner in which it was placed breached Article 56. The judge decided that Article 56 was not relevant because, on the facts, the principal agreements had been carefully drafted so that L&G were not obliged to carry out any works or carry out any services.

Although Quidnet’s arguments were unsuccessful, the case highlights that there may be new procurement traps to avoid and that care should be taken when drafting the principal agreements.