Public Contracts Regulations 2015 - Regulation 99

Regulation 99 - Grounds for ineffectiveness

Regulation 99 provides the three grounds for ineffectiveness that can be used to annul a contract already entered into. This is an exclusive list and only the grounds herewith contained can give rise to a declaration of ineffectiveness under Regulation 98.  The three ineffectiveness grounds are:

i) contract awarded without prior publication of notice when it was mandatory to do so;

ii) contract entered into in breach of Regulations 87, 95, 96(1)(b), 89 or 90

iii) contract with value above thresholds awarded via framework agreement or dynamic purchasing system in breach of Regulations 33(11) or 34(21) to (24)

As we will see the way the grounds for ineffectiveness are construed in this Regulation look like a veritable tough mudder for any disadvantaged economic operator. Having worked on both sides of the table with public and private clients I am torn on my opinion on the difficulties imposed in the pursuit of a declaration of ineffectiveness. On the one hand, there are huge transaction and opportunity costs for a contract to be annulled and having it re-tendered (from the start or the moment the decision that gave rise to the ineffectiveness occurred). On the other hand, reducing access to ineffectiveness provides an incentive to contracting authorities to misbehave as the alternative (damages) is less damning for their reputation and (eventually) cheaper. As one of the smartest persons I ever worked with (an engineer) once told me: "we could not care less about the damages [positive or negative interest], what we want is to keep our workforce and machinery busy. That's our core business." Harsh.

First ground: contract awarded without prior publication of notice when it was mandatory to do so;

This first ground applies in the situations where the the contracting authority awarded a contract without providing a prior publication notice. The textbook case example is if a negotiated procedure was used instead of an open/restricted procedure. This ground however does not extend to the situations whereby the contracting authority used the wrong procedure, say a competitive dialogue outside the situations set in Regulation 26. For these, only penalties and damages are available.

There is no ground for ineffectiveness either if the contracting authority considered the procedure to not warrant a contract notice but published a ex-post voluntary transparency notice in accordance with the requirements of paragraphs 3 and 4. As an additional requirement for excluding the possibility of ineffectiveness, the contracting authority must as well comply with a 10 day standstill period.

Second ground: contract entered into in breach of Regulations 87, 95, 96(1)(b), 89 or 90

The second ground is only applicable in case the cumulative requirements are met. The first requirement set in paragraph 5(a) is a breach of either Regulation 87 (standstill), Regulation 95 (contract-making suspended by challenge to award) or Regulation 96(1)(b) (interim order). For the breach of any of these Regulations to constitute a valid ground it must have deprived the economic operator of the possibility of starting proceedings or pursuing them before the contract has been entered into (paragraph 5(c)). In other words, not every violation of the aforementioned Regulations will give rise to

Additionally, as per paragraph 5(b) and (d) there must be a breach of the duty owed to the economic operator in accordance with Regulation 89 or 90, except standstill or any duty imposed by Chapter 6 (Regulations 88 - 104) and this breach must have affected the chances of the economic operator winning the contract. Again, not any violation of the duty will allow for a declaration of ineffectiveness, only when said breach affected the chances of the aggrieved economic operator. How do we interpret "chances" then? Must it be a clear chance? Or even a long shot will be enough?

Third ground: contract with value above thresholds awarded via framework agreement or dynamic purchasing system in breach of Regulations 33(11) or 34(21) to (24)

The third ground is only valid for contracts awarded under framework agreements or dynamic purchasing systems. As with the other two grounds, some limitations are applicable here, the first being that only actual contracts above the financial thresholds of Regulation 5 can be subject to ineffectiveness. This is a very substantial limitation as even if the framework agreement itself was subject to the rules of Part 2 (for being deemed valued above the financial thresholds) ineffectiveness will only apply if subsequent contracts have a value above the thresholds as well. Related with this issue I can think about another question: are framework themselves subject to the declaration of ineffectiveness? If there is a realm where this remedy would make sense is framework agreements as they tend to last for a long period and while they are in force it is not necessary for contracts to be performed (contrary to an awarded contract) so  declaration of ineffectiveness downsides are lower here. Interesting.

In addition to the requirements above, the contract awarded must have breached Regulation 33(11) and 34(21) to (24) whether it was awarded via a framework agreement or a dynamic purchasing system.

Finally, paragraph 7 establishes some cumulative restrictions to the application of the third ground. First the contracting authority must have considered that the award was in accordance with the provisions of Regulations 33(11) or 34(21) to (24). That it may have been wrong in its assessment appears to be irrelevant...

Second, that the contracting authority voluntarily complied with the requirements of Regulation 86(1) to (4) - notices of decisions to award a contract or conclude a framework agreement - and did not use any of the exemptions allowed for in Regulation 86(5).

Third, that the standstill period was respected.