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Effects of legal challenges on council contracts

Public procurement never seems far from the headlines.

The most recent example was the new operator for the West Coast Main Line rail franchise. That process descended into chaos with Virgin Rail challenging the award of the franchise to a new operator.

The Initial Findings Report of the Laidlaw Inquiry made unpleasant reading for the Department for Transport (DfT). Key criticisms included a lack of transparency in respect of information provided to bidders. Additionally a question mark was raised over the extent the DfT had complied with its own guidance in evaluating tenders. There was evidence decisions were being influenced by extraneous factors which led to inconsistency in the treatment of bidders.

The main consequence of the debacle surrounding the procurement of the West Coast franchise was to undermine supplier confidence in tendering competitions conducted by public authorities.

The economic significance of public procurement, particularly in the current climate, should not be underestimated. Across a range of capital works, goods and services, public sector procurement represents a significant element of economic activity: in Scotland, contracts worth £9 billion (or nearly one-third of the public expenditure in Scotland) are awarded by public authorities.

The processes deployed by public authorities are not without their detractors. Individual contractors and suppliers and industry representatives have been lobbying the Government to improve the processes. At the heart of their concerns lies the time it takes authorities to complete a procurement exercise and the cost to the industry.

The bogey man is Europe: in particular, legislation imposed by the EU on public procurement processes. The primary aim of that legislation is to ensure that when a public authority awards contracts it does so in an open and transparent manner and does not discriminate among bidders, particularly in favour of domestic suppliers.

The prospect of public authorities having to run a procurement exercise regulated by European legislation or a supplier having to participate in such an exercise is accompanied by howls of concern. Analysis of legislation imposed by Europe demonstrates that concerns around extensive regulation are unfounded. All European legislation does is provide a legal framework within which procurement requires to take place. The legislation is geared towards ensuring those processes are transparent and non-discriminatory: if a contractor is bidding for work he is entitled to be provided with all of the information required to submit a tender and the basis upon which that tender will be evaluated. If he is unsuccessful he is entitled to know why.

If there is a concern about European legislation, it is the lack of consistency in its application. It is not uncommon for authorities across the public sector to adopt different approaches in the number of stages to the process, the type of information requested or the way tenders are evaluated. The root cause is too much autonomy in the public sector and insufficient governance round the application of national policy.

In addition to the pressures being brought about by the current economic climate, there is the threat of legal challenge. Up until recently, the procurement industry in Scotland lived in a benign environment. Contractors and suppliers would tender for work and if they were unsuccessful they would gain feedback and move on. Cuts in public expenditure mean losing out on a significant tender may have negative consequences for the business. Debriefing of unsuccessful tenderers now has a different dynamic and the threat of legal challenge is always there. A number of legal challenges have taken place in Scotland in recent years. At the heart of many, echoing the problems identified on the West Coast franchise, is the authority in question did not follow the rules it developed for its procurement process.

To restore confidence, public authorities need to be encouraged to adopt a consistent approach and abide by national policy and their own guidance and rules. By doing that real benefits would flow, by reducing the cost and time associated with procurement processes and minimising the risk of successful legal challenge.

Michael G McAuley is a partner at Dundas & Wilson, Glasgow.

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