Regulation 98 – Remedies where the contract has been entered into

Commentary

Regulation 98 PCR2015 adopts a similar structure as Regulation 97 and determines the remedies available where the contract has been entered into. The list of remedies available where there has been a breach of the duty owed to an economic operator in accordance with regulations 89 or 90 PCR2015 and the contract has been entered into differs from that in regulation 97 in that it is both more prescriptive and more inclusive. The Court is given only three different options to deal with: i) to declare the ineffectiveness of the contract; ii) to impose penalties; iii) award damages.

Under Regulation 98(2) PCR2015, the Court (a) must, if it is satisfied that any of the grounds for ineffectiveness of regulation 99 PCR2015 (CROSSREF) applies, make a declaration of ineffectiveness in respect of the contract unless regulation 100 PCR2015 (CROSSREF) requires the Court not to do so; (b) must, where required by regulation 102 PCR2015 (CROSSREF), impose penalties in accordance with that regulation; (c) may award damages to an economic operator which has suffered loss or damage as a consequence of the breach, regardless of whether the Court also makes a declaration of ineffectiveness or imposes penalties; and (d) must not order any other remedies.

Regulation 98(3) PCR2015 clarifies that paragraph (2)(d) is subject to Regulation 103(3) and (9) (CROSSREF) (additional relief in respect of specific contracts where a framework agreement is ineffective) and does not prejudice any power of the Court under Regulation 101(3) (CROSSREF) or 102(12) (CROSSREF) (orders which supplement a declaration of ineffectiveness or a contract-shortening order).

The set of remedies available where the contract has been entered into is sufficiently complex as to require its specification in several regulations, particularly as the eventual ineffectiveness of the contract improperly awarded is concerned. Other than the issue of ineffectiveness and its effects (commented later in relation to other regulations), the most controversial remedy under Regulation 98 PCR2015 concerns the award of a compensation for loss or damage. In that regard, the issues recently discussed in Energy Solutions EU Ltd v Nuclear Decommissioning Authority [2015] EWHC 73 (TCC) concerning the discretion of the Court (not) to grant damages are most relevant.

It is worth reminding that, in its Judgment of 23 January 2015 in Energy Solutions v NDA, the High Court ruled on a preliminary issue in a public procurement dispute and held that the review court has no discretion (not) to grant damages for losses resulting from a breach of the public procurement rules. In my view, the Energy Solutions v NDA Judgment should be criticised at least for two reasons: firstly, because it misinterprets the EU rules on public procurement remedies and their link with the general principle of State liability for breaches of EU law; and secondly, because it creates an analytical framework based on the commercial decisions of disappointed bidders that would result in excessive (strategic) claims for damages (see here).

Given that it is possible to challenge award decisions beyond the mandatory stand-still period and, consequently, after the contract has been awarded in conditions that make its declaration of ineffectiveness difficult (see comment to Regulation 99(5) PCR2015), the Court should overrule Energy Solutions v NDA and go back to an interpretation whereby a judgment of ‘reasonableness’ of the claim (and, significantly, of the time at which the proceedings are started) is conducted on a case by case basis and damages are by no means awarded automatically.

Granted, this interpretative option creates legal uncertainty and may trigger further litigation at EU level. Consequently, in the long run, it would be preferable to amend the Public Contracts Regulations 2015 so that the standstill period and the time-limit to initiate actions coincide. In that case, we would expect the standstill to be extended, rather than the time-limit to be reduced. One way or the other, though, the system needs fixing in order to close the gaps that can now trigger excessive (strategic) litigation.

Last modified: December 6, 2016 by Pedro Telles

98.—(1) Paragraph (2) applies if—

(a)the Court is satisfied that a decision or action taken by a contracting authority was in breach of the duty owed in accordance with regulation 89 or 90; and

(b)the contract has already been entered into.

(2) In those circumstances, the Court—

(a)must, if it is satisfied that any of the grounds for ineffectiveness applies, make a declaration of ineffectiveness in respect of the contract unless regulation 100 requires the Court not to do so;

(b)must, where required by regulation 102, impose penalties in accordance with that regulation;

(c)may award damages to an economic operator which has suffered loss or damage as a consequence of the breach, regardless of whether the Court also acts as described in sub-paragraphs (a) and (b);

(d)must not order any other remedies.

(3) Paragraph (2)(d) is subject to regulation 103(3) and (9) (additional relief in respect of specific contracts where a framework agreement is ineffective) and does not prejudice any power of the Court under regulation 101(3) or 102(12) (orders which supplement a declaration of ineffectiveness or a contract-shortening order).