Regulation 99 – Grounds for ineffectiveness

Commentary

Regulation 99 PCR2015 provides the three grounds for ineffectiveness that can be used to annul a contract already entered into by the time the Court determines whether there was a breach of the duty owed under Regulations 89 and 90 PCR2015. As Regulation 99(1) clearly states, there are three grounds for ineffectiveness, which map those foreseen in Article 2(d) of Directive 89/665, as amended by Directive 2007/66 (consolidated version available here). 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:

  1. contract awarded without prior publication of notice when it was mandatory to do so;
  2. contract entered into in breach of Regulations 87, 95, 96(1)(b), 89 or 90
  3. 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 we are torn on our 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.

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 contracting authority awarded a contract without providing a prior publication notice. Under Regulation 99(3) PCR2015, the first ground applies where the contract has been awarded without prior publication of a required contract notice. That is, in all instances where the award of the contract without prior publication was not allowed under the rules of Part 2 PCR2015, which mainly boils down to cases of improper use of the negotiated procedure without prior publication in cases not covered by Regulation 32 PCR2015. Indeed, 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.

This first ineffectiveness ground can be disapplied under Regulation 99(3) and (4) PCR2015 where a set of cumulative conditions are met, which amount to prove that the contracting authority erred in good faith in the assessment of the possibility to award the contract without prior publication and, in any case, gave transparency to its intention to award the contract (ie created equivalent transparency of the award of the contract). These conditions are: (a) the contracting authority considered the award of the contract without prior publication of a contract notice to be permitted by Part 2; (b) the contracting authority has had published in the Official Journal a voluntary transparency notice expressing its intention to enter into the contract with the requirements of Regulation 99(4), of which the justification of the decision of the contracting authority to award the contract without prior publication of a contract notice is especially important; and (c) the contract has not been entered into before the end of a period of at least 10 days beginning with the day after the date on which the voluntary transparency notice was published in the Official Journal, ie there has been a standstill period equivalent to that required by Regulation 87 PCR2015.

One of the key issues in the application of the exception in Regulation 99(3) PCR2015 is the assessment of the discretion/diligence of the contracting authority in its assessment of the possibility to award the contract without prior publication in order to meet the condition in regulation 99(3)(a) PCR2015. This was discussed in Fastweb, C-19/13, EU:C:2014:2194, where the CJEU rejected the lenient approach recommended by AG Bot (who proposed a stringent test whereby recourse to the exception would only be declined if “the contracting authority has deliberately and intentionally infringed the rules on advertising and competitive procedure”) and established a clear duty of diligent assessment of the possibility to award without prior notice by the contracting authority (see paras 46-52, particularly 50, where the CJEU stressed that “the review body is under a duty to determine whether, when the contracting authority took the decision to award a contract by means of a negotiated procedure without prior publication of a contract notice, it acted diligently and whether it could legitimately hold that the conditions laid down in [Art 32 of Directive 2014/24/reg.32 PCR2015]were in fact satisfied“; emphasis added). For discussion, see A Brown, “When will publication of a voluntary ex ante transparency notice provide protection against the remedy of contract ineffectiveness? Case C-19/13 Ministero dell’Interno v Fastweb SpA” (2015) 24(1) Public Procurement Law Review NA10-16.

Consequently, it seems clear that the interpretation of the conditions for the exception to the first ground of ineffectiveness to apply needs to be restrictive and ultimately rely on objective tests. On this topic, see R Caranta, “Remedies in EU Public Contract Law: The Proceduralisation of EU Public Procurement Legislation” (2015) 8(1) Review of European Administrative Law 75, 83-84].

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

As foreseen in Regulation 99(5)(a) PCR2015, the second ineffectiveness ground applies where the contracting authority has entered into the contract in violation of an existing suspension of its contract-making powers. 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 the ground for ineffectiveness.

In any of these cases, under Regulation 99(5) PCR2015, three additional cumulative conditions need to be met for the ineffectiveness ground to apply: (1) there must also have been a breach of the duty owed to the economic operator in accordance with Regulation 89 or 90 PCR2015 (CROSSREF) in respect of obligations other than those imposed by Regulation 87 (the standstill period) and Chapter 6 of Part 3 PCR2015 (ie mainly, regs.95 and 96) [the ‘additional breach’]; (2) the breach of the existing suspension of the contracting authority’s contract-making powers has deprived the economic operator of the possibility of starting proceedings in respect of that additional breach, or pursuing them to a proper conclusion, before the contract was entered into; and (3) that additional breach has affected the chances of the economic operator obtaining 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?

 

This set of additional breaches boils down to clarifying that a mere infringement of the suspension obligation does not trigger the ineffectiveness of the contract if the contracting authority complied scrupulously with the rules governing the tender. However, this does not mean that the contracting authority can take a free pass and disregard suspension obligations, nor that it cannot face other consequences derived from the infringement of the suspension obligation, such as a shortening of the duration of the contract and/or the payment of a financial penalty as required by Regulation 102(2)(b) and (3) PCR2015 (CROSSREF). Those can also be coupled with the payment of damages to the aggrieved tenderer, although they will probably be unlikely or reduced if it cannot prove that its chances of having obtained the contract were affected (which could ultimately reduce the incentive to claim under this ground, of course). Hence, the inapplication of the ground of ineffectiveness to the mere infringement of the suspension obligation does not come without consequences and contracting authorities need to take compliance with it seriously.

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 established in Regulation 99(6) PCR2015, this last ground applies where all the following conditions are met: (a) the contract is based on a framework agreement or was awarded under a dynamic purchasing system; (b) the contract was awarded in breach of any requirement imposed by: (i) Regulation 33(11) PCR2015 (award of contracts based on framework agreements through re-opening of competition), or (ii) Regulation 34(21) to (24) PCR2015 (award of contracts under dynamic purchasing systems); and (c) the estimated value of the contract is equal to or greater than the relevant threshold mentioned in Regulation 5 PCR2015. This ground is relatively straightforward in theoretical terms but, practically, the problem for its application derives from the opacity or delayed transparency of the decisions to award contracts within framework agreements or under a dynamic purchasing system. Thus, it may have limited practical relevance, unless economic operators involved in these schemes have access to the required information and keep the contracting authority under close scrutiny.

Indeed, 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 we 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.

Finally, Regulation 99(7) PCR2015 establishes an exception to this third ineffectiveness ground that is parallel to that in Regulation 99(3) and (4) (above). 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.

Given that it shares the basic elements of the exception to the first ground, an equally restrictive interpretation is required.

Last modified: December 6, 2016 by Pedro Telles

99.—(1) There are three grounds for ineffectiveness.

The first ground

(2) Subject to paragraph (3), the first ground applies where the contract has been awarded without prior publication of a contract notice in any case in which Part 2 required the prior publication of a contract notice.

(3) The first ground does not apply if all the following apply:—

(a)the contracting authority considered the award of the contract without prior publication of a contract notice to be permitted by Part 2;

(b)the contracting authority has had published in the Official Journal a voluntary transparency notice expressing its intention to enter into the contract; and

(c)the contract has not been entered into before the end of a period of at least 10 days beginning with the day after the date on which the voluntary transparency notice was published in the Official Journal.

(4) In paragraph (3), “voluntary transparency notice” means a notice which is in the standard format set out in Annex XII to Commission Implementing Regulation (EU) 2015/1986 (a) as amended from time to time and which contains the following information—

(a)the name and contact details of the contracting authority;

(b)a description of the object of the contract;

(c)a justification of the decision of the contracting authority to award the contract without prior publication of a contract notice;

(d)the name and contact details of the economic operator to be awarded the contract; and

(e)where appropriate, any other information which the contracting authority considers it useful to include.

The second ground

(5) The second ground applies where all the following apply—

(a)the contract has been entered into in breach of any requirement imposed by—

(i)regulation 87 (the standstill period),

(ii)regulation 95 (contract-making suspended by challenge to award), or

(iii)regulation 96(1)(b) (interim order restoring or modifying a suspension originally imposed by regulation 95);

(b)there has also been a breach of the duty owed to the economic operator in accordance with regulation 89 or 90 in respect of obligations other than those imposed by regulation 87 (the standstill period) and this Chapter;

(c)the breach mentioned in sub-paragraph (a) has deprived the economic operator of the possibility of starting proceedings in respect of the breach mentioned in sub-paragraph (b), or pursuing them to a proper conclusion, before the contract was entered into; and

(d)the breach mentioned in sub-paragraph (b) has affected the chances of the economic operator obtaining the contract.

The third ground

(6) Subject to paragraph (7), the third ground applies where all the following apply—

(a)the contract is based on a framework agreement or was awarded under a dynamic purchasing system;

(b)the contract was awarded in breach of any requirement imposed by—

(i)regulation 33(11) (award of contracts based on framework agreements through re-opening of competition), or

(ii)regulation 34(21) to (24) (award of contracts under dynamic purchasing systems); and

(c)the estimated value of the contract is equal to or greater than the relevant threshold mentioned in regulation 5.

(7) The third ground does not apply if all the following apply—

(a)the contracting authority considered the award of the contract to be in accordance with the provisions mentioned in paragraph (6)(b)(i) or (ii);

(b)the contracting authority has, despite regulation 86(5)(c), voluntarily complied with the requirements set out in regulation 86(1) to (4); and

(c)the contract has not been entered into before the end of the standstill period.

 

(a) OJ No L 296, 12.11.2015, p1.