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Procurement in a nutshell – first UK declaration of ineffectiveness

In this Procurement in a Nutshell, we will be looking at the recently reported case of Lightways (Contractors) Limited v Inverclyde Council and the remedy of ineffectiveness.

Although the case is Scottish and decided under the Public Contracts (Scotland) Regulations 2012, the case is of interest to all procurement practitioners for the way that it applies the EU Remedies Directive.

Please click here for the judgement.

What’s new?

What is ineffectiveness?

Ineffectiveness is dealt with as part of the remedies regime applicable to public contracts. It is only available where the disputed contract has been entered into and where one of the grounds for ineffectiveness applies, including for example where no contract notice was published or where the rules relating to Framework Agreements have been breached.

The consequence of ineffectiveness is that the contract awarded becomes ineffective from the date on which the declaration is made, such that all of the obligations that are yet to be performed under the contract are unenforceable.

Because of its draconian nature, the Court can only make a declaration of ineffectiveness where it is satisfied that none of the “general interest” grounds for not making such a declaration applies.

The facts

A Scottish Court has become the first court in the UK to award a declaration of ineffectiveness in a public procurement challenge.

The challenge was brought by Lightways (Contractors) Limited, a company that had previously supplied street lighting maintenance services to the Contracting Authority, Inverclyde Council Limited (the Council).

In 2013, the Council ran a mini-competition for street lighting services under a Framework Agreement. Lightways could not participate because it was not a listed supplier in respect of the affected Lot, Lot 9. The contract was awarded to Amney Public Services LLP (‘LLP’).

In 2015, the Council ran a second mini-competition under the same agreement. In September 2015, that contract was also awarded to LLP and the contract was concluded in October 2015.

Lightways challenged the award of the 2015 contract on the basis that LLP was not a supplier under the Framework Agreement in relation to Lot 9, such that the award amounted to an illegal direct award. It sought a declaration of ineffectiveness. Amney OW Limited (‘OW’) was one of the 8 suppliers listed and both LLP and OW were members of the Amney plc group.

The decision

The Council accepted that the award of the contract to LLP was an error (originally made during the 2013 procurement) and that they should have awarded the 2015 contract to OW. It argued that the error was capable of being rectified through the novation of the contract to OW and that it would be disproportionate to hold the award unlawful and to declare the contract ineffective.

The Council also suggested that, because Lightways could not itself have been entitled to participate in the competition, it did not have the necessary standing to bring the challenge.

Lightways argued that it did have the necessary standing because its challenge related to the Council’s ability to make any award of a call off contract at all without carrying out a procurement exercise. Additionally, the error was, it alleged, a “fundamental error of substance” and any rectification of the award would cause a further breach of procurement rules because OW had not tendered and had not been invited to tender.

The Court agreed that Lightways did have standing. It also rejected the Council’s suggestion that the Council’s mistake was one of “mis-designation,” or a clerical error that could have been rectified. Rather, it held that that the Council had proceeded on the mistaken basis that LLP was a party to the Framework Agreement but that the underlying intention was to award it to LLP and not OW and on that basis, there had been a breach of the Public Contracts (Scotland) Regulations. Proportionality was not therefore a relevant concern and the Court declared the contract ineffective.

Why is it important?

The case is very significant because this is the first time that a remedy of ineffectiveness has been applied by a UK Court. A declaration of ineffectiveness can have very serious consequences for a Contracting Authority, not least the fact that their contract for the supply of the works or services will be unenforceable and they will incur costs and delays in running a new procurement.

How can I find out more?

If you have any queries on the issues raised or on any aspect of procurement, please contact us via our procurement hotline on 0191 204 4464.

Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.

This page may contain links that direct you to third party websites. We have no control over and are not responsible for the content, use by you or availability of those third party websites, for any products or services you buy through those sites or for the treatment of any personal information you provide to the third party.

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