Procurement in a Nutshell – Using ineffectiveness as a remedy
16th September 2019
A dispute between AEW Europe LLP (the "Claimant") and Basingstoke and Deane Borough Council ("the Defendant") following the Claimant seeking to use the remedy of ineffectiveness.
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.
On 21 June 2013, a notice was posted in the Official Journal of the European Union (“OJEU Notice”), although there were numerous parties interested, only 2 bids were submitted in accordance with Basingstoke’s published evaluation process. Although both bidders were invited to proceed to the second stage, only Newriver Leisure Ltd (“NRL”) submitted a final, more detailed bid. In March 2018, the Defendant entered into a development agreement with NRL to redevelop Basingstoke Leisure Park which would include up to 300,000 sq ft of retail space, which had not been detailed in the OJEU Notice.
The Claimant purchased Festival Place, a shopping centre in the centre of Basingstoke, in December 2015, so therefore had an interest in how the shopping centre may be affected by the development of the leisure park and the proposed retail spaces. The Claimants argument was that there had been a material change from the scope of work identified in the OJEU Notice.
In order to render the matter suitable for handling as a preliminary issue, the preliminary issue trial proceeded on the basis of an assumption in identical terms to that made for the purposes of the strike-out application in the Alstom (1) case, so that it was assumed that:
“the Development Agreement departs from the contract sought by the tender process to such extent that it is a materially varied contract which was not actually the subject of the previous tender process and would have required a fresh process in accordance with the applicable regulations”.
The Claimant’s claim for ineffectiveness was predicated on the assertion that the scope and contents of the development agreement were so different from that which had been detailed in the OJEU Notice, which started the procurement exercise. It was argued that a new notice should have been issued.
The Claimant’s argument was rejected and the judge reaffirmed the decision in Alstom. The court found that the initial notice and the eventual development agreement had a sufficient and close enough connection for the claim for a declaration of ineffectiveness to be dismissed.
The Claimants’ application for permission to appeal was refused on 3 September 2019.
Why is this important?
This case gives rise to questions surrounding the judges’ definition of a ‘sufficient’ connection. Questions such as ‘what is sufficient?’ are not mechanistic questions, but rather require a qualitative assessment. This judgment provides contracting authorities with confidence in that a modified contract should not be declared as ineffective where a contract notice has been published. The outcome of this case should encourage authorities’ to consider whether a ‘sufficient connection’ exists between notice and contracts on a project by project basis.
Had the judge in this case awarded the declaration of ineffectiveness, it would have had great implications on the contracting authority, not only would their contract for the supply of works or services have been unenforceable, they would have also incurred costs and delays in running a new procurement.
- Alstom – Alstom Transport v Eurostar International Ltd  EWHC 1828 (Ch)
A claim for a declaration of ineffectiveness of a public procurement contract was struck out where the claim was based on prior notice not having been given. The form of notice did not matter provided it was a form specified in regulation 16 of the Utilities Contracts Regulations 2006 and so the fact that a qualification system notice was given was sufficient.
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 0330 137 3451.
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.
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