Procurement in a Nutshell – Abandoning a procurement process

This week’s update looks at a contracting authority’s (CA) right to abandon a procurement process. It outlines the procedure which a CA must follow and the risks involved in undertaking the exercise.

A CA’s right to abandon a procurement process

Both the EU and UK courts have recognised the right of CAs to terminate procurement processes. In a 2014 preliminary ruling – Croce Amica One Italia Srl v Azienda Regionale Emergenza Urgenza (AREU) (Case C-440/13) – the Court of Justice of the European Union confirmed that:

• a decision by a CA not to award a public contract need not be limited to exceptional cases or must not necessarily be based on serious grounds;
• the CA must notify candidates and tenderers of the grounds for its decision if it decides to withdraw the invitation to tender for a public contract;
• there is no implied obligation on the CA to carry the award procedure to its conclusion.

The CJEU further outlined the scope of a CA’s discretion to cancel a procurement exercise by explaining that the grounds for the decision may:

• be based on the CA’s assessment of whether carrying an award procedure to its conclusion is expedient and in the public interest; and
• relate to an insufficient degree of competition due to the fact that, at the conclusion of the award procedure, only one tenderer will be qualified to perform the contract.

The procedure

Notification

The need for a CA to notify candidates and tenderers of its decision to withdraw and its grounds for doing so is codified in regulation 55(1) of the Public Contracts Regulations (PCR) 2015. The notification requirement applies to any decision of the CA:

• not to conclude a framework agreement;
• not to award a contract for which there has been a call for competition;
• to recommence a procurement process; and
• not to implement a dynamic purchasing system.

The notification must be issued to both candidates who applied to be invited to tender or to be a party to a framework agreement and suppliers who submitted tenders.

Provision of reasons

Regulation 55(2)(b) requires that, where requested, a CA must inform candidates or tenderers of the reasons for the rejection of tenders. This information must be provided as soon as possible and within 15 days of the CA receiving a written request.

Withholding information

Under regulation 55(3) a CA may withhold certain information relating to its decision where releasing the information would have the effect of:

• impeding law enforcement or otherwise being contrary to the public interest;
• prejudicing the legitimate commercial interests of a particular supplier, whether public or private; or
• prejudicing fair competition between suppliers.

Risks of abandonment

As yet, a decision to abandon a procurement process has not been challenged under the PCR 2015 or the Public Contracts Directive 2014. However the case law under the former procurement regime, which is still relevant, confirms that a decision of a CA to withdraw an invitation to tender must be open to a review procedure.

It is possible that a tenderer may claim compensation either for costs incurred where a procurement process is abandoned or for lost profits which would have been generated if the contract had been awarded to the claimant. The courts however have been reluctant to make such awards. It is recommended that CAs, as is usually standard practice, clearly state on procurement documents the reservation of their right not to award any contracts, as well as precluding their liability for bidders’ costs in submitting a bid.

Challenges to abandonment are more likely the further on the procurement process has reached and indeed may relate to the actions subsequently taken by a CA to secure the provision of goods or services. Options for a CA might include forgoing the goods or services, depending on the requirements, or carrying out a new procurement process as quickly as possible. Given the potential for challenge a CA must be properly advised regarding its next steps following abandonment.

Why is this important?

The discretion afforded to CAs to terminate a procurement process provides an important control mechanism in circumstances where the outcome would put at risk the ability to ensure the expenditure of public funds in a way which delivers value for money.

While termination may not be possible to avoid, emphasis should be placed on the need for CAs to take steps, from the beginning of the process, to safeguard against the need to terminate a procurement exercise. This will involve, for example, an adequate needs assessment and proper utilisation of outcomes of market analysis at the pre-tendering stage to help shape the procurement in line with the identified needs or to establish whether a procurement process is necessary at all. The choice of procurement procedure should also be carefully considered to avoid the risk of a failure to justify the chosen course. Such risk management measures, if implemented effectively, should help CAs to avoid the dilemma of whether to terminate or whether to continue a flawed procurement process.