Lessons from Ferrygate and knowing when you’re on Thin Ice.

This is a salutary case for public procurement officials which underlines the commercial and reputational risks inherent in awarding public contracts without advertised competition. While lacking the detail of a fully reported court case, there is still enough information in the public domain to gain an understanding of what happened and what lessons can be taken from it.

The background is that the Department for Transport in the UK awarded significant contracts for cross-channel transport services without having an advertised public procurement process as is required under EU Directives and (for now) UK law. A market operator in this space (Eurotunnel) sued the Department under relevant EU and UK procurement law when learned of the direct awards.

It is understood that if Eurotunnel had succeeded in establishing that the contracts had been awarded illegally the court could have: (i) set aside the awarded contracts; (ii) and/or awarded compensation to Eurotunnel; and/or (iii) imposed financial penalties on the Department.

There are (very limited) exceptional circumstances in which a contracting authority may legitimately award contracts without advertised competition and in this case it appears that the Department for Transport sought to claim that the contracts were not advertised due to “extreme urgency” (a permitted exception) in order to manage a no-deal Brexit. However, for this to work the Department would have to show that the claimed “extreme urgency” was not foreseeable and not of its own making.

Because a “no-deal” Brexit was officially foreseen for a long time before the contract awards it was clear that the Department did have ample time to conduct an advertised tender process if it so wished. On that basis it seems likely that its claimed justification would have failed in court and it could then have faced significant disruption and costs in having existing contracts set aside, and/or payment of substantial damages to Eurotunnel, and/or financial penalties. And so it appears that the Department decided to settle with Eurotunnel for £33 million rather than perhaps risk potentially heavier costs and penalties by letting the matter go to judgment.

This case is of particular relevance in an Irish context where the direct award of public contracts without advertised competition appears to be on the increase. As noted in a previous post, the most recent Appropriation Accounts published by the Comptroller and Auditor General during 2018 showed a significant level of contracts awarded or renewed without advertised competitive process during 2017. The published figures show that, across the 42 Votes covered, there was a total of 686 such awards to a combined value of €122.6 million.

These figures, which are self-declared under paragraph 8 of D/PER Administrative Circular 40/02, are in respect of central government bodies only and do not cover the Health, Local Authority, Semi-State (commercial and non-commercial) and Utilities Sectors, so the true level of direct awards may be far higher. While some of these direct awards may be genuinely justifiable within the permitted exceptions, it is possible that many are simply awarded, “rolled over”, or “extended” for reasons of administrative convenience or lack of resources to undertake the necessary procurement procedures.

The Eurotunnel case emphasises that this approach to the award of public contracts may give rise to serious financial risks for the taxpayer. We have been fortunate that suppliers in Ireland have been reluctant to take issue with “direct award” practices in the courts, up to now, but that could change if more suppliers follow Eurotunnel’s example. There are signs that suppliers are beginning to realise that the enforcement of public procurement law is in their hands via the courts ( or C&AG and the PAC ) and that suffering in silence while waiting for the European Commission or others to intervene and enforce the rules is not a realistic option.

It would seem that many Irish contracting authorities are not fully aware of the nature and extent of the risks they are taking in making direct awards and it must be said that the official guidance materials under which they operate do not fully spell out these risks. Circular 40/02 as the title indicates, dates from 2002 and is not cognisant of major changes to procurement law that have taken place since then, and in particular: the Remedies Regulations of 2010 (as amended); a completely new set of EU Procurement Directives in 2014; as well as several significant Irish and European Court of Justice decisions.

The more recent Office of Government Procurement Guidelines require that direct awards over certain values be reported in line with Circular 40/02 but do not go further in highlighting the risks of court challenge and the possibility of damages and/or financial penalties for unlawful direct awards.
In addition, the OGP Guidelines do not mention the possibility of using Voluntary Ex Ante Transparency Notices to mitigate the risks arising in unavoidable direct award situations and this will be the subject of next week’s post.

James Farrell
Senior Procurement Consultant

The material in this post is purely for information and discussion and does not purport to advise on matters of law. Any persons affected by the matters discussed in this post should seek legal advice on their particular situation.