A leading construction lawyer at national law firm, HBJ Gateley Wareing, has reminded public sector bodies of their obligations when it comes to advertising and tendering for contracts, and warned of the likelihood of increased challenges to this process and potential financial penalties.

Tricia Morrison, construction partner at HBJ Gateley Wareing, has also commented that the firm is seeing an increase in enquiries relating to potential challenges of public sector tendering procedures and contract awards.

The warning comes in the wake of a City of Edinburgh Council employee being investigated by police after allegations of a housing repair scam. The worker has been suspended after claims that he received money from a firm for awarding contracts without putting the work out to tender.

It also comes at a time when the Comprehensive Spending Review points to cuts of £1.3billion for the Scottish Government in 2011-12, meaning there will be even greater competition for diminishing public sector contracts.

The EC Treaty requires all member states within the European Union not to discriminate on the grounds of nationality and to adhere to the principles of transparency and fairness of process. Public sector bodies are required to undertake their affairs, including awards of contracts, in accordance with these general principles.

In addition, the EU has issued Directives to provide a structure within which member states must work in order to regulate compliance with these principles when awarding contracts. These Directives have been implemented into UK law by the Public Contracts Regulations 2006 and the Public Contracts (Scotland) Regulations 2006. The Regulations require contracts for services, works and supplies over a particular value to be advertised and tendered in accordance with particular procedures. This is to ensure that all interested (or potentially interested) parties throughout the Member States of the EU can bid to take on the contract if they wish to do so. Even where a contract is below the threshold values, the general principles of the EC Treaty require to be applied, requiring an appropriate degree of advertising to be undertaken in respect of each proposed contract.

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If a supplier of works/services/supplies within the EU becomes aware that a contract they would have liked to have bid for has been let without the legal requirements having been complied with then they could challenge the public body’s award of the contract. They are most likely to want to do so if they feel they would have been in with a good chance of winning the contract. If the actual contract has not yet been entered into (albeit the successful bidder has been selected), then the challenging supplier may be able to obtain an interdict to stop the contract being entered into. In terms of the Regulations there should be a ten day “standstill” period in order to allow potential challengers a window to do so. However, if the contract has already been entered into, a challenging supplier may be successful in seeking an award of damages from the public body. An award of damages would be intended to make good the loss that the aggrieved supplier has suffered as a result of not being awarded a contract that they would have won had the public body complied with their obligations under EU law.

Alternatively, the EU Commission themselves may investigate an alleged breach of the Rules, either at their own instigation or having been alerted by a disgruntled party.

Tricia said: “In the current economic climate there is intense competition for public sector contracts, and these bodies should be extremely careful how they undertake the tendering process.

“It is imperative that public sector bodies comply with their obligations, which require some contracts to be advertised and tendered in accordance with particular procedures. The general principles will apply to other contracts.

“If the public body fails to comply with these regulations, they may face serious consequences. These could include an interdict being awarded to stop a contract being entered into and the challenging supplier seeking damages.”

(GK/KMcA)