Supplier challenges are on the rise. Research by Achilles and Nottingham University into challenges brought under the EU procurement regime in the UK over a 20-year period indicates there has been a sharp rise in recent years in the number of cases reaching the courts. Compounding concerns for procurement professionals will be evidence that in 37 per cent of those cases at least one of the claims was supported by the court.
As the research only looks at those challenges that resulted in court hearings – a small fraction of the cases started in the courts – the inference is that the number of supplier challenges settled out of court is much larger and is growing proportionately year on year.
For buyers this is grave news. The time and costs involved in fighting challenges can be very significant indeed, with challenges taking months to resolve and in many cases, costing hundreds of thousands of pounds in compensation or settlement out of court. In addition, such challenges are a major distraction for procurement staff and may delay the essential procurement of goods or services, causing further issues and knock-on costs.
The Achilles/Nottingham University report highlights the fact that, historically, the challenge rate in the UK has been very low, averaging approximately two challenges a year in the period between 1993 and 2006. However, following 2006 the number of challenges has increased steadily. Findings from the study also indicate that the reforms to the remedies system introduced in December 2009 have had a dramatic effect, with a significant jump in the number of challenges in 2010, when 18 challenges were reported. This increase appears to be continuing in 2011, with 10 challenges occurring in the first six months of the year – up to the end of the period covered by the study.
So, why is there such a significant trend for suppliers bringing challenges? And what can be done to offset this growing, damaging and very costly risk?
First, it can be no coincidence that the number of challenges has risen dramatically since changes to the remedies directive were introduced in December 2009. The new rules have made it easier for suppliers to challenge because more information must be provided to suppliers losing a procurement competition and they can now halt the award of a contract through an ‘automatic suspension’ mechanism where court action has been commenced. Second, the current tightening of public purse strings is making a challenge more likely as suppliers compete for a dwindling number of contracts.
If procuring entities are to find themselves in an increasingly challenging environment, where suppliers are more likely to take their chances with the courts, then buyers are going to have to ensure that their procedures and contracts are watertight and in line with current legislative requirements. Any shortfalls or oversights could prove expensive in time, resources and money.
The problem for many procurement departments is that government spending squeezes have resulted in the loss of highly experienced staff, leaving public sector procurement exposed to increased risk, with a far greater dependence on outside legal advice for ensuring compliance with EU procurement regulations. Information, guidance and expert knowledge is going to be increasingly important to procuring organisations if challenges are to be avoided.
Legal advocacy is expensive, but other resources can be used to mitigate the risk of a supplier challenge.
Information available through THEMiS, an online resource for dealing with the complexities of EU procurement legislation, was used by the Nottingham University researchers as a foundation for their findings – as all UK and European procurement court cases are summarised on the site by Professor Sue Arrowsmith. This resource is also used by over 500 utilities, public sector and private organisations in the UK on a daily basis for guidance on EU procurement and presents over 350 frequently asked questions about advertising contracts, selection, contract award and framework agreements. Many organisations also use the online facility to ask EU questions of THEMiS’ expert advisers. Such a resource is invaluable in ensuring compliance and will become increasingly important to buyers seeking to lower their exposure to supplier challenges.
Indications are that supplier challenges are on the increase. Government bodies and utilities are facing a growing exposure to this risk, with all its potential negative impacts. However, those procurement professionals who use the knowledge resources that are available to fully understand the requirements of EU procurement legislation, and who follow appropriate advice and actions to mitigate these risks, will be in a far stronger position to avoid or counter these challenges than those that choose to work in the dark.
☛Gail Wilson is EU service manager at Achilles.