First ineffectiveness order issued by UK court against public contract award

It is the first time a court in the UK has issued an ineffectiveness order against a public contract since they were given the power to do so in 2011, Pinsent Masons, the law firm behind Out-Law.com, understands.

The Scottish Court of Session accepted arguments from a company called Lightways (Contractors) Limited which had challenged the award of a street lighting services contract to Amey Public Services LLP (APS) by Inverclyde Council in September this year.

Lightways had argued that the award of the contract was "an unlawful direct award made without advertisement or prior intimation" in breach of The Public Contracts (Scotland) Regulations 2012, according to the Court of Session's judgment.

APS was not one of the listed suppliers eligible to bid for street lighting services contracts under a framework agreement Inverclyde Council participated in. Instead, a related company called Amey OW Limited (OW) was one of the eight listed suppliers eligible for such contracts, the ruling said. Both APS and OW are part of the same group of companies.

The Court rejected claims by Inverclyde Council that it would be disproportionate of it to issue an ineffectiveness order against the contract with APS. The local authority admitted the contract with APS had been entered into in error but argued that it should be allowed to substitute its contract with APS for one with OW without having to carry out a new procurement exercise.

However, Lightways said Inverclyde Council's mistaken award of the contract to APS was a "fundamental error of substance" that had caused it to suffer loss and damage.

In his ruling granting summary decree, or judgment, Lord Tyre said: "An intention on the part of [Inverclyde Council] to award the contract to an entity entitled to be awarded it under the framework agreement cannot simply be equated with an intention to award the contract to OW. If one were to drive at 45 mph on a road with a 30 mph speed limit in the mistaken belief that the limit was 50 mph, an intention (however genuine) to drive within the speed limit could not be equated with an intention to drive at less than 30 mph."

"The error made by [Inverclyde Council] was not one of mis-designation. It consisted rather of proceeding on the mistaken basis that [APS] was a company within the Amey group which was a party to the framework agreement. I am not persuaded that the entity selected as the supplier was a matter of indifference or irrelevance. In short, it is readily apparent that [Inverclyde Council] intended to award the contract to [APS]," he said.

Under public procurement rules in Scotland, as well as across the rest of the UK, businesses can apply to the courts for an ineffectiveness order which renders all rights and obligations set out in public contracts unenforceable from that date onwards. Ineffectiveness orders can only be issued in a limited number of circumstances which are set out in legislation.

One of the circumstances in which such orders can be issued is where a contract notice has not been published in the Official Journal of the EU where procurement law otherwise requires it. Another ground for issuing an ineffectiveness order arises where the contracting authority has breached the rules relating to framework agreements.

However, ineffectiveness orders are only justified in all cases where there are no “general interest grounds” for not making such an order.

"This is a very important judgment from a UK court in a public procurement context," public procurement law expert Stuart Cairns of Pinsent Masons said. "Never before has the draconian remedy of ineffectiveness been granted in the UK. This tied in with the traditional perception that the courts tend to be more public authority-friendly in procurement matters. However, this decision demonstrates that, if the circumstances are right, declarations of ineffectiveness will be granted. Contracting authorities should take notice."

Public procurement law expert Christopher Murray of Pinsent Masons said that the recent judgment is really only part of the story.

"Although a declaration of ineffectiveness was granted by Lord Tyre, he has not yet set the level of civil financial penalty to be paid by Inverclyde Council which must accompany the declaration, or decided whether damages should be paid to Lightways," he said. "Decisions on these issues are to follow. It is also worth noting that Inverclyde Council sought leave to appeal, which was granted. This may be only the first step in a lengthy litigation battle."