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A new case [1] has held that a public contract which did not comply with public procurement laws was void.

Under the regulations, a public body seeking to enter into a significant contract with a private company must advertise the opportunity and carry out a competitive tender process.  Having done so, and entered into a framework agreement with numerous suppliers, contractors or service providers, the public body is then free to award a series of contracts to one of those companies by going through a ‘mini-competition’ process as opposed to an open tender.

In the recent case, the council entered into a framework agreement with one company, and then proceeded to award contracts to an LLP within the same corporate group, without re-advertising or holding an open competitive tender for the individual contract.  The Council claimed that its intention was to take advantage of the flexible procurement system by awarding the contract to a company within its framework arrangement, and that awarding the contracts to the LLP instead had been a mistake.  The Council asked that the courts allow the contract to be novated to the company it meant to award the contract to.

Unfortunately for the Council (and indeed the LLP), the Court found that the relationship between the LLP and the contracting company was not close enough for the award of the contract to be a rectifiable mistake or for it to be disproportionate for it not to be rectified.  As a result, the contract was declared void.

Interestingly, the party who brought the case was not even eligible to bid for the contract in question (although it had provided the relevant services to the Council before the framework agreement was entered into).  According to the court, this was acceptable because the party was challenging the Council’s ability generally to award contracts under a framework agreement without beginning a new procurement process.

There are three main points to take away from this case:

  1. a public contract which is not compliant with public procurement laws will be deemed void;
  2. a public body may not award contracts to companies within the same group as those with which it has a framework agreement without undergoing a full open tender process, particularly if the companies are not economically close;
  3. a procurement process is not only challengeable by those who were part of it and lost out but also contractors, suppliers and service providers who would not have been eligible to bid.

For more information, email blogs@gateleyplc.com.

[1] Lightways (Contractors) Limited v Interclyde Council [2015] CSOH 169


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.