Practical Law

Public procurement is a hybrid of commercial and public law. It comprises a set of statutory rules, based on European Union law principles of non-discrimination and transparency, which are designed to ensure fair competition between companies from different member states. If a public body (a “contracting authority”) infringes the rules, an economic operator who may suffer loss as a result may bring an action to set aside the decision and/or claim damages.  The money at stake is public money and the defendants are either government bodies or other entities entrusted with public functions.

This post considers why parties mediate a procurement dispute and some of the special considerations that apply.

Why mediate a procurement dispute?

There are a number of reasons why parties may use mediation to try to resolve their procurement dispute.

Firstly, there is the public/private interest:

• It is a matter of public, as well as private interest, to try to resolve disputes as quickly and efficiently as possible.
• A public body defending a claim has a duty as guardian of the public purse. This duty may curtail the ability to take risk on protracted and costly litigation.
• Resolving a dispute allows public servants to get on with their day job, rather than fighting litigation.
• A negotiated settlement may assist in preserving existing relationships or put them on the road to recovery. This may be important to a public body if there is a limited pool of providers: value for money is poorly served by alienating the provider base. It may also be important to a corporate claimant, particularly if the public market in which it operates only has one customer (for example, in a local area).

Secondly, there may be confidentiality and reputational concerns:

• Authorities are not permitted to exclude perceived “trouble makers” from tender procedures or mark them down. That might give rise to another claim. However, claimants may prefer a confidential settlement, even though they are just enforcing their rights.
• Claimants may have wider concerns. For example, they may not want their private sector clients to hear that they have been involved in a dispute.
• Authorities, although bound by duties of transparency, may also be attracted by the prospect of a more confidential resolution to the dispute.

Thirdly, the courts encourage and promote alternative dispute resolution (ADR).

The new overriding objective (in CPR Part 1.1) enables the courts to deal with cases “justly and at proportionate cost”. The question of proportionality in costs is an important one (see for example Coulson J’s judgment in Stella Willis v MRJ Rundell & Associates Ltd, where the court refused to approve either party’s costs budget and discussed the meaning of proportionality).

In the TCC, where most procurement cases are heard, it is a routine part of case management to consider, schedule and budget for alternative dispute resolution.

What special considerations apply when considering mediation of procurement disputes?  

Firstly, time limits. Because of the short limitation period applicable under the Public Contracts Regulations 2006 (as amended) (the Regulations), it will be rare for a procurement dispute to be taken to mediation before proceedings are issued.  Proceedings must be brought within 30 days of when the claimant knew, or ought to have known, of grounds for bringing the proceedings. Generally, claims are brought during or shortly after the 10 day “standstill period” following a contract award decision.

Secondly, the lack of information. In a procurement dispute, often the claimant will have very little information about the strength of its case until a substantial amount of disclosure has taken place (and on this topic, see Calum Lamont’s recent post).

A claim will often begin as the unsuccessful bidder’s hunch that it lost the bid unfairly. This seed of doubt may be fuelled by inconsistencies or other shortcomings in the debrief information provided (which must give the scores and describe the characteristics and relative advantages of the winning bid).

Requests for further information often escalate rapidly to proceedings. By this stage, the claimant will have some evidence of a breach, though it need not be conclusive. Disclosure may provide further evidence of the breach identified, as well as of other breaches.

Therefore, generally it will be in the claimant’s interests to proceed as quickly as possible to disclosure before settling. This will not necessarily mean that mediation should follow standard disclosure. Claimants will often seek early specific disclosure of the key evaluation documents and, sometimes, the winning bid. Pleadings will either be stayed until this disclosure has taken place or subsequently amended, often substantially, with a fresh set of allegations. Once the battle lines have been drawn, mediation can then follow.

Thirdly, the resolution of a procurement dispute is not always about the money. If proceedings are issued before the contract has been entered into, an automatic suspension comes into operation that prevents the authority proceeding to contract until the court permits it to do so. The authority may apply to the court to lift the suspension. Under the Regulations, the court treats  the claimant’s application to lift as if it were an application for an interim injunction and applies the American Cyanamid balance of convenience test. If the suspension remains in effect, it will ultimately be open to the court to award a set aside remedy, cancelling the award (or other infringing) decision. That may involve damages for the claimant, but the primary purpose of the remedy will be to give the claimant and other bidders the opportunity to retender for the contract. (Alternatively, if the contract is entered into, the claimant’s remedy is limited to damages, calculated on the basis of a loss of chance of winning the margin under the contract.)

A settlement may therefore be based on an agreement to rewind the tender to an earlier stage or re-advertise, possibly with the payment of some wasted bid and litigation costs to the claimant.

The actual mediation

In terms of the actual mediation of a procurement dispute, as with the mediation of other disputes:

• Reference should be made to The Jackson ADR Handbook, published in April 2013. There can be no better endorsement for this book than Lord Dyson’s prediction in the foreword that “this book – should be as tried and trusted as the White Book and the Green Book”.
• Parties need to be satisfied with the terms of the mediation agreement and understand its meaning and effect. See, for example AB v CD Ltd, where one party unsuccessfully argued that the mediation agreement applied to a settlement reached after the mediation day.
• Someone with full authority to settle the dispute should attend from each party. Where public bodies are involved, approval from the authority’s board may need to be obtained in advance.
• Mediation statements and any bundle should be short, dynamic in their approach and written in plain English: they should not simply repeat the positions in the statements of case.
• The aim of those presenting at the mediation should be to showcase different skills to those required for litigation. This includes, as set out in The Jackson ADR Handbook, having the aim of ensuring that an appropriate settlement is reached, rather than winning.
• Parties should come armed with their “mediation toolkit”, containing (amongst other things) a draft settlement agreement and details of the cost management order made or an estimate of the costs incurred to date and to trial.

Conclusion

In practice, many if not most procurement cases now attempt to resolve their dispute by mediation.

Given the escalation of costs, the uncertainty of how evidence will play out at trial and the opaqueness of some procurement law, the hedging of risk through a pragmatic settlement will often make sound commercial sense. If it does, it will generally be justifiable on public interest grounds.