IGNORE THE GENERAL TREATY PRINCIPLES AT YOUR PERIL!

29th July 2014

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A recent High Court decision is a salutary reminder for public sector bodies of the consequences of failing to take account of general EU principles when tendering below-threshold public contracts (Mansfield District Council v Secretary of State for Communities and Local Government [2014]).

The case related to an attempt by Mansfield District Council (“MDC”) to appeal against a decision by the East Midlands Growth Delivery Team (“EMGDT”), on behalf of the Secretary of State for Communities and Local Government, to claw back 25% of grant funding awarded to MDC from the European Regional Development Fund (“ERDF”) towards two town improvement projects.  

The repayment was being demanded by EMGDT on the basis that MDC had failed to consider, when awarding contracts for the two projects, whether the projects were of cross-border interest and should, therefore be advertised to comply with the general EU principles of equal treatment and transparency.

The Relevant Law

  • Contracts caught by the Public Contracts Regulations 2006 (the “Regulations”) must be advertised by publishing a contract notice in the Supplement to the Official Journal of the European Union (“OJEU”);
  • Contracts that fall below the financial thresholds are not caught by the Regulations;
  • However, sub-threshold contracts that may have a cross-border interest and attract contractors from other EU Member States, are subject to general EU principles;
  • This means that such contracts are subject the requirements of equal treatment and non-discrimination on grounds of nationality and transparency;
  • Consequently, unless such contracts benefit from an exemption, they must be advertised (although this need not be in the OJEU). They must also be fairly tendered (although, unlike the prescribed procedures under the Regulations, this can be an informal procedure).

The Facts

  • The value of the two contracts was just over £900,000. The contracts were below the threshold for public works contracts under the Regulations (which was, at that time, just over £3,900,000);
  • The grant funding was awarded to MDC under two deeds of grant by the East Midlands Development Agency (“EMDA”).  ERDF was, at that time, administered by EMDA;
  • The grant of the funding was conditional upon compliance by MDC with the terms of the deeds of grant. The deeds of grant required compliance with current EU procurement laws and the procedures set out on EMDA’s website;
  • MDC identified its list of potential contractors by approaching firms listed on an online national database. After gauging interest/availability, MDC compiled a short list of 8 contractors who were asked to tender for the projects. 6 submitted tenders and MDC chose the successful candidate from this list.

The High Court’s Findings

The High Court ruled against MDC, upholding the Secretary of State’s right to claw back 25% of the grant payments. The key points made by the High Court were:

  • Even if a contract is below threshold, a contracting authority must consider if there is a cross border interest in tendering for the contact;
  • If there is or may be such an interest, an adequate level of advertising of the contract is necessary to ensure compliance with the general EU principles of equal treatment and transparency;
  • Guidance issued by the EMDA at the time the funding was granted suggested that an “adequate level of advertising” equated to publication of the contract in the national and local press and on the website of the contracting authority;
  • MDC had not complied with any of these requirements;
  • There was also no evidence that MDC had even considered whether there was likely to be a cross border interest.

Comment

The case emphasises to public sector bodies that the rules do not go “out the window” just because a contract is below threshold. Public sector bodies must consider whether there may be cross border interest in their contracts and, if there may be such an interest, take appropriate steps to advertise those contracts. 

The case also emphasises the importance of understanding and ensuring compliance with the terms on which any funding is granted, as well as any accompanying guidance - as these will be taken into account in determining whether a public sector body has acted appropriately (and, of course, whether it is in breach of contract!).

In this case, the consequence for MDC of failing to act in accordance with general EU principles was that it was required to pay back a hefty 25% of its grant funding to the Secretary of State. This was even though the court accepted that it had never been MDC’s intention to evade its procurement responsibilities.

As the High Court stressed, the onus is on the recipient of a grant to get its processes right so that it complies with the relevant procurement law. Ignorance of the, often demanding, EU requirements is no defence. 

If you would like to discuss this update or any other aspect of procurement law with a member of the Commercial Team, please do not hesitate to get in touch.

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