Guidance

DSPCR Chapter 18: legal review, remedies and ineffectiveness

Updated 1 March 2024

Purpose

1). This guidance explains the provisions of Part 9 of the Defence and Security Public Contracts Regulations (DSPCR) 2011, which relate to applications to the Court to review the actions of procurers during the procurement process.

2). Specifically, the guidance describes the legal framework, the duty owed by procurers to suppliers to comply with the DSPCR, the legal review procedures for suppliers and procurers to follow when a supplier pursues a claim for breach of that duty and the remedies available to suppliers that the Courts can impose to rectify the breach.

3). You should read this guidance in conjunction with the guidance on Chapter 17 – Standstill Period, Contract Award and Voluntary Transparency Notices.

What are legal review, remedies and ineffectiveness?

4). By “legal review”, we mean the processes for suppliers to follow when making an application to the Court claiming that the procurer has failed to comply with his duties under the DSPCR.

5). By “remedies”, we mean the remedies a Court can impose to protect the rights of suppliers taking part in procurement procedures (at any stage of the process including after contract award) when a procurer fails to comply with the legal framework.

6). By “ineffectiveness”, we mean the particular remedy that enables a Court to set aside a contract subject to the DSPCR that a procurer awarded in serious breach of the relevant procedures in the DSPCR.

What is the legal framework?

7). Regulations 50 to 65 (Applications to the court) of the DSPCR details the specific rules relating to legal review including the conduct of legal challenges and the remedies available.

What duty do you owe to suppliers?

8). Under Regulation 51 (Duty owed to economic operators), procurers owe a duty to suppliers to comply with the DSPCR in respect of any contract award procedure under the DSPCR. Specifically, these suppliers are nationals of, and established in the United Kingdom or Gibraltar.

How is the duty of compliance enforced?

9). Any supplier that suffers, or risks suffering, loss or damage because of a breach of the duty owed to it by a procurer, may seek to enforce the duty through the Courts.

10). The DSPCR requires the supplier to issue a pre-litigation notice. This means that any supplier wishing to bring proceedings in the Courts must not do so unless they first inform the procurer of the breach or alleged breach, and of its intention to bring proceedings. The principal merit of this approach is to allow both parties to discuss the claim, and possibly resolve it without the need for expensive, adversarial Court proceedings.

11). In England, Wales and Northern Ireland, court proceedings can only start in the High Court. In Scotland proceedings can start in either the Sheriff Court or Court of Session.

What are the time limits for starting court proceedings?

General time limits: supplier not seeking declaration of ineffectiveness

12). Regulation 53 sets out the following general time limit within which a supplier (referred to here as the “challenger”) must start proceedings for remedies other than for a declaration of ineffectiveness within:

      a. 30 days from the date when the challenger first knew or ought to have known the grounds for starting the proceedings had arisen, for example the “date of knowledge”. Upon application by the challenger, the court may extend this time limit
      b. up to a maximum of 3 months from the “date of knowledge” where the Court considers there is a good reason for doing so.

13). The “date of knowledge” is a question of fact and depends on the stage in the procurement procedure at which the alleged breach occurs. It may for example be the date of either the publication of the:

      a. Voluntary Transparency Notice (VTN) for non-competitive procurement; or
      b. Award Decision Notice (ADN) for competitive procurement; or
      c. Contract Award Notice (CAN) if:

• there is no VTN for non-competitive procurement; or
• an aggrieved party does not receive an ADN.

14). The general time limits at paragraph 12 above do not require proceedings to be started before the expiry of either 10 days (if sent by electronic means) or 15 days (if sent by other means), of the standstill period, from the:

• date of publication of the procurer’s decision; or
• date on which the procurer communicates the decision to the challenger with a summary of the reasons for the decision in accordance with Regulation 33(7).

15). Paragraph 14b means that even though the 30 days period has expired, a challenger may have a further right to challenge where you have made the award decision but fail to publish or communicate the decision to the challenger.

Special time limit - supplier seeking a declaration of ineffectiveness

16). If a challenger seeks a declaration of ineffectiveness, the time limits for starting proceedings are:

      a. within 30 days of either:

• day after the date the CAN was published on the Find a Tender service; or
• the day after the date on which the procurer communicates the decision to the challenger with a summary of the reasons for the decision in accordance with Regulation 33(7).

      b. in any other case, within 6 months from the date of contract award.

Time limits rules and risks

17). The 30 days limit must end on a working day. If the 30 days limit ends on a non-working day, the time limit will extend to the next working day.

18). You should mitigate the risk of inadvertently lengthening the time limit for starting proceedings by ensuring that you communicate decisions to candidates and tenderers in accordance with in accordance with Regulation 33 (7) as soon as practicable.

How does a supplier start proceedings?

19). In England, Wales and Northern Ireland, proceedings start when the challenger issues the claim form, i.e. the challenger has merely to issue the claim form within the 30 days limit, rather than issue and serve the claim form. However, claimants must serve the claim form on the procurer within 7 days of issue. In Scotland, proceedings start when proceedings are served.

20). The challenger must, as soon as practicable, send a copy of the claim form (or in Scotland, the proceedings) to each person (other than the procurer) who is a party to the contract in question. This applies as long as the contract still has time to run at the date proceedings are started and if the supplier is starting proceedings which:

      a. seek a declaration of ineffectiveness;
      b. allege a breach of Standstill rules;
      c. allege a breach of the rules for the automatic suspension of a contract award; or
      d. allege a breach of an interim order by the Court in relation to suspension.

21). If the challenger requests information to help them meet the obligation at paragraph 20 (and the request is for information they might reasonably require), the procurer must comply with the request as soon as practicable.

Can you award the contract if there is a challenge during the standstill period?

22). The mandatory 10 days standstill period between contract award decision and the award of the contract should ordinarily start at the same time as the start of the time limit for bringing proceedings arising from that award decision.

23). If no claim forms are issued or proceedings served within the 10 days standstill period then you can award the contract. However, 20 days will remain of the time limit in which a challenger may start proceedings but for damages only. You should therefore award the contract as soon as the 10 days standstill period has expired, as a challenge after a valid standstill period cannot prevent the contract being executed.

24). If proceedings are started during the 10 days standstill period i.e. after you make the decision to award the contract but before you enter into the contract (and the procurer is aware that the proceedings have been issued), there is an automatic suspension of the contract award procedure.

25). The procurer must not enter into that contract until either:

      a. the Court issues an interim order allowing it to do so; or
      b. the proceedings are determined, discontinued or otherwise come to an end and no order has been made continuing the legal review (for example, in connection with, or the possibility of, an appeal).

What interim orders are available to the Court?

26). During proceedings the DSPCR allows the Court (without prejudice to any of its existing powers) to make an interim order depending on the circumstances which:

• lifts the automatic suspension (i.e. allows the procurer to enter into the contract)
• restores or modifies the automatic suspension
• suspends the contract award procedure (i.e. in circumstances where the automatic suspension is not relevant as the decision or action of the procurer being challenged is not the decision to award the contract)
• suspends the implementation of any action or decision taken while following a particular procedure (i.e. in circumstances where the automatic suspension is not relevant as the decision or action of the procurer being challenged is not the decision to award the contract).

27). Specifically in the context of the DSPCR, in deciding whether to grant any interim order, the Court must take into account the probable consequences of the proposed order in causing harm to public interests and in particular defence or security interests (see paragraph 33).

What remedies are available before contract award?

28). If the Court decides that a decision or action taken by a procurer has breached their duty to a supplier, and the contract has not been entered into, the Court may do one or more of the following:

      a. order the procurer to set aside the decision or action;
      b. order the procurer to amend any document; or
      c. award damages to the economic operator if it has suffered damage or loss as a consequence of the breach.

What remedies available after contract award?

29). If the procurer has already entered into the contract, and the Court decides that a procurer has breached its duties, the Court:

      a. must declare the contract ineffective (i.e. to strike down a contract) but only if:

• the grounds for ineffectiveness apply
• the complainant has applied for an order of ineffectiveness
• the general interest grounds or the grounds referred to in Regulation 61(5) (see paragraph 35 below) for not making a declaration, do not prevent it.

      b. must impose any penalties required by Regulation 63 in accordance with that regulation (see below) but only in the context of an application for ineffectiveness;
      c. may award damages to a supplier who has suffered loss or damage as a consequence of the breach;
      d. must not order any other remedies (except for consequential orders arising out of an order for ineffectiveness).

30). If the Court orders ineffectiveness and a penalty, damages may be awarded in addition to this.

31). If ineffectiveness does not apply (or where the specific circumstances referred to in Regulation 63 do not apply) damages will continue to be the only remedy.

What are the grounds for ineffectiveness?

32 ).There are three grounds for ineffectiveness:

      a. Illegal direct award: where a contract was awarded without prior publication of a contract notice where there should have been one, unless all the following conditions apply:

• the procurer considered that the award of a contract without prior publication of a contract notice was permitted
• the procurer published a VTN expressing its intention to enter into a contract
• there was a standstill period of at least 10 days from the day after the date of the published the VTN on the Find a Tender service

      b. Procedural breach: where:

• a contract was awarded in breach of the standstill period (see Regulation 34), or an automatic suspension (see Regulation 56), or an interim order restoring or modifying a suspension, see Regulation 57(1)(b)
• there has also been a substantive breach of the DSPCR, and the substantive breach has “affected the chances of the economic operator obtaining the contract”

      c. Framework agreement breach: where the order or task (contract) is equal to or above the financial threshold and there is a breach of the rules relating to call-offs at Regulation 20 (7)(b), (8) and (9) unless all the following conditions apply:

• the procurer considered the call-off award to be in accordance with at Regulation 20 (7)(b), (8) and (9)
• the procurer voluntarily applied a standstill period in accordance with Regulation 33(1) to (3) by sending an award decision notice to all relevant suppliers on the framework
• the procurer did not enter into the call-off contract until the standstill period expired

When will the Court not declare ineffectiveness?

33). The Court will not apply the remedy of ineffectiveness if there are compelling reasons for the contract to continue. The reasons must be “overriding reasons relating to a general interest, in particular defence or security interests, or both, which require that the effects of the contract should be maintained”.

34). Specifically in the context of the DSPCR, the Court is obliged to take into account first and foremost any defence or security interests that require that the contract to be maintained, which should include examination of the following factors:

      a. the harm to the defence interests of the United Kingdom (UK) and its Allies, if, for example, declaring the contract ineffective would prejudice the:

• effective conduct of military operations
• safety of members of our armed forces or our Allies
• operational sovereignty of our armed forces; or
• key defence industrial or technical capabilities regarded as essential for national security reasons.

      b. the harm to the security interests of the UK and its partner nations, if, for example, declaring the contract ineffective would prejudice the:

• effective conduct of security or police operations
• safety of members of our security agencies and police forces
• ability of our security agencies and police forces to conduct future operations as required by the government; or
• key security industrial or technical capabilities regarded as essential for national security reasons.

35). In exceptional circumstances, indirect economic consequences of ineffectiveness – where these are disproportionate – may constitute “overriding reasons in the general interest”, but only if they are not directly linked to the contract. For example, the following direct economic consequences will not be taken into account:

      a. costs resulting from the delay in the execution of the contract
      b. costs resulting from the commencement of a new procurement procedure
      c. costs resulting from change of the supplier performing the contract
      d. costs of legal obligations resulting from the ineffectiveness.

36). The Court cannot apply the remedy of ineffectiveness if the consequence of the ineffectiveness will seriously endanger the very existence of a wider defence or security programme essential to UK security interests.

37). In seeking to apply the overriding reasons in the general interests test, the Court is likely to balance the weight of defence and security interests and other general interests having due regard for the full circumstances of the case, including:

      a. the nature and seriousness of the alleged breach of the DSPCR
      b. the practicality, cost and timing implications of requiring a new competition under the DSPCR.

38). If the Court decides not to apply the remedy of ineffectiveness in the circumstances above then it must impose alternative penalties described in paragraph 43 below.

What are the consequences of ineffectiveness?

39). A declaration of ineffectiveness from the Court cancels a contract from the date of the declaration. This means that the declaration cancels any obligations under the contract that the contractor has yet to perform. However, any obligations that that the contractor has already performed will not be affected by the cancellation (i.e. the cancellation will not be applied retrospectively).

40). When making a declaration of ineffectiveness, or at any time afterward, the Court may make any order that deals with the consequences of ending the contract. For example, it may order the parties to provide for:

      a. restitution of money already paid or property transferred, under the contract; or
      b. compensation to the supplier who originally won the contract in good faith but was then deprived of it following the ineffectiveness ruling.

41). Parties to a contract can make advance contractual provisions to address how they would exit the contract in the event of an ineffectiveness ruling, which may avoid the need for the Court to rule on consequential matters. Such contractual conditions may define the obligations of the parties in the event of an ineffectiveness ruling (for example, who owes what to whom). However, they must not undermine the basic core elements of ineffectiveness. Should they do so, the Court will disregard them or declare them unenforceable.

Penalties in addition to, or instead of, ineffectiveness

42). If a Court declares a contract ineffective, it will also order the procurer to pay a civil financial penalty.

43). If a Court does not make a declaration of ineffectiveness either because of overriding reasons relating to a general interest ground or the wider defence or security interests ground or no additional substantive breach of the DSPCR where there has been an infringement of the standstill rules or the automatic suspension requirement that would trigger ineffectiveness - the Court must order one of, and may order both of, the following penalties:

• the shortening of the prospective duration of the contract (and may make orders dealing with the consequences of shortening the contract such as providing for restitution and compensation between the parties to the contract)
• the procurer must pay a civil financial penalty.

44). When making its judgement on the length of the contract shortening and / or the size of the civil financial penalty, the Court is required to ensure that the penalties are effective, proportionate and dissuasive. The Court is also required to take into account all the relevant factors including the seriousness of the breach, the behaviour of the procurer, and the extent (if at all) to which the contract remains in force.

45). Where the parties to the contract have reached prior agreement (i.e. before the order) detailing their mutual rights and obligations in the event of an order being made shortening the contract duration, the Court will be required to exercise its power in a way that is consistent with these provisions, unless they are incompatible with the primary order.

46). If more than one challenger starts proceedings in relation to the same contract, the Court will apply penalties that it considers, when taken together, are effective, proportionate and dissuasive.

Can a Court declare ineffective call-offs under framework agreements?

47). The Court cannot apply the remedy of ineffectiveness to a call-off contract under a framework agreement just because the framework itself was declared ineffective. The Court can only make a separate declaration of ineffectiveness in respect of each call-off contract.

48). In order for a court to declare any call-off ineffective, an aggrieved supplier must have made a claim for a declaration of ineffectiveness against one or more call-off contracts within the special time limits specified in paragraph 16 (as applicable), and regardless of whether the supplier makes the claim at the same time as any claim for ineffectiveness against the framework agreement.

49). The rules governing the general interest grounds for not declaring a contract ineffective, and the grounds for ineffectiveness, apply to call-off contracts, but only insofar as they directly relate to the circumstances of those specific call-off contracts (i.e. not the framework agreement).

50). If the Court declares a specific call-off contract ineffective, the contract will be ineffective from the date of the declaration or a future date declared by the Court. However, the Court cannot impose financial penalties.

How can procurers mitigate the risks?

51). The effects on any procurement from a successful remedies challenge are severe, but there is some risk mitigation the procurer can undertake during a procedure to limit the impact on the project. Following the detailed provisions in the DSPCR will remove the threat of the Courts declaring ineffectiveness.

52). There may be occasions where, despite the procurer acting in good faith, they do not adhere to the DSPCR. In such cases you can mitigate the risk of ineffectiveness as follows:

• to avoid ineffectiveness because of an unlawful direct award the procurer may publish a VTN
• to avoid ineffectiveness for procedural breach the procurer should ensure they adhere to the standstill and automatic suspension rules
• to avoid ineffectiveness for a call-off under a framework breach the procurer may voluntarily apply the standstill period.

What are the key points to remember?

1). You must be aware that the risk and cost to your organisation of failing to comply with the DSPCR can be high.

2). You must calculate the standstill period correctly and wait until the end of the standstill period before entering into a contract.

3). You must advertise requirements, stick to your advertised evaluation criteria and make award decisions in an open and transparent way in order to avoid court proceedings.

4). If proceedings are started during the standstill period it is automatically unlawful to enter into a contract until:

      a. the Court issues an interim order allowing you to do so; or
      b. the proceedings come to an end and no order has been made continuing the legal review.

5). You must be aware that the remedy of ineffectiveness enables a Court to strike down a contract subject to the DSPCR, which a procurer awarded in serious breach of the relevant procedures in the DSPCR.

6). You must be aware that the Court can award other remedies in addition to, or instead of, ineffectiveness. These include civil financial penalties, damages and contract shortening.