We have recently had judgment in a Scottish case where an ineffectiveness declaration has been made which, to our knowledge, is the first of its kind: Lightways (Contractors) Ltd v Inverclyde Council.
Readers will probably remember that a court may make a "declaration of ineffectiveness" and bring a contract to an end, in three specific circumstances. These are (broadly speaking) (1) where the contract has been awarded directly when an OJEU advertisement and competition was in fact required; (2) where there has been a breach of the requirement to hold a lawful standstill period and this has deprived a bidder of the opportunity to seek redress for another substantive breach; or (3) the rules on mini-competitions have not been followed, in the context of a contract called off from a framework.
In 2015, the Council ran a mini-competition and made a call off under Lot 9 of a Crown Commercial Service Framework agreement for Street Lighting Services. The contract award was made to a company named “Amey Public Services LLP” (LLP) and the contract entered into. It was relevant that in 2013 the Council had previously made an award under the Framework to the same LLP.
The Claimant (Lightways (Contractors) Ltd) was not on the Framework for Lot 9 but nevertheless challenged the award on grounds that the LLP were not appointed under the Framework and so the contract award had been made contrary to Regulation 19(3) of the Public Contracts (Scotland) Regulations 2012 (which mirrors Regulation 19(3) of Public Contracts Regulations 2006). This regulation states that call offs can only be made to entities which have been appointed to the Framework. In fact, it was a different Amey company, “Amey OW Limited” (OW), which was the supplier listed on the Framework.
Notwithstanding that both the LLP and OW had links to Amey, they were very different companies. The LLP was a JV between a company in the Amey Group (not OW) and Lanarkshire Council whose principal activity was stated to be a contract with Lanarkshire Council for highways maintenance. In contrast, OW’s principal activity was stated to be civil engineering consultancy. Each company had their own assets, employees and were very separate businesses. Unlike LLP, OW had no presence at all in Scotland.
The Court accepted the Claimant’s arguments and was satisfied that Lightways had standing (in layman's terms, this means the "right to sue") to challenge even though it was not itself a party to the Framework.
It did not accept that the principle of proportionality applied here to allow the court to simply correct the Council’s mistake and substitute OW in the LLP’s place. It was clear that this was not a simple mistake which could easily be corrected, as the Council had never had the intention to award the contract to OW (the party listed on the Framework). This was evident from the fact that the intention was to award to the same company as had had the contract (albeit through the same error) since 2013.
Therefore, the Court concluded the Council had no defence to the challenge (under Regulation 19(3)) and therefore made an order of ineffectiveness.
The case is interesting, not only because it is the first case on ineffectiveness but also in relation to "standing". Even though the claimant was not entitled to be appointed under the Framework, it was still found to have standing to challenge the award.
There is no mention in the judgment of the Council carrying out a standstill prior to entering into the contract with LLP; it would have been interesting to know if running a standstill would have "saved" the Council from an ineffectiveness declaration, as, by appointing to an entity which was not on the Framework, the Council had in effect made an illegal direct award. If the Court felt Lightways had standing to challenge, this suggests it may also have concluded that a standstill may not have saved the position as Lightways (who was also not a party to the Framework) would not have received a standstill notice in any event.
The case is also a good reminder of the importance of ensuring (a) that the same entity that tenders is awarded the contract and (b) in the case of Frameworks checking that tenderers invited to mini competitions and those awarded call offs are parties which are actually appointed to the Framework.