Getting project scope right emphasised by public contracts ruling

Elaine McLean of Pinsent Masons, the law firm behind Out-Law, was commenting after the court examined the extent to which a declaration of ineffectiveness could be made in circumstances where a procurement process extends beyond the scope of the original contract notice. 

The High Court considered the issue which has arisen as part of a dispute between real estate investment company AEW Europe and Basingstoke and Deane Borough Council.

AEW Europe challenged the way Basingstoke and Deane Borough Council carried out a procurement concerning a contract for the regeneration of Basingstoke Leisure Park. In particular, it said there was a disparity between the original contract notice that the authority had advertised in the Official Journal of the EU (OJEU) and the final development agreement it entered into with the successful bidder, a real estate property developer called Newriver Leisure (NRL).

The procurement was subject to the Public Contract Regulations (PCRs).  The PCRs provide some scope for some modification of the provisions of a public contract after they have been set out in the contract notice, but the regulations require a new procurement procedure to be commenced where modifications extend beyond what the rules permit.

The PCRs also set out three circumstances in which a declaration of ineffectiveness can be made.  Importantly, this includes where a contract award is made without having advertised the opportunity, by way of a contract notice. 

AEW Europe asked the court for a declaration of ineffectiveness against the contract awarded in this case.

However, in its ruling, the High Court noted that the PCRs "do not specifically legislate" for what should happen when there is a ‘perfectly valid’ contract notice but the contract entered into goes beyond what is set out in that notice.

The court said that there is no requirement specified in Part 2 of the PCRs for a further notice in circumstances where there has already been a contract notice and "the contract ultimately let substantially relates to the advertised project". It highlighted the need for a pragmatic approach to the so-called ineffectiveness remedy, taking into account the fact that "the declaration of ineffectiveness remedy is a Draconian one which brings to an end an otherwise lawful contractual relationship".

The court acknowledged what has previously been described as the 'mechanical test' for determining whether grounds exist for granting a declaration of ineffectiveness, but said 'a broad-brush approach' should be adopted when applying the test. This, it confirmed, means that the ineffectiveness remedy could be available in cases where a public contract awarded goes "far beyond what was covered by the original notice that it bore no relation to it at all". It said, though, that those circumstances did not apply in this case since there was a "sufficient and indeed close connection" between the contract notice issued and the development agreement entered into between Basingstoke and Deane Borough Council and NRL.

"Whilst this case does provide some comfort to contracting authorities that small shifts in scope may not trigger ineffectiveness, it confirms that ineffectiveness will be available where there is a substantial change in scope," McLean said. "Furthermore, contracting authorities should be mindful that a remedy of damages may be available even where ineffectiveness is not."