On 2 July 2014, the English High Court held that Mansfield District Council (MDC) had breached EU law in the award of two sub-threshold procurement contracts by failing to advertise them publicly. This ruling is a salutary reminder to contracting authorities of the importance of abiding by the general principles of equal treatment, non-discrimination, transparency and proportionality contained in the Treaty on the Functioning of the European Union (TFEU) when awarding contracts which fall below the financial thresholds in the EU public procurement rules.

MDC was awarded grant payments from the European Regional Development Fund (ERDF) towards the funding of two contracts for town centre improvements. The overall value of the two contracts awarded was just over £900,000 and therefore fell below the financial threshold in the EU public procurement rules.

At the time the ERDF was administered by the East Midlands Development Agency (EMDA). The EMDA agreed the grants for the two contracts conditional on MDC complying with a Deed of Grant for each project. The terms of each Deed of Grant required MDC to comply with current EU public procurement rules at all times in relation to the project. Each Deed of Grant also required compliance with the tendering procedure requirements set out on the EMDA’s website. MDC used a national online database, Construction Line, to identify a ‘long list’ of suitable contractors, whom it then approached directly to gauge their availability and interest, before compiling a final tender list of eight contractors. Six of these submitted tenders and, from these, A&S Enterprises was selected. However, MDC did not advertise the contract opportunities on its website or elsewhere.

On 19 March 2013, the UK Government acting through the Secretary of State for Communities and Local Government and a local development agency informed MDC of its decision to claw back 25% of the grant payments made totalling nearly £160,000 in respect of the two contracts awarded in this case to A&S Enterprises for failure to comply with the terms of the Deed of Grant and by failing to advertise the two contracts publicly in contravention of EU law. MDC brought an action refuting the basis of the Secretary of State’s case and his entitlement to claw back these payments.

The EU public procurement rules are contained in a series of EU Directives. Directive 2004/18/EC covers contracts awarded by central government, local authorities and other public sector bodies (“Public Sector Directive”). The Public Sector Directive is implemented into English law by the Public Contracts Regulations 2006 (SI 2006/5) (“The Regulations”). The Regulations stipulate how contracts for Works, Supplies or Services over a certain financial threshold have to be advertised (e g publishing a contract notice in the Supplement to the Official Journal of the European Union (OJEU)) and how the tender process is to be conducted and the contract awarded.

However, contracts that fall below the financial thresholds are not caught by Regulations. Nevertheless, a sub-threshold contract that is likely, in view of its particular characteristics, to be of cross-border interest (and therefore to be of interest to tenderers from other EU member states) will be subject to general EU principles, in particular of equal treatment, non-discrimination and transparency (SECAP v Commune di Torino (C-147/06). Therefore, unless there is an available derogation or exemption, the relevant contract will need to be advertised (although this need not be in the OJEU) and subject to a fair and transparent tender process of the contracting authorities own making. This need not be the same as under the Regulations and can be informal as long as it respects the general principles discussed above.

Judgment

The High Court held that MDC was in breach of the Deeds of Grant and the general principles of EU law and that MDC’s overall challenge to the claw back must fail.

The EMDA in its guidance set out advice on the minimum standards for awarding low value contracts which fall below the EU procurement thresholds. It required an adequate level of advertising of the contract in order to ensure respect for the general EU principles of equal treatment and transparency. The guidance clarified that this meant publication of the contract in the national or local press and on the website of the contracting authority.

The High Court held that even where the tendering procedure in the Directive and the Regulations does not apply, a contracting authority must apply the principles of non-discrimination and transparency in the Treaty before awarding a public services contract (Telaustria Verlags GmbH and Telefonadress GmbH v Telekom Austria AG, Case C-324/98 [2000] ECR I-10745).

However this only applies if there is shown to be the requisite degree of cross border interest in tendering for the contract (Commission v Ireland C-507/03). If there is at least a reasonable prospect of cross-border interest, the principles of the Treaty will apply.

The High Court found there to be no evidence of any assessment by MDC of potential cross border interest in the project. Nor were the contract opportunities advertised according to the local guidance (namely publication of the contract in the national or local press and on the website of the contracting authority). The High Court therefore concluded that there was a breach of the Deeds of Grant and, unless there had been a waiver of that requirement (which had not been established) the right to claw back monies had arisen.

The High Court also concluded that MDC’s failure to consider whether there was any realistic prospect of cross-border interest (with the need for appropriate advertising if it did) does itself represent a breach of the EU public procurement rules. No attempt to advance a justification of this after the event was capable or sufficient to remedy that omission.

Passive publicity is not acceptable. This is where a contracting entity abstains from active advertising but replies to requests for information from applicants, who found out by their own means about the intended contract award or where the contract opportunity is referred to in the media or in parliamentary debates. The only way that the requirements laid down by the European Court can be met is by the publication of a sufficiently accessible advertisement prior to the award of the contract. This should be published by the contracting entity in order to open the contract award to competition.

The High Court came to their conclusions reluctantly as it noted that there had never been any intention on the part of MDC to evade its responsibilities under the procurement processes. However, the Court noted that the EU requirements for advertising and transparency are demanding and the onus is on the contracting authority to get its processes right. MDC have the ultimate responsibility for complying with their procurement obligations.

It was important for contracting authorities to remember to undertake an analysis of cross border interest in the case of all sub threshold contracts and if cross border interest exists to advertise the relevant contract opportunity appropriately. So what constitutes appropriate advertising? It is always open to the contracting authority to advertise voluntarily in OJEU even if the provisions of the Public Sector Directive and the Regulations don’t fully apply. However, as mentioned in this case it appears advertising on the contracting authoritie’s website and in the national or local press is likely to be sufficient to meet the EU rules on transparency.

See: Mansfield District Council v Secretary of State for Communities and Local Government [2014] EWHC 2167 (Admin) (02 July 2014).