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ANNEX B: DRAFT REGULATORY IMPACT ASSESSMENT

1. Title of proposal

Transposition of EU Directive 2007/66/ EC¹ (The Remedies Directive) in Scots law.

2. Purpose and intended effect

Objectives

The Remedies Directive introduces changes to the legal remedies available to suppliers for breaches of EU procurement law. The Directive addresses two main problems: the difficulty of challenging a direct award on the basis that there has been no prior advertising and no competition; and the difficulty of ensuring that a contract award decision can be set aside before the contract comes into effect.

The Directive provides that contracts which are awarded in breach of significant procedural rules, such as the requirement to advertise a contract in the Official Journal of the European Union, should be deemed ineffective. It also provides for a harmonised standstill period between the contract award decision and the award of the contract, to allow for challenges to the contract award decision. In addition, where a contract award decision is challenged in court, the contracting authority cannot enter into the contract before the Court has taken a decision on the application.

The Remedies Directive seeks to improve the rules governing the remedies available to aggrieved bidders, to make the procurement process more transparent, to further deter contracting authorities from awarding contracts in breach of EU procurement law and to satisfactorily address situations where such awards are made.

EU Member States must implement the Remedies Directive in national legislation by 20 December 2009.

Background

Member States have a responsibility to ensure that effective and rapid remedies are available against decisions taken by public sector contracting authorities. The European Commission has examined the review mechanisms in place in Member States and has identified a number of weaknesses. The purpose of the Remedies Directive is to improve the effectiveness of Member States' procedures for reviewing the award of public contracts.

At present, the Scottish Regulations ² allow suppliers to bring proceedings in the Sheriff Court or the Court of Session against contracting authorities which have infringed their obligations to comply with the Scottish Regulations, or any other enforceable Community obligation which may be relevant to awarding a public contract.

Under the existing Scottish Regulations, the Sheriff Court or the Court of Session can make an interim order suspending the procedure leading to the award of the contract, can order a contracting authority to amend any document forming part of the procurement process, can set aside any decision, including a contracting authority's decision to award a contract, and can award damages. Where a contract has been awarded, the only remedy available to aggrieved bidders is damages.

The second consultation paper proposes that, following implementation of the new Directive, the remedies will be as follows:

• All existing remedies are unchanged, therefore damages will still be available to aggrieved bidders.
• In certain circumstances, where there has been a serious breach of the procurement rules, the Sheriff Court or the Court of Session will be required to declare an awarded contract ineffective, impose a civil financial penalty on the contracting authority and make any order it considers appropriate to address the future position of the parties.
• The Sheriff Court or Court of Session will be required to impose a fine on the contracting authority or shorten the duration of the contract:
  • where a contracting authority awards a contract in breach of the standstill period or the automatic suspension applying on the commencement of court proceedings; or
  • as an alternative to ineffectiveness where the Court has found that there are good reasons for maintaining the contract.
• The new remedies will be available against framework agreements and dynamic purchasing systems but will not always be available against call-off contracts.

Amendments to the existing Scottish Regulations are necessary to implement the provisions in the Remedies Directive.

Rationale for Government intervention

Government intervention is necessary to transpose the Directive by the European Commission's deadline of 20 December 2009.

3. Consultation

Within government

The following government agencies and departments have been consulted in the preparation of this draft RIA:

Better Regulation and Industry Engagement Branch, Scottish Government
Constitution, Law and Courts Directorate, Scottish Government
Office of Government Commerce
Scottish Government Legal Directorate

Public consultation

Two public consultations have been undertaken:

• The first consultation sought feedback on our approach to implementation of the Remedies Directive in Scotland and an initial RIA and took place from August to November 2008. Where respondents gave permission for their response to be made public, these were published on the Scottish Government consultation web pages on 28 November 2008. We published an initial analysis of the responses we received on the Scottish Government's website on 13 February 2009: http://www.scotland.gov.uk/Publications/2009/02/remedies.
• This second consultation seeks feedback on draft regulations and a number of outstanding questions relating to implementation of the Directive.

4. Options

Option 1 - do nothing

Non-implementation of the Directive would trigger infraction proceedings and the UK could be liable for substantial penalties. The Scottish Ministers are obliged by the terms of the Scotland Act to fulfil their obligations under EU law. We therefore intend to implement the Directive in line with our EC Treaty obligations and the Scotland Act.

Option 2 - implement the Directive into national law

It will be necessary to amend the existing Scottish Regulations to implement the provisions in the Directive relating to review procedures, the standstill period, ineffectiveness and other sanctions.

The options for implementation are constrained by the requirements of the Directive, which has already been adopted at the European level. The majority of the provisions in the Directive are mandatory. However, Member States have a choice as to how certain provisions in the Directive are implemented. For example, in relation to ineffectiveness, Member States may provide for the retroactive cancellation of all contractual obligations or limit the scope of the cancellation to those obligations which still have to be performed. In implementing the Directive, the Scottish Government has throughout chosen options which maximise the benefits and minimise the potential costs for all suppliers.

5. Costs and benefits

Sectors and groups affected

The following are likely to be affected by changes to the legal remedies available to suppliers for breaches of EU procurement law: public sector procurement organisations must ensure that they comply with the rules governing remedies; suppliers and service providers will have greater opportunity to challenge in court the procedures adopted by public sector procurement organisations and the decisions they make. We anticipate that there may be an increase in the number of legal challenges in the Sheriff Court and Court of Session.

Benefits

Implementation of the Directive in Scotland will ensure that effective legal remedies are available to suppliers and service providers for breaches of EU procurement law. It will further deter contracting authorities from awarding contracts in breach of EU procurement law. Greater compliance with EU procurement law will result in savings to the public purse.

Costs

Any increase in the number of legal challenges in the Sheriff Court and Court of Session is likely to increase the legal costs for public sector procurement organisations. We foresee that costs resulting from a successful challenge will also increase, particularly in relation to ineffectiveness claims. However, given the historically low number of legal challenges and the fact that procurers can undertake simple due diligence to avoid ineffectiveness arising, we believe that implementation of the Directive will not have a significant impact on costs to business, the third sector or the public sector.

6. Small/Micro Firms Impact Test

Implementation of the Directive will have no negative impact on small or micro businesses.

7. Legal Aid Impact Test

The majority of those seeking remedies for breach of EU procurement law will be doing so on behalf of businesses, in which case legal aid will not be available. There will therefore not be a significant impact on the legal aid fund.

8. "Test Run" of business forms

Implementation of the Directive will not introduce any statutory business forms.

9. Competition assessment

EU procurement legislation is intended to facilitate greater competition by opening up markets. The Remedies Directive binds only the public sector but beneficial effects are shared with private sector suppliers and service providers.

10. Enforcement, sanctions and monitoring

The European Commission will review Member States' implementation of the Remedies Directive and report to the European Parliament and the Council of Europe before 20 December 2012.

11. Declaration and publication

Consultation

This draft RIA and the proposals contained in the accompanying consultation paper are now produced for comment. It has been distributed to a range of key stakeholders with an interest in public procurement.

It is also available on the Scottish Government website consultation page.

Contact

Any queries about this RIA should be addressed to:

Jessie Laurie

Tel: 0141 242 5672
Fax: 0141 244 5599
E-mail: procurementremedies@scotland.gsi.gov.uk

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