ADR and public procurement

Disputes over bids for public contracts are now well known in the UK. Although some complain of the number of challenges, the number of challenges proportionate to the size of the economy is considerably smaller than in most other EU member states.

A large number of these disputes are resolved using alternative dispute resolution (ADR). Claims have to be brought in the High Court, but there are many other means of ventilating a grievance in this area: complaints to the Commission in Brussels, recourse to public audit bodies and even political channels can all have a role to play. If a claim gets past the early frenzy it is more likely than not that it will be resolved in mediation.

Central government has on many occasions restated its commitment to mediation (most recently in the Dispute Resolution Commitment in 2011). However there are factors that might make it surprising that mediation is so commonly successful.

These disputes fall into three categories:

• A claim by a bidder that the bid procedure must be stopped or that the contract must not be signed.
• A claim for damages in respect of the outcome of a tender procedure, pursued usually on the basis that if only the authority or utility had conducted the procedure properly the claimant would have won the contract and gone on to recover its profit on the contract.
• A claim by a bidder for damages upon termination of a procurement before any result could be achieved. Many such claims arise out of projects cancelled as a consequence of austerity measures.

Typical approaches to mediation may need to be adapted in dealing with these disputes. While it is often said that the dispute belongs to the parties in mediation, that approach has to be adapted where the battle is over a contract that serves the public interest out of public funds. In particular, the winning bidder, or bidders are not present and any solution which does not recognise that party's interests is likely to fail.

Mediators often look for solutions outside the confines of the dispute, but in these cases this often involves allowing the challenging claimant to win an untendered contract, for instance. This will raise serious questions about legality and budget responsibility. The decision of the Court of Justice of the EU in Case C-568/08, Combinatie Spijker, suggests that such an additional contract might sometimes be possible. The fact that these issues of legality are raised may lead the public body to look for a more evaluative approach from the mediator than usual as a means of validating any outcome.

Political issues

If the contract has already been entered into, the claim is probably only for damages and the usual effect of paying out any damages beyond the claimant's wasted tender costs is to involve the public body in paying profit on the contract at least twice - once to the contracting party and once to the challenger. And there may be more than one challenger. The political and budgetary issues this raises can be considerable.

Claims challenging the decision to cancel bid procedures raise other issues. Although such cancellation decisions must be open to challenge in court, there have been few judgments in which such damages claims have succeeded and defendants will argue that this shows that such claims are unlikely to succeed.

Despite this commonly stated position, there have been a significant number of substantial settlements. The level of recovery seems better than might be expected given all that is said about such claims. Any remedy involving damages or additional work is bound to face similar challenges as already noted.

There are often also cultural issues to consider in these mediations. Administrators often come to mediation with a perspective different from that of a private commercial party. A private party is likely to come looking for success and planning to do the deal or lay the ground work for it at the mediation.

Betrayal of trust

A public body is different. Those representing the body will usually have limited authority and have political concerns to meet. They will have to have regard to the relevant financial controls. Sometimes this translates into the public body taking any deal done as a first draft for discussion with principals. That approach, when it is revealed, can come over as a betrayal of trust in the process and counterpart and can do significant damage to chances of settlement.

Challenging bidders sometimes also have unreal aspirations about what can be achieved. A public body will be more likely to fight a claim over a point of principle rather than exceed whatever is currently budgeted for that claim. There may be a host of reasons why it is simply easier or better for a public body to fight and a private body wishing to get a successful outcome needs to take account of this.

Finally, it is worth noting that enthusiasm for ADR is leading to the introduction of some new beasts in the public/private arena. In particular pendulum or baseball arbitration is arriving in the health sector. Its future is uncertain.

Overall, ADR and in particular mediation, is alive and well in public procurement disputes. Nonetheless it raises specific issues about legality and practicality which do require a rather more considered approach than is currently usual.

Michael Bowsher QC is a barrister and chartered arbitrator actively involved as counsel and mediator in numerous public procurement disputes

www.ciarb.org/das