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What makes a remedy system effective?

What makes a remedy system effective? Experiences of two EU countries on factors contributing to the effectiveness of a remedy system Dr. Peter Braun, LL.M. Conference on "Public Procurement Review & Remedies Systems“ Dubrovnik 24-25 May 07. Dr. Peter Braun, LL.M.

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What makes a remedy system effective?

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  1. What makes a remedy system effective? Experiences of two EU countries on factors contributing to the effectiveness of a remedy system Dr. Peter Braun, LL.M. Conference on "Public Procurement Review & Remedies Systems“Dubrovnik 24-25 May 07

  2. Dr. Peter Braun, LL.M. • Studied law at Kiel, Aberystwyth (Wales) and Nottingham • Member of the Public Procurement Research Group • Correspondent to the Public Procurement Law Review • Ph.D. in Nottingham „Practical application of EU Public Procurement rules to PFI/PPP projects” • Legal practitioner (Rechtsanwalt) with Hölters & Elsing in Frankfurt am Main • Public Procurement Law and Public-Private Partnership

  3. Agenda • The UK experience • The German experience • Factors contributing to effectiveness

  4. United Kingdom • The UK experience • Brief introduction of the UK remedy system • Analysis from the private sector’s perspective: Wood Review • The German experience • Factors contributing to effectiveness

  5. Introduction to the UK Remedy system De facto not available Interim relief De facto not available Set aside Availablebut rarely used Damages Available but not used Art 226 EC Treaty procedure Complaint to the European Commission

  6. De facto not available Interim measures • Suspend the procedure • No distinct procurement regulation with respect of remedies • Originally not available against the Crown (Factortame II decisison) • Requirements to be satisfied • Arguable case • Adequacy of damages • Undertaking in damages • Balance of Interest • In practice, difficult to obtain interim measures

  7. De facto not available Set aside • Set aside an unlawfully adopted decision means to make it devoid of legal effect. • Time: several months. Hence, contracts will be generally concluded when the proceedings are launched and can no longer be set aside. • In practice not available to bidders

  8. Availablebut rarely used Damages • Tort of „misfeasance in public office“ – public official must have maliciously exercised or deliberately abused its public power. • Other torts (negligent mis-statement, misrepresentation, conspiracy) • Damages under Regulations, requirements: 1. Plaintiff must prove a breach of a duty owed to him 2. Defendant is liable for the duty 3. Proof that breach resulted in damage (causation) 4. Quantify the damage • Section 19 of Local Government Act – Recovery of costs for preparing bids • Breach of implied contract (Blackpool decision) • Only one successful case: Harmon

  9. Wood Review • “Shrug your shoulders, that’s what happens, move on” • “Why wouldn’t you fight a customer?” • Few examples of discrimination, difficult to prove • Experience of courts on procurement cases is low • Remedies are not perceived as a helpful solution to the problems encountered • Preference for informal, less confrontational solutions Recommendation N: OGC should provide guidance for business on the specific remedies available for breaches of the public procurement rules, and the available channels for pursuing a complaint. Source: Wood Review, November 2004

  10. Agenda • The UK experience • The German experience • Brief introduction of the German remedy system • Statistics on the practical use of the remedy system • Factors contributing to effectiveness

  11. German Remedy system Available! Primary measures (Set aside, interim measures) Review chambers Court of Appeal (Procurement Senate) Federal Court Damages Available, but rarely used! Civil courts (Regional Court) Court of Appeal Complaint to the European Commission Available! Art 226 EC Treaty procedure

  12. German Remedy system 33 Review Chambers 16 Courts of Appeal

  13. Cases brought Review Chamber Court of Appeal 2002 1092 250 2003 1275 302 2004 1493 314 2005 1348 286 2006 1152 228

  14. Which party succeeded? Contracting Authority Bidder 1999 53% 47% 2000 47% 53% 2001 33% 67% 2002 47% 53% 2003 62% 38% 2004 65% 35% 2005 60% 40% 2006 58% 42%

  15. Primary measures (Review chamber) • Complaint to the contracting authority • Immediately after getting positive knowledge of the breach of pp law • Must describe the breach of pp law (to give contracting authority the opportunity to rectify) • Application to review • Review chamber serves the contracting authority with the application (after cursory review) • Contracting authority must not conclude the contract • Decision of review chamber within 5 weeks, generally after a hearing • Appeal within 2 weeks to Court of Appeal Available!

  16. Available, but rarely used! Damages (civil courts) • Decision of the contracting authority was in breach of Procurement law and • This resulted in damages Causal link between breach of pp law and damage • Costs of preparing the tender - Bidder has to prove that without the breach of law it would not have incurred the transaction costs • Profit – Bidder has to prove that without the breach of law it would have succeeded in the bidding process

  17. Complaint to the EU Commission • No costs for the complainant, loss of control over the procedure • May lead to a 226 EC-Treaty infringement proceeding before the European Court of Justice • Not directed towards the contracting authority, but the respective Member State • Problem in a federal system: How can the federal state – which is subjected to the infringement procedure – influence the decision-making on communal level (art 28 basic law)? • Can the federal state claim damages from the contracting authority? • Can the contract be cancelled due to an ECJ ruling? • Difficulties in practice for contracting authority • Negative Publicity • Lack of Transparency • No deadlines Available!

  18. Agenda • The UK experience • The German experience • Factors contributing to effectiveness • Legal culture • Costs • Acquaintance with procedures • Fear of retaliation • Length of proceeding • Chances of winning a case • Approach to client relationship

  19. Factors contributing to effectiveness • 1. Legal culture • Cultural inhibitions about the (in) appropriateness of using litigation • Litigious climate vs. non-confrontational culture • Traditional alternative means of problem solving – in the UK non-litigious legal culture – out-of-court settlements • Tradition of remedies before the EC Rules were implemented. • In Germany, bidders were used to (weak) review system and the award of damages in civil courts, whereas in the UK there were no pre-existing

  20. Factors contributing to effectiveness 2. Costs • Legal expenses • Lawyer’s fees • Court’s fees • Costs for litigation are substantial in the UK and have been criticised as a “denial of access to justice” (Lord Woolf, Access to Justice (1995) • Application for interim measure will cost in the UK between £ 50,000 and £ 100,000, whereas in Germany between € 15,000 and € 30,000. • In Germany, almost 30% of the cases are withdrawn before a formal decision is delivered. This results in halving the Court’s fees. • Distinction between solicitors and barristers in UK • High security for an action of damages (£ 650,000 in Harmon) in the UK, much lower in Germany

  21. Factors contributing to effectiveness • 3. Acquaintance with procedures • In the UK, bidders are not acquainted with the procedure to lodge a complaint with the European Commission • Scepticism towards “Brussels” • Lawyers perceive procedure as useless and ineffective and too time-intensive • Loss of control over procedure • Difficulty for foreign bidders to move swiftly in a different legal context • Market participants have to acquaint themselves to distinct review procedures, e.g. with respect to deadlines.

  22. Factors contributing to effectiveness • 4. Fear of retaliation • Firms fear that authorities might retaliateby not awarding contracts to them in the future • Firms do not want to antagonise their potential customers • Especially, if long-standing contractual relationship • Dependent on specific market (services vs. supply and works contracts) • Dependent on value and duration of the contract • Dependent on relative market power of the company (new-comer vs. incumbent contractor) • Outsider might be more willing to challenge decision as a means to enter a market.

  23. Factors contributing to effectiveness • 5. Length of proceedings • Swiftness of the procedure is paramount for the effectiveness and attractiveness of a remedy

  24. Factors contributing to effectiveness • 6. Chances of winning the case • Companies assess their chances of winning a case/ the effectiveness of a specific remedy in a given case • Due to the lack in considerable body of case law in the UK the chances of winning a case are difficult to assess. • In Germany, case law (precedence) is extensive with more than 6300 cases brought within the last 5 years. • In Germany, chances of applicants have been lowered in recent years due to an ever stricter approach by review chambers with respect to formal requirements • (Perceived) Experience of the court in procurement matters can effect the outcome assessment of bidders.

  25. Factors contributing to effectiveness • 7. Approach to client relationship • Acceptance of loosing a bid process is often viewed in the UK as a natural business risk • In the UK, contracting authorities are rather viewed as valuable public sector clients (Pragmatic and business-oriented approach), whereas in Germany a more adversarial approach is prevalent. • Differences between markets and sizes of companies

  26. Contact Dr. Peter Braun, LL.M.Hölters & ElsingFreiherr-vom-Stein-Straße 24-26D-60323 Frankfurt am MainGermany Telefon: +49 (0)69 / 71 588-340Telefax: +49 (0)69 / 71 588-588E-Mail: braun@hoelters-elsing.com

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