Tricia Morrison: As competition hots up, sticking to rules is essential

Public-sector bodies have clear obligations when it comes to advertising and tendering for contracts, but with this increased competition, it is likely that we will see increased challenges to this process and potential financial penalties in the form of damages from the public body awarding the contract.

For example, a City of Edinburgh Council employee is being investigated by police after allegations of a housing repair scam worth more than 4 million. The worker has been suspended after claims that he received money from a firm for awarding contracts without putting the work out to tender. Other allegations included overcharging for work and repairs not being up to standard.

At the same time, the public sector is facing more complex scenarios over procurement following the recent administrations of Connaught and Rok. We are already seeing an increase in enquiries relating to potential challenges of public-sector tendering procedures and contract awards.

Whilst contracting authorities, subject to the public procurement rules, are increasingly accomplished in the application of the rules, it is possible that previously overlooked practices may be challenged. Such challenges will give rise to additional costs at a time when there is less resource from which to fund responses by the public sector.

The EC Treaty requires all member states within the European Union not to discriminate on the grounds of nationality and to adhere to the principles of transparency and fairness of process. Public-sector bodies are required to undertake their affairs, including awards of contracts, in accordance with these general principles. In addition, the EU has issued directives to provide a structure within which member states must work in order to regulate compliance with these principles when awarding contracts.

The regulations require contracts for services, works and supplies over a particular value to be advertised and tendered in accordance with particular procedures. This is to ensure that all interested (or potentially interested) parties throughout the member states of the EU can bid to take on the contract if they wish to do so.

If a supplier of works, services or supplies within the EU becomes aware that a contract they would may have bid for has been let without application of the legal requirements then they could challenge the public body's award of the contract. They are most likely to do so if they feel they would have been in with a good chance of winning the contract.If the actual contract has not yet been entered into, albeit the successful bidder has been selected, then the challenging supplier may be able to obtain an interdict to stop the contract being awarded.

In terms of the regulations there should be a ten day "standstill" period in order to allow potential challengers a window to do so. However, if the contract has already been entered into, a challenging supplier may be successful in seeking an award of damages from the public body. This would be intended to make good the loss that the aggrieved supplier has suffered as a result of not being awarded a contract that they would have won had the public body complied with their obligations under EU law.

Alternatively, the European Commission may investigate an alleged breach of the rules, either at their own instigation or by a disgruntled party.

As public-sector cuts begin to bite, a diminishing pot of contracts will be fiercely fought over. The stakes are indeed high and it is imperative that the procurement process is followed to the letter, or the public sector could end up either facing delay or even potential damages, putting increasing strain on already limited resources.

• Tricia Morrison is construction partner at HBJ Gateley Wareing