The rise and fall of the pre-contractual remedy in public procurement

The European Union quite early on, as early as 1989, made its first rudimentary attempts to harmonise rules on public procurement across the internal market for two principal reasons: the breakdown of trade barriers within the EU bloc and the elimination of distortion of competition through government purchasing.

Many years later, and with the most recent overhaul in 2014, the EU legislative framework for public procurement has become increasingly more complex and wider in scope. Malta as an EU Member State has obviously followed suit and transposed this framework into Maltese law, principally, the Public Procurement Regulations.

However, and as I would like to see it, public procurement is relatively simple. It is driven by core general principles: equal treatment of bidders, transparency of the procurement procedure, no discrimination between economic operators and products/services, proportionality and promotion of genuine competition. The detail of the legal framework is generally understandable if one has a good grasp of how these general principles are interpreted and applied in practice. The majority of the rules are founded in one or more of these general principles.

A corollary aspect of equal treatment and transparency is, naturally, the remedies aspect of procurement. In fact, as part of the EU legislative framework, there is a specific Remedies Directive (1989/665/EC, as amended) which has been around since at least 1989. The principal objective of this Directive is that “effective and rapid remedies” must be available to economic operators in case of breaches of public procurement so that transparency and non-discrimination are guaranteed. This is very true. The effective and rapid nature of judicial remedies in public procurement generally available before the Public Contracts Review Board (PCRB) must  contribute to the market’s trust in Government’s purchasing policies and procedures. This is evident from year on year increase in cases being heard before the PCRB and relative speed by which disputes are resolved: 2 – 4 months before the PCRB and 4 – 5 months before the Court of Appeal (if a dispute is appealed).

Malta has had its own unique remedy in public procurement the so-called pre-contractual remedy, or formally called, “remedy prior to the closing date of competition”. This remedy can be exercised by filing an application before the PCRB at any time before the closing date of competition to address any perceived defect or illegality in a procurement document or procedure in advance and before economic operators submit their bids.

This remedy is attractive and has been used frequently for three principal reasons.

  • First, this remedy is intrinsically pro-active and attempts to solve any defects or illegalities in the procurement documents or the procedure adopted before bidders submit their bids. This guarantees legal certainty and also sets aside tender specifications which bar legitimate bidders with quality cost-effective solutions from participating in tenders.
  • Second, no deposit was payable by the bidder filing the pre-contractual remedy—which contrasts starkly with the deposit payable in case of an appeal from an award or rejection decision which can be as low as €400 and as high as €50,000.
  • Third, the PCRB has showed, time and time again, its willingness to hear these applications in one whole sitting (in some more complex cases spanning hours) and delivering its decision in just a few weeks. In my experience, bidders were won over by these two principal factors.

The utility of this pre-contractual remedy did not go unnoticed by the Court of Appeal either. In a number of judgments delivered in 2019, the Court of Appeal has held that if a bidder fails to exercise this pre-contractual remedy, that bidder cannot subsequently, and after being unsuccessful in the competition, challenge any aspect of the procurement document which it could have done before closing date of the competition. For better or for worse, that is the Court of Appeal’s position and one which sought to strengthen the pre-contractual remedy and to direct economic operators to use it in a timely fashion.

Despite all of the good things one could say about this remedy, it is true that a few market players have misused this remedy for a myriad of improper reasons: unnecessarily stalling competitive tender procedures, blocking new entrants to a market, but also, winning some more time to formulate a bid!  This misuse has been, in my view, sporadic at best, but nonetheless, there was good reason to address it. The abuse of judicial remedies is certainly not a new phenomenon. Although such abuse might, in theory, expose the preparator to damages, our courts have been less inclined in practice to award damages in such instances generally and this by applying a relatively high legal standard.

Government has sought to address this misuse by passing two far-reaching amendments to the pre-contractual remedy.

The first amendment which was passed on 15 November 2019 introduced the requirement for a deposit to be paid to the PCRB on the filing of the pre-contractual remedy. The exercise of this remedy is no longer free, but now a fee representing 0.05% of the estimated financial value of the potential public contract is to be paid which is capped at €50,000. If a multi-million Euro tender was split into lots, then the cost to lodge this remedy could be even double or triple that since the deposit is requested by the PCRB for each lot.

The second amendment which was passed even more recently on 15 May 2020 requires that the application is filed not just before the closing date of the tender (which sometimes meant filing it just a few hours before a tender was due to close), but “within the first two-thirds of the time period allocated in the call for competition for the submission  of  offers”.

In my view, these amendments have made the pre-contractual remedy absolutely redundant and ineffective. I will explain why I think this is the case below.

The pre-contractual remedy is usually useful in complex procurement and for example in the procurement of novel or innovative medicine—both of which are inherently of high financial value. Economic operators are also incentivised to take action to correct these tenders to earn the right to participate effectively. However, and in my view, economic operators are unlikely to blindly invest €50,000 (in most cases at least) in an uncertain venture, in particular, when they are not even present on the market in question. It is true that the deposit is paid back by the PCRB if the bidder is successful, but, with the exercise of any remedy, this is never guaranteed.

As to the new time-limit imposed for the exercise of this remedy, there is an inherent difficulty to calculate this “time period” since the submission period is regularly extended for some reason or another. Therefore, one has to ask whether the right to file this remedy is extinguished where the first two-thirds would have lapsed, but then the closing date is subsequently extended after a couple of days before it was meant to close.

The time period is also incompatible with the Court of Appeal’s judgments which are meant to strengthen this remedy and with the requirement in the Remedies Directives that transparency is guaranteed by remedies. This ties with another important point: the minimum time periods for the submissions of bids are regulated by the EU legislative framework to ensure transparency, but also, adequate opportunity for interested parties to learn of procurement procedures and to prepare their bid accordingly. The totality of that time period is important for reasons related to transparency and genuine competition, and therefore, it does not make sense that the time period allowed to exercise the pre-contractual remedy is significantly shorter. This shorter time period for the exercise of this remedy undermines the very objectives of public procurement.

More importantly, and I say this quite respectfully, there is no good and proper reason for this unworkable and unreasonably short time period to have been imposed. It can have no purpose other than to render this pre-contractual remedy ineffective and meaningless.

While it may be too early to tell, and there might have been other contributory factors, there might be a sharp drop in the exercise of pre-contractual remedies.

These amendments should be reversed and the effectiveness of the pre-contractual remedy is reinstated. If this is not the case, economic operators’ trust in Malta’s public procurement framework is at risk.


This article was first published in the Times of Malta, 20 July 2020.