Funding Foul Play?: Liability for Interference in Regulated Procurement Processes
January 2023Introduction
The rules on public and utilities procurement are designed to ensure fairness and transparency in the allocation of government funds for projects. In this process, a number of rules are put in place to safeguard the interests of all parties involved and to ensure that the most economically advantageous bid is chosen, on the basis of a transparent tender process. Whilst the laws address the procuring authorities and bidders, there are frequently other third-party stakeholders with an interest in the process, such as funders. What happens in situations where these stakeholders exert influence on the procurer to avoid working with a particular bidder? In this article, we will delve into how the procurement rules may apply in these situations and how potential liabilities for interference may be established.
Recently, we have encountered situations where funders of public projects have effectively vetoed the appointment of a preferred bidder in a regulated procurement process. It is our view that in such circumstances, it is possible for an external funder to be held liable for interference in a regulated procurement process, as seen in the case of Douglas v Hello [1]. Under English law, there are a number of economic torts that may apply in such situations.
Why not sue the public body?
Before we turn to our analysis of those torts, let’s address the obvious question you may have at this point? Why sue the funder? Surely it is the contracting authority’s fault if the procurement rules are not followed in a given process. It is true that the duties under the public procurement regulation are duties owed by the contracting authority. There are three reasons why pursuing the interfering party may be preferable.
First, from the perspective of the tenderer, however, there is a commercial relationship to preserve with the public buyer. It may well wish to avoid souring the relationship where it has other contracts with the same organisation or where that authority has other opportunities in the offing. Far more attractive to pursue the funder, if only to avoid the prospect of a similar intervention occurring in future.
The second reason relates to time limits. Whereas the usual time limit for commencing claims under the public procurement rules is 30 days from knowledge of the underlying facts, claimants generally have up to six years from breach of duty to commence actions in tort.
The third reason relates to causation. The contracting authority may say simply that if the funder made good on its threat to take away project funding, there would be no contract for the claimant to win and therefore no loss to compensate.
Procuring breach of contract
In a hypothetical scenario, if a public body were to agree to acquiesce to the wishes of a funder and deselect a preferred bidder in a procurement process, the funder could conceivably be held liable for inducing breach of contract. This occurs when one party intentionally causes another party to breach a contract with a third party. In this case, the funder may have induced the public body to breach its contract with the preferred bidder by threatening to withdraw funding if the preferred bidder was not deselected.
A party will be considered to have intended to procure a breach of contract if procuring a breach of contract was the end it sought in acting as it did. Moreover, that party will be deemed to have intended to procure a breach of contract if that was the means that it chose to achieve some further end. That conclusion cannot be avoided by demonstrating that the party would have preferred a different means to have been available.
In the context of a procurement process, a contractual duty to choose the most economically advantageous tenderer may arise in a number of ways. Firstly, where the relevant award relates to a call-off contract under a regulated framework agreement, it is likely that the framework agreement will stipulate that call-offs will be awarded only after a competitive tender process. To interfere with that process by objecting to the victor would clearly go against the spirit if not the letter of that contractual provision.
Second, an implied contract may arise in situations where a business submits a valid tender response within the stipulated deadline. As part of this implied contract, the purchaser is required to consider the tenderer’s offer and conduct any negotiations in good faith (Blackpool & Fylde Aero Club v Blackpool Borough Council [1990] EWCA Civ 1). The Invitation to Tender in a regulated procurement may effectively commit a public body to identify its preferred supplier through a scored competition, applying published evaluation criteria. Again, a funder which requires a public body to depart from that process could well be argued to be facilitating a breach of the implied contract with the successful tenderer.
Unlawful interference with economic interests
A third potential tort is unlawful interference with economic interests, which occurs when one party intentionally interferes with another party’s economic interests without justification. A funder which threatens to withdraw funding may be deemed to have unlawfully interfered with the preferred bidder’s economic interests by threatening to withdraw funding in order to force the preferred bidder to withdraw its bid.
Interference with economic interests
In addition, there is a tort of interference with statutory duty, as seen in the case of Lumley v Gye [2]. This occurs when one party intentionally interferes with the performance of a statutory duty by another party. In the context of a procurement process regulated by the Public Contracts Regulations 2015 or the Utilities Contracts Regulations 2016, the funder may potentially be held liable for interfering with the public body’s statutory duty to follow the regulations and award the contract to the most economically advantageous bid.
It is important to note that in order for any of these torts to be successful, the preferred bidder would need to prove that the funder’s actions were intentional and without justification. In OBG Ltd v Allan [2007] UKHL 21; [2008] 1 A.C. 1 at [62], Lord Hoffmann said “[i]n the unlawful means tort, there must be an intention to cause loss. … [I]t is necessary to distinguish between ends, means and consequences. One intends to cause loss even though it is the means by which one achieved the end of enriching oneself. On the other hand, one is not liable for loss which is neither a desired end nor a means of attaining it but merely a foreseeable consequence of one’s actions.”
Additionally, as per Lord Nicholls in OBG at [164]: “The defendant must have intended to inflict the harm of which complaint is made.” It is not necessary to prove that this was the defendant’s predominant purpose; it is sufficient that the unlawful act was “in some sense directed against … or intended to harm the [claimant].”
However, if the preferred bidder is able to do so, it may be able to recover damages for the harm caused by the funder’s interference in the procurement process.
Conclusions
In conclusion, it is possible for an external funder to be held liable for interference in a regulated procurement process under English law. There are a number of economic torts that may apply, including inducing breach of contract, unlawful means conspiracy, unlawful interference with economic interests, and interference with statutory duty. In order to succeed in a claim under any of these torts, the preferred bidder would need to prove that the funder’s actions were intentional and without justification. If successful, the preferred bidder may be able to recover damages for the harm caused by the funder’s interference.
With this in mind, there are a number of steps which parties to a public project should consider taking. Contracting authorities should consider seeking contractual protections from funders requiring them to undertake to respect the award decision made under any procurement process conducted under the project. Funders should in our view undertake due diligence on the actual or likely tenderers who may be involved in these processes and disclose at an early stage if they feel they would be unable to work with any such entity.
In conclusion therefore, while the rules on public procurement are addressed to public bodies, there appear to us no reasons why liability could not extend to third parties who deliberately stood in the way of processes being conducted in accordance with those laws.
Of course, every case is unique and should be evaluated on its own facts and circumstances. Where you are involved in a situation where a third party appears to have interfered wrongfully with a regulated tender process, it is important to seek appropriate legal advice on your position and options.
[1] Douglas v Hello [2005] EWCA Civ 595
[2] Lumley v Gye [1853] EWHC J70 (QB)
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