To VEAT or not to VEAT, that's now an essential question

Transparency in the award of public sector contracts is one of the fundamental aims of the procurement regime across the UK and Europe and in principle a contracting authority must advertise a contract opportunity by placing a contract notice in the Official Journal of the EU (“OJEU”). The rules permit contracting authorities to directly award contracts without publication of a contract notice if certain conditions are met, however. For example, the technical or artistic nature of the contract may be such that there is only one economic operator available to undertake the work.

In principle, if a contract is directly awarded in breach of the procurement rules it can be declared ineffective by a national court. If the conditions set out below are met, however, the contract which has been directly awarded cannot be declared ineffective, which affords contracting authorities considerable comfort.

The conditions are:

• the contracting authority considers that the justifications to award a contract without prior publication of a contract notice in the OJEU under Directive 2004/18/EC (which has now been replaced by Directive 2014/24/EU) are met;
• the contracting authority has published a voluntary ex ante transparency notice (“VEAT Notice”) in OJEU outlining its intention to enter into the contract; and
• the contracting authority waits for a period of at least 10 calendar days from the day following the date of publication of the VEAT Notice before concluding the contract (the aim being to allow a suitable period for challenge of the direct contract award).

ECJ sets precedent for national courts

A recent judgment (Case C-19/13 Italian Interior Ministry v Fastweb SpA) of the European Court of Justice (ECJ) provides much needed judicial precedent on the subject of whether the publication of a VEAT Notice does actually provide contracting authorities with protection against ineffectiveness proceedings. The Italian State Council referred two questions to the ECJ, one of them being whether national courts are precluded from declaring a contract ineffective where the contracting authority complies with the three conditions in Article 2d(4).

In its judgment, the ECJ opined on the considerations the national court of the Member State should take into account when reviewing the contracting authority’s decision to award the contract without the prior publication of a contract notice. The judgment ruled that national courts are under a duty to determine if the contracting authority “acted diligently and whether it could be legitimately held” that the conditions within Article 2004/18/EC were satisfied. If the national court finds that the contracting authority cannot reasonably justify its decision to directly award the contract without prior publication of a contract notice, it must declare the contract ineffective.

Risk v reward

Accordingly, the use of VEAT Notices by contracting authorities to mitigate the risk of ineffectiveness challenges, particularly in relation to justifications which do not fall clearly within the procurement rules’ exceptions, will likely decrease following the ECJ’s judgment. If a contracting authority’s justification for the direct award of a contract is subject to scrutiny by national courts, the contracting authority must be satisfied that it has reached a reasonable and justifiable decision. If so, it may consider that the risk of successful challenge is low in which case the publication of a VEAT Notice may not afford much additional protection.

Any benefit of publication of a VEAT Notice must be balanced against the risk that publication of a VEAT Notice may increase awareness of the proposed direct award and so actually increase the risk of challenge.