Penalties in addition to, or instead of, ineffectiveness under reg.102 Public Contracts Regulations 2015

Reg.102 of the Public Contracts Regulations 2015 (PCR2015) determines the penalties that the Court must impose in addition to, or instead of, the ineffectiveness of a contract awarded in violation of any of the grounds set out in reg.99 PCR2015, which are fundamentally limited to a shortening of the duration of the contract and/or the payment of civil financial penalties by the contracting authority (see Pedro's remarks here). It is important to stress that the Court has no discretion to decide not to impose any of these penalties, given that reg.98(2)(b) PCR2015 requires it to impose some penalty when the conditions of reg.102 are met--which cover two different cases.

Firstly, the Court must impose the payment of civil penalties where it declares the ineffectiveness of the contract [reg.102(1) PCR2015].

Secondly, the Court must impose penalties even if it does not declare the ineffectiveness of the contract because either (a) it is satisfied that any of the grounds for ineffectiveness applies but does not make a declaration of ineffectiveness because reg.100 requires it not to do so; or (b) the Court is satisfied that the contract has been entered into in breach of any requirement imposed by regs.87, 95 or 96(1)(b) and does not make a declaration of ineffectiveness, whether because none was sought or because the Court is not satisfied that any of the grounds for ineffectiveness applies [reg.102(2) PCR2015]. 

In these cases, the Court must order at least one, and may order both, of the following penalties: (a) that the duration of the contract be shortened to the extent specified in the order [in which case, “duration of the contract” refers only to its prospective duration as from the time when the Court makes the order; reg.102(16) PCR2015]; or/and (b) that the contracting authority pay a civil financial penalty. 

If the Court imposes the payment of a civil financial penalty in either of these cases, in determining its amount, the overriding consideration is that the penalties must be effective, proportionate and dissuasive [reg.102(4) PCR2015; for a comparative view of the level of such penalties in other EU jurisdictions, see the report recently published by the Commission on "Economic efficiency and legal effectiveness of review and remedies procedures for public contracts" (April 2015)]. 

Reg.102 PCR2015 establishes two additional general rules. Firstly, in determining the appropriate order, it is made explicit that the Court must take account of all the relevant factors, including the seriousness of the relevant breach of the duty owed in accordance with reg.89 or 90; the behaviour of the contracting authority; and, where the order is to be made without a declaration of ineffectiveness, the extent to which the contract remains in force [reg.102(5) PCR2015]. Moreover, it is also established that, where more than one economic operator starts proceedings in relation to the same contract, the determination of the  effective, proportionate and dissuasive character applies to the totality of penalties imposed in respect of the contract [reg.102(6) PCR2015; ie a sort of ne bis in idem].

Civil financial penalties
Reg.102(7) to (11) establishes specific the rules concerning the payment of civil financial penalties and, in particular, whom the penalties are payable to. This may be of interest to public lawyers. However, from a public procurement perspective, this does not deserve any further comments.

Contract shortening
More interestingly, reg.102(12) to (16) establish specific rules for the shortening of the contract that cannot be declared ineffective. The regime is quite similar to the rules governing the consequences of a declaration of ineffectiveness under reg.101 PCFR2015. In that regard, the Court may make any order that it thinks appropriate for addressing the consequences of the shortening of the duration of the contract [reg.102(12)] and such an order may, for example, address issues of restitution and compensation as between those parties to the contract who are parties to the proceedings so as to achieve an outcome which the Court considers to be just in all the circumstances [reg.102(13)].

Reg.102(14) foresees the possibility for the parties to have previously regulated contractually the consequences of an order shortening the contract and, consequently, reg.102(15) determines that, in those circumstances, the Court must not exercise its power to regulate the shortening of the contract in any way which is inconsistent with those provisions, unless and to the extent that the Court considers them incompatible with the primary order to shorten the contract. The same issue of (in)existence of compensation for loss or damage resulting from the shortening of the contract arises as in relation to effectiveness, so the comments made in relation to reg.101 PCR2015 to the effect of excluding any such compensation apply here as well.