HL Deb 13 March 1989 vol 505 cc32-46

4.42 p.m.

Lord Oliver of Aylmerton rose to move, That this House takes note of the Report of the European Communities Committee on Compliance with Public Procurement Directives (12th Report, 1987–88, HL Paper 72).

The noble and learned Lord said: My Lords, in introducing to your Lordships the Report of the European Communities Committee on Compliance with Public Procurement Directives I should like to begin by thanking the Members of Sub-Committee E and in particular its then chairman, my noble and learned friend Lord Goff of Chieveley, and the witnesses who gave evidence on which the report is based.

It may be helpful if I say a word or two about the background to the report, its importance and the purpose of the directive which is the subject matter of the report. Noble Lords will be aware that since 1971 there have been a number of directives of the European Commission regulating the procedures for tendering for and awarding public authority contracts for supplies of goods and works. That is an existing system. I stress that point because some of the evidence given to Sub-Committee E before the report was produced seemed to indicate that there was at least a hint that some of the provisions of the public procurement directives are not entirely related to the realities of public authority contracting. I emphasise that that was not a matter which the Sub-Committee was required to look into, and the report is directed solely to the compliance directive.

The importance of the subject needs no stressing. Public authority contracting accounts for something of the order of 15 per cent. of gross domestic product across the Community, which amounts to approximately £260 billion. It is an area which is becoming more important because the present directives do not relate to contracting for water, energy, electricity and telecommunications projects. Directives are coming out which will include those areas within the scope of the public procurement directives. It is therefore an area of increasing importance.

The evidence before us established that there was a fairly widespread failure to comply with the rules of the directives. The object of the present directive, which is the subject matter of the report, was to secure compliance in two ways: first, by requiring member states to introduce measures into their national laws which would provide a framework for enforcement nationally; and, secondly, by conferring policing powers on the Commission. Procedures at present are somewhat inadequate and there is an inadequate audit procedure which is operated by the Commission.

The areas of concern which were identified by the Committee were four-fold. First, there was a requirement in the directive as originally drawn that measures should be introduced to enable either courts or administrative tribunals to set aside contracts which were concluded in defiance of Community rules. That is obviously a matter of considerable importance because it is very undesirable that contracts should be set aside against possibly quite innocent contracting parties. I am glad to say that, I believe as a result of the report, the requirement has now been amended. It has now been made clear in the directive as it presently stands that it does not require interference with existing contracts.

The second matter which caused us some concern was the provision for the Commission to intervene in national proceedings on its own motion. We thought that that was undesirable and that the Commission should not intervene except on the invitation of the national court or by leave of the national court. The directive has now been amended—again, I think that that may be as a result of the report—to indicate, in somewhat delphic terms, that there will be no compulsory intervention by the Commission without the leave of a national court.

Thirdly, we were very concerned by the provision which was inserted—and to some extent still stands in the directive in its present form—that the Commission should have a right of its own motion to suspend procedures for tendering. There were a number of objections to that proposal. First and foremost, no clear grounds were specified on which the Commission was to exercise that power. More fundamentally, we did not think—and we adhere to that view to this day—that there was any authority in the treaty base which was suggested—namely Article 100A—for that very extensive power. That objection has been voiced very firmly in the report. In paragraph 66 the proposal is categorised as being inappropriate and highly undesirable.

I understand that those objections have been sought to be met by specifying certain grounds upon which the Commission can intervene. However, the objection on the grounds of vires remains. I believe that that view accords with the view of Her Majesty's Government. Certainly it is the view of the Committee that no proper basis is suggested for such an extensive power.

Fourthly, we were concerned about the remedies which were proposed. Originally there was a suggestion that the national courts ought to provide for damages for loss of opportunity. That was a matter which we discussed at some length. We were not unanimous on the issue. The proposed directive has now been amended so that there is no longer a requirement for damages for loss of opportunity to be awarded. There are obvious difficulties about that. I know that the noble Lord, Lord Broxbourne, entertains some views on the matter which he would have wanted to put forward in this debate had he not unfortunately been indisposed. But we came to the conclusion finally that to include a provision for damages for loss of opportunity would open so many doors to litigation that it was undesirable to have such a power. Clearly, it would involve weighing the most difficult considerations to decide whether the unsuccessful tenderer would have won the contract. It would probably involve the revelation of costings both by him and possibly the successsful tenderer. We concluded ultimately that any damages should be restricted merely to the costs thrown away in tendering.

Finally, I should perhaps draw attention to the questions that are raised by the report and the directive. First, should the Commission have power to suspend and, if so, what is its treaty base? Secondly, is the power to intervene in domestic proceedings sufficiently circumscribed in the direction as it is now drawn? Thirdly, member states are required to provide administrative or judicial remedies; should the United Kingdom provide remedies administratively or through the courts? The committee's view in paragraph 61 was that the courts were the appropriate arm through which enforcement proceedings should be conducted. Fourthly, should there be criminal or quasi-criminal penalties by way of fines as an alternative?

The committee thought not. Fifthly, should damages include loss of profits? Again, the committee thought not. I should record that the latest view of the CBI is that damages should in any event be merely a back up for an effective audit procedure. However, we were told that the Commission was considering the introduction of automatic and regular audit inspections. If damages are to be provided, there being ex hypothesi no subsisting contractual nexus between a tenderer and the public authority, it will involve the necessity for primary legislation.

I understand that the discussions of the Commission's drafting council are only now beginning so these questions remain very much unanswered. I hope that the committee's report will be of assistance to Her Majesty's Government in such discussions, as no doubt will be views expressed by noble Lords in this debate. I beg to move.

Moved, That this House takes note of the Report of the European Communities Committee on Compliance with Public Procurement Directives (12th Report, 1987–88, HL Paper 72).—(Lord Oliver of Aylmerton.)

4.52 p.m.

Viscount Dilhorne

My Lords, it is a considerable honour for a young barrister—although perhaps not so young in years—to follow the distinguished maiden speech of the noble and learned Lord, Lord Oliver of Aylmerton, on a subject that is far from straightforward and is, indeed, complex. His maiden speech has perhaps been a little shy in making its appearance and I hope that it will not be long before we have great pleasure in hearing his contributions to future debates in this House.

Sadly, as we know, the late Lord Silkin of Dulwich cannot be with us today; but he made a valuable contribution to the sub-committee's deliberations. Perhaps I could add to what the noble and learned Lord said about the noble Lord, Lord Broxbourne. It is regrettable that he cannot be with us today. He made a witty and informal contribution to the sub-committee's deliberations, particularly with apposite Latin quotations. The noble and learned Lord, Lord Oliver, also referred to the noble and learned Lord, Lord Goff of Chieveley, under whose chairmanship the report that we are debating today was produced.

I also had the honour of serving on Sub-Committee E under the chairmanship of the noble and learned Lord, Lord Goff. Those of us on the Sub-Committee who began the inquiry with a somewhat limited knowledge of the Community's rules on tendering by government departments, local authorities and public bodies, such as regional hospital boards, soon came to realise that those rules have great importance in the creation of the single European market. I learned a little after one hour spent talking to the European Business Institute. I talked at sufficient length to limit the amount of time that I was given to answer questions and for that I was greatly relieved.

The objective of the rules is very simple—to provide the exporter with the ability and initiative to tender for the provision of goods or works such as the construction of schools, hospitals and processing plants, and of municipal waste or public waterworks, with an assurance that his tender will be fairly considered and will be entitled to succeed if it is economically the most advantageous. Those are important words. I do not believe that that necessarily means that it must be the lowest tender. The Commission's ideas for policing those rules more effectively therefore called for careful and sympathetic consideration. The evidence given to us was that there was at present a limited amount of cross-border tendering by Community enterprises. There was considerable scope for increasing that to the general economic advantage of the developing single market.

However, those of us on the Committee with experience of public tendering—I do not include myself in this category, although I have learned a little about the matter—had considerable doubts about whether the Commission was setting about things in the right way in its proposals. There was considerable anxiety that one effect of the compliance directive, if it had been adopted in the form first proposed, would have been to invalidate contracts already concluded by public authorities. That would clearly have caused considerable confusion and potential damage to contractors who might already be under way with building works on the basis of a contract won without any irregularity on their part. I very much welcome the fact that the Commission clarified that point in its revised proposals so that it is clear that a violation of the procedural rules or even the rules against national discrimination cannot lead, at the instance of a disappointed contractor, to contracts already concluded being re-opened.

The Commission also proposed that it should be given in the compliance directive the power to suspend procurement proceedings for a period of up to three months. Our courts now have the power, by means of an injunction, to order a public authority to suspend tendering proceedings or to admit a new tenderer if there has been some clear illegality. But to give such a power to the European Commission seems to the Committee to be a startling proposition. Moreover, it did not seem to us that Article 100A of the Treaty of Rome gave adequate legal power for the Commission to be invested with that new and draconian power. The evidence given to us was that the power would be potentially extremely disruptive. In many cases, tendering procedures may be intended to lead to some urgently needed works being undertaken or urgently needed supplies being obtained.

The noble Baroness, Lady Robson, whose experience of hospital procurement was most valuable to the Committee, stressed that many of the contracts for which hospital boards tendered would relate to medical equipment or building work which could not wait without serious detriment to patients while arguments proceeded between the Commission and the hospital authority as to the procedures that had been followed and whether there had been the necessary advertisement in the Official Journal.

The Committee welcomes the fact that the new proposals substantially limit the power of the Commission to suspend, but it still believes that the power should be excluded altogether from this directive.

The most important element of the compliance directive is the requirement that member states must ensure that a disappointed tenderer, or a tenderer unfairly excluded from the competition for a contract, has an effective remedy. It is believed that this will encourage him to go to court. It is inevitable that a disappointed contractor—even if he has proof of failure on the part of the procuring authority to comply with the rules ensuring fair competition among tenderers—will be reluctant to go to court. To use the expression that came up many times during this inquiry, he will not want to bite the hand that feeds him. He will often prefer to restrain himself in the hope of further favours from the procuring authority. The directive therefore envisages that he should be given an effective remedy under all the national laws of the Community countries—and by "effective remedy" is meant a right to damages.

The Committee agreed that this was right. In this country it might well require primary legislation. There is considerable uncertainty as to whether someone injured by a breach of Community rules has a direct right of action, with a right to damages, for loss that he may have suffered in consequence of a breach of Community rules.

We believe that, if tenderers are to police the Community rules through national courts instead of leaving it to the Commission to take up breaches with governments, they must be given a clear right to damages. The actual damages should be limited to the tender costs, as the noble and learned Lord, Lord Oliver of Aylmerton, has already said. These can be very large in the case of large-scale public contracts such as we talked of, and would have to be added to the legal costs actually incurred. We believe that to award damages for lost profits or lost opportunities would lead to much speculative litigation.

I have nothing more to say except that the matter to which I have just referred—as did the noble and learned Lord, Lord Oliver of Aylmerton—was dear to the heart of the noble Lord, Lord Broxborne. As I have said, we are very sorry that he is unable to be with us today.

5.2 p.m.

Lord Williams of Elvel

My Lords, it is always a great pleasure for your Lordships to hear a maiden speech from a Law Lord. It is a particular pleasure that the noble and learned Lord, Lord Oliver of Aylmerton, has chosen his maiden appearance in your Lordships' House to introduce a report with which he is associated and for which his noble and learned friend Lord Goff of Chieveley, as chairman of the committee that produced it, was responsible.

We have looked carefully at the report of the Committee. We have looked carefully at the directive as redrafted. In our opinion this is one of the least happy draft directives that the Community has produced. Having said that, I shall go into one or two points of detail.

I note that the report in front of your Lordships was printed on 9th April 1988. It is now March 1989. I am sad that we have waited a year before debating what is an important document. I also note—and this is no doubt due to the usual procedure—that the directive in draft was considered by Sub-Committee E, which deals with law and institutions, rather than one of the commercial sub-committees. I have no bias against lawyers. I am sure that the noble and learned Lord, and indeed the noble Viscount, Lord Dilhorne, will accept that. However, we are dealing with a subject which accounts for between 10 and 20 per cent. of the gross domestic product of the European Economic Community. That is a substantial commercial interest. Therefore, if noble Lords will allow me, I wish to concentrate on one or two of the commercial points involved in the compliance directive. Some of the points have been brought up by the noble and learned Lord in his speech, and indeed by the noble Viscount who has just spoken.

First, it is perfectly clear that we need a proper enforcement of existing EC rules on public procurement. I do not believe that anybody in your Lordships' House doubts that. I do not suppose that anybody doubts that to date the mechanism of public procurement has been used to national advantage, and quite properly. It was always the case that public expenditure should be used to promote the national interest in promoting national industries. This has always been the case in the United Kingdom. It has been even more so with some of our Continental partners in the Community. Our worry is that the United Kingdom will adopt an open approach to public procurement but that some of our partners in the Community will be somewhat less open in their approach, and that we shall therefore be disadvantaged in terms of industrial, national interest.

Secondly, I am deeply suspicious of the mechanism of enforcement through administrative tribunals. I do not believe that this mechanism can be accommodated within our commercial legal system here. We shall therefore have to rely on our courts.

Thirdly, we have to try to arrive at a definition of the most economically advantageous tender, because herein lies the major problem. We are all in favour of somebody enforcing the doctrine that the most economically advantageous tender should be accepted. However, the difficulty is to define it.

Let me therefore start from the commercial reality of the way in which these systems operate. A purchasing authority in whatever country will first evaluate prospective tenderers. In my experience, no purchasing authority—and as a banker I have arranged financing for a number of major products for public procurement—simply publishes in some journal or another that there will be a tender procedure for a contract and expects everybody who is suitable to apply. The publishing authorities go through lists of prospective tenderers. They look at their technical capability. They look at their ability to provide spare parts. They look at their ability to stay in business over the period of the construction of the project. They look at their ability to speak the right languages, to get on with the right people and to know the right laws. As a result of this process, they will establish a list of companies who look like likely tenderers. Prequalification therefore occurs.

How does one get on this list? This is the first problem. How does a United Kingdom business get on the list of a French or German public procurement agency? The answer is by spending money and by investing in the business of persuading, say, the city of Bremen—which I notice was mentioned in the report—that such and such a UK firm is capable, has the right technical expertise, can provide the right product at the right price at the right time, and will remain in business. Such persuasion requires a very considerable investment. Therefore the idea of open tender—that simply by publishing in the Official Journals of the Community one can ensure that there is some equitable tendering arrangements—seems nothing less than nonsense.

The cost disadvantage to a UK firm that is trying to establish itself as a tenderer in Germany or France, and vice versa, can be quite severe. In the first place, there are the costs of setting up an office. There are the costs of making the appropriate arrangements to ensure that those who are listening to what is said understand it. Then there is the problem of overhead allocation. Those of us who have had any experience in accounting know that overhead allocation is an extremely difficult problem in tendering in deciding what proportion of general overheads should be put on to a particular tender. It is clear that the national company will have an advantage. If a company located in Birmingham has its major overheads in Birmingham and wishes to tender for a contract in Munich, its direct costs will be substantially higher than a Munich company and probably its allocation of overheads, accountants being what they are, will be higher.

Surprise, surprise; what generally happens is that, in spite of there being a rule that public procurement authorities should accept the most economically advantageous tender, the most economically advantageous tender turns out to be from a national company. It is extremely difficult to knock that argument down. That seems to be the central problem.

I do not believe that the draft directive has addressed itself seriously to this problem. I have no comment to make on the legal base of the draft directive. The noble and learned Lord has commented on that and the committee has expressed an opinion. It seems sensible, but not being a lawyer or a constitutional expert, I have no comment.

The noble Viscount was quite clear on Commission intervention. I wholly support the idea that the Commission simply cannot barge in and override the decisions of national courts. The Commission should have a right to be heard. That is only fair, but to try to overturn any decision of the national courts, apart from the vires question which the noble and learned Lord mentioned, seems to me to be quite outrageous. I hope that the Government will not accept that.

On the suspension of contract award procedures, both the noble and learned Lord, Lord Oliver, and the noble Viscount, Lord Dilhorne, have said before me what I would have said: it makes nonsense of any contract that after a contract has been signed, with all the expenditure and perhaps a year of negotiation and tender, to have somebody walk in and simply overturn the whole procedure of granting the contract, with consequent loss. I am certain that that procedure would result in a relative reluctance on the part of companies to go in for contracts of that nature.

There is a great deal of confusion. The noble and learned Lord said that the draft directive had been redrafted from its original content. I am still very doubtful about the meaning of paragraph (2) of Article 1 of the draft directive, from which I quote: The measures provided for in paragraph 1"— that is, what member states are required to do— shall authorise the competent administrative body or court to take at the earliest opportunity precautionary measures, including decisions to suspend the procedure for the award of the public contract concerned, or the implementation of the decision taken by the contracting authority". I understand from what the noble and learned Lord has said that this relates to some mechanism before the signature to the contract. I find it very difficult to derive that meaning from the language in the draft directive that I picked up from the Printed Paper Office. No doubt the noble Lord, Lord Brabazon, will be able to enlighten us on that.

Reading through the committee report and the directive, and looking as a commercial animal at the problem, it seems to me that the CBI has got it right, much as I am reluctant to admit that. I support the system of compliance that the CBI has put forward in its evidence and in a subsequent briefing. It seems to me that the right way is to strengthen the audit procedure and to allow the Commission to audit as and when appropriate. Actions for damages should be available as a last resort and should be post the award of contract and limited to tendering costs. That would ensure that the public procurement agencies pay attention to the various directives.

What we have before us seems to me to be a poor draft directive. I hope that the Government will listen to what the noble and learned Lord, Lord Oliver, has said, read carefully what the committee has said and pay attention to what the Opposition Front Bench has said.

5.15 p.m.

Lord Brabazon of Tara

My Lords, first, I should like to join other noble Lords in congratulating the noble and learned Lord, Lord Oliver of Aylmerton, on a very good maiden speech and to say that the Government are grateful to him, to his noble and learned colleagues on the Law and Institutions Sub-Committee and to the European Communities Committee for bringing to the attention of the House the important questions raised by the European Commission's proposal. I join other noble Lords in acknowledging the work of its chairman, the noble and learned Lord, Lord Goff of Chieveley.

The committee has produced a most valuable report which has become required reading for anybody with an interest in the Commission's proposal. Our officials have drawn it to the attention of their colleagues from other member states who took part in a preliminary discussion in Brussels last June.

We are also grateful to the noble and learned Lord, Lord Oliver of Aylmerton, to my noble friend Lord Dilhorne and the noble Lord, Lord Williams of Elvel, for their comments today on the Commission's proposal as it now stands, following amendment by the Commission in the light of the opinion of the European Parliament.

Before going further, let me say that the Government are at one with the committee that a substantially higher level of compliance with the procurement directive is needed. Our supplier and contractors believe that, given the chance, they can stand up to the strongest competition. Compliance is the means to ensure that they get that chance. I take the point of the noble Lord, Lord Williams, about needing to persuade others to comply. This serves to reinforce the need for a properly drafted directive.

Just as strongly, we believe with the committee that member states must take responsibility for enforcing compliance by contracting authorities. I shall be giving one or two examples of how this position leads us to have difficulties with certain of the committee's ideas. The committee commented that greater opening of public procurement markets may be expected to occur naturally. We agree. Other changes now in hand will make taxpayers demand that government take advantage of value for money, wherever it may be found.

Set against this background, the procurement directives can be seen as providing a framework of rules to help the process along. Their purpose is to ensure that public purchasers do not practise discrimination on grounds of nationality among firms in different member states. The directives must, as far as possible, avoid interfering with the development of commercial practices in public purchasing, which this Government have done so much to foster. Measures to enforce compliance must be judged in the same way. They must not threaten the honest purchaser in ways that involve costly delays.

The Government have welcomed this debate because of the opportunity it has given to discuss a valuable report. When it was presented to the House last year, we expected the Commission to submit an amended proposal as soon as the European Parliament had delivered its opinion.

The noble Lord, Lord Williams of Elvel, spoke of delays in holding the debate, but the Committee did not submit its amended proposal until December, and discussions began in the Council machinery only last week. As the noble Lord, Lord Williams of Elvel, said, there is still much in the proposal that gives great difficulty, but these are still early days.

Noble Lords have made a large number of thoughtful and interesting contributions today, and the Government will bear all of them in mind as discussions continue in Brussels.

The Commission's amended proposal differs little in principle from the original. There remains a requirement for member states to ensure that there is an effective administrative or judicial system under which suppliers or contractors can seek prescribed remedies when there is a breach of national or Community procurement rules. The remedies to be available are still to include the possibility of interim measures, including the suspension of an award procedure or implementation of a decision taken by the contracting authority; or an order for the removal of a discriminatory specification on pain of penalty payments; or the setting aside of decisions taken unlawfully and the award of damages to the injured undertakings. The Commission has maintained its proposal for member states to ensure that it can intervene in national proceedings. And it remains the Commission's intention that it should have the power to suspend contract award procedures in certain circumstances, although these are now defined.

Noble Lords will be aware that the proposal relates to compliance with the supplies and works directives. These affect central and local government. There are currently discussions in Brussels on applying rules on procurement to the so-called excluded sectors; that is water, energy, transport and telecommunications. The proposal we are discussing today does not apply to these sectors, and we should not assume that it will be appropriate to apply the same compliance provisions to them.

The Committee concluded that the availability of remedies for aggrieved tenderers has a role to play in improving compliance but does not offer a complete solution. The Government agree that member states and the Commission also have a role. The Committee concluded that the proposed directive should open up a possibility of policing by claims for damages for disappointed tenderers, but not in such a way as to disrupt the procurement process unnecessarily or to impede public services. Again, the Government agree particularly with the implication that action by tenderers disadvantaged by a breach of the directives, and others similarly disadvantaged, should normally take place after the contract in question has been awarded. The Government believe that the possibility of an action for damages will be an effective deterrent to contracting authorities which are tempted to disregard their obligations under the directives. We recognise that in many member states, including the United Kingdom, there are possibilities already for aggrieved suppliers to seek interim measures. We can accept the principle that such possibilities should be available throughout the Community but not that they should be extended to become unduly disruptive or open to abuse.

Suppliers and contractors in the UK have welcomed the Commission's attempt to ensure a level playing field. They see benefit for themselves in getting an assurance that their tenders will be properly considered in all member states. However, they are concerned about the risk of disruption to tender procedures, leading to costs and delays which would undermine the investment they have made in their tenders. They therefore believe, in general, that actions against contracting authorities should take place after an award is made. They make actions to remove discriminatory specifications a possible exception.

There is concern about the absence of any provision for compensation of innocent third parties, and a wish to see as much certainty as possible that contracts, once awarded, will not be disturbed.

I am aware that the CBI has called for a mixed system of compliance, including an audit system as well as damages. Such a system could undoubtedly strengthen compliance and deserves to be considered. Especially, I suggest, for the commercial undertakings which are covered by the Commission's separate proposals for procurement rules in the so-called "excluded" sectors. So far as the present proposal is concerned, much depends on whether member states are willing to go forward fairly rapidly on the basis of modifications to the Commission's suggestions.

I can report that in discussions last week in a council working group member states were at one in supporting the objective of the proposal. Many of them expressed concern about the role which was envisaged for the Commission. But the mood was constructive on all sides, and there seems a good prospect of coming to an agreement that the Commission can support.

Bearing in mind that the CBI is perhaps particularly concerned with the excluded sector, I can report that the Commission has confirmed that it will produce a separate proposal on compliance in those sectors. The Commission has also confirmed that the new proposal will differ in significant respects from that currently under discussion. This will enable it to recognise the commercial conditions in which the excluded sectors operate; in particular, the extent to which undertakings may be vulnerable to litigation.

As my noble friend Lord Dilhorne said, the committee rightly took the view that the directives should not have required member states to empower their courts to set aside existing contracts. I am advised that in certain circumstances courts in other member states may decide that it is necessary to do so as a first stage to recovering damages. In general, the Government do not believe that annulment of contracts is a necessary part of measures to ensure compliance. The results could be far-reaching and would affect not only the authority under challenge but innocent contractors and the public at large.

Therefore, I am glad that the Commission has said that it means to distinguish the setting aside of decisions from the effect on the contract concerned. The nature of such effects is to be left to the practice in individual member states. Even in the new text the wording does not appear to us to be as clear as it might be, but that can be tidied up in the course of discussion in council.

Today the noble and learned Lord, Lord Oliver, said that, as presently drafted, the proposals would not give the Commission the right to intervene in national proceedings without leave. With the greatest respect to the noble and learned Lord, I am not convinced that the present draft is any better than its predecessor in this respect. If that is so, what is proposed would represent a major departure from the existing rules in the United Kingdom. These provide only very limited possibilities for intervention by those not having a direct interest in the issues before the court, and then only at the invitation of the court.

We also believe that the proposal could upset the proper balance between the powers of the Commission and the European Court. It is not for the Commission to ensure the precedence of Community law in the day-to-day proceedings in the national courts. Furthermore, there is a clear provision in Article 177 of the Treaty for national courts to refer questions to the European Court for a preliminary ruling if the national court encounters difficulty with Community law.

We understand that other member states also have difficulty with the provision. The Government will continue to resist that aspect of the Commission's proposals, leaving the court to decide in a particular case whether it wished to hear the views of the Commission.

As the noble and learned Lord, Lord Oliver, mentioned, the committee agreed with witnesses that giving the Commission the power to suspend procedures being undertaken to award contracts would be disproportionate and highly undesirable. The committee stated that there was not an adequate legal base for this power and commented on the lack of real limits or safeguards to it.

The Commission has responded to criticism of the original proposal by limiting the circumstances in which it could use the power of suspension by providing that the suspension should be lifted automatically when the fault is put right and by undertaking to reconsider the suspension if it is requested to do so by the member state of the contracting authority.

The Government do not believe that these amendments enable us to put aside the doubts which the committee had. I know that the Institute of Purchasing and Supply has expressed dismay that the most recent version of the draft directive continues to include the power of suspension. However infrequently the power was used, it would hang like the sword of Damocles over the unsuspecting purchaser. Members states would not have an opportunity to comment on the Commission's intention prior to suspension and it would be left to the contracting authority, and to firms which may be injured by the Commission's decision to take the Commission to the European Court of Justice in an effort to overturn the decision. I am sure that other member states will have serious problems with this part of the proposal. Many of them may be prepared to recognise that urgent action is sometimes needed. The Commission has shown that it is possible to obtain that through interim measures of the European Court of Justice. It might also be possible to consider a procedure whereby the Commission would look to member states to take appropriate action in specific cases, failing which it would take that member state to the European Court under Article 169.

The noble and learned Lord, Lord Oliver, also mentioned damages. The committee, when it turned to damages, regarded the Local Government Act 1988 as providing an appropriate precedent. Section 18 of that Act limits damages for breach of statutory rules on tendering to expenditure reasonably incurred for the purpose of submitting tenders. The committee also concluded that making procuring authorities subject to a duty to tenderers to observe the Community rules and be liable in damages for breach of those rules was acceptable. It said that this need not prejudice the legal position in other contexts.

Originally, the Commission wanted damages to be available for the cost of unnecessary studies, foregone profits or lost opportunities. Such a provision appeared to us unacceptable, and the report stated it as the general view of the committee that it could lead to speculative and wasteful litigation. The amended proposal simply says that damages should be available to the injured undertaking. We believe that the measure of damages should be left to individual member states, and will look to clarify the text in this respect.

The Government share the committee's apparent concern that the drafting of the Commission's proposals is inconsistent with the requirement in Article 189 of the treaty that the directive shall leave to the national authorities the choice of form and methods for its implementation. We understand that Article 1of the amended proposal is intended to say that the member states can choose between making available administrative or (and not "and") judicial remedies. The committee has concluded that in the United Kingdom the tenderer should seek his remedy from the courts. The Government will give full weight to that conclusion in considering how any adopted directive is implemented.

On fines, the committee did not see difficulty in having penalty payments if a contracting authority fails to comply with an order by a court to remove discriminatory specifications. The Government agree, on the basis that this is a normal sanction in the UK if bodies which are not part of the Crown do not obey orders of a court.

On the wider question of whether fines should be available for breach of Community rules, the committee concluded that such a provision as an alternative to damages would be inappropriate. The Government agree, while noting that UK suppliers would in many cases not find the availability of fines an effecive sanction against purchasing authorities in other member states which are part of government themselves.

The noble and learned Lord, Lord Oliver, mentioned audits. The Government share the committee's view that audit, or the threat of audit, could supplement but not replace the monitoring by disappointed tenderers that is central to the Commission's proposal. We believe that various forms of audit should be considered as ways of improving suppliers' confidence, deterring or detecting contracting authorities who persistently break the rules or as an alternative way of providing the transparency that the procurement rules seek to ensure. Although public purchasers elsewhere in the Community may not yet be as familiar with audit or quality assurance certification as our government departments are rapidly becoming, such techniques may be more familiar in the sectors at present excluded from the procurement directives. This point is therefore particularly relevant in that context. In fact, we understand that the Commission will consider audit as a possible part of the proposals it intends to make later this year for ensuring compliance with whatever measures are adopted on procurement in those sectors.

The noble Lord, Lord Williams of Elvel, made some perceptive comments about how purchasing is actually conducted. As he rightly said, many purchasers make use of qualified lists. Under the existing directive, purchasers need also to consider suppliers who ask to be invited to participate. I agree that more can be done to let new suppliers compete, and the Commission has included in its proposals for the excluded sectors a facility to ensure that it is possible for new firms to apply to go through the process of qualification.

This debate has been very useful and has enabled us to examine in some depth the proposal made by the Commission. The report of your Lordships' Select Committee has proved an excellent foundation for the report and we are all indebted to that committee. It has become clear that, even as amended by the Commission, the proposal causes us major difficulties. We have tended, quite naturally, to focus on those. However, it would be wrong to miss the common purpose which we share with the Commission and, I believe, with all our partners in the Community to ensure that there is better compliance with the procurement directives. I have every confidence that ways can be found to develop an instrument which could cut across the difficulties but still give us better compliance. Therefore, once again I thank the noble and learned Lord, Lord Oliver, for introducing this debate.

Lord Oliver of Aylmerton

My Lords, I shall not take up your Lordships' time with a summation. I desire to say only three things. First, I certainly do not take any offence that the Government do not share the view which I expressed, perhaps unwisely, that the amended draft does not entitle the Commission to intervene in domestic proceedings without leave. Of course, I pointed out that the revised article is expressed in what I described as somewhat Delphic terms and I should not quarrel with the proposition that it ought to be clarified.

Secondly, I am sure that the committee will be grateful for the assurance that the Government share its view of the undesirability of according to the Commission a power of direct intervention. Thirdly, I hope that what has been said will operate as an assurance to the noble Lord, Lord Williams of Elvel, that the delay in debating this matter was not due simply to the legal composition of the sub-committee and was not merely an example of the law's delay. It only remains for me to thank noble Lords who have taken part in what has been a very useful and constructive debate. I commend the Motion to the House.

On Question, Motion agreed to.