Procurement news blog
June 28, 2016 12:11 PM | Posted by
Beresford-Jones, Jenny |
Following the result of the EU Referendum on Friday, here in the Mills and Reeve procurement team, our thoughts have quickly turned to the likely implications for public procurement.
Given that our public procurement rules implement European Directives on public procurement, utilities and concessions contracts, there is the potential that the decision to Leave could eventually bring far-reaching changes in our field. As a starter for ten, out of many possible examples:
• the obligation since April 2016 to run an OJEU competition for clinical health services over a certain threshold is a product of an EU directive. It would, in theory, be open to a government to amend our regulations and remove this obligation, reversing the trend towards increased private sector delivery of healthcare services;
• the official procurement processes come down to us via the EU Directives. In principle, a government could legislate to remove the obligation to follow one of these in favour of a more flexible regime;
• the government could alter the respective thresholds at which the obligation to advertise a contract and run a competition bites; or
• in theory, at least, it could even abandon the regulation of public procurement altogether!
That said, we think we are likely to see Business as Usual rather than any immediate change, at least in the short to medium term. And, although the Law Society of Ireland says it has received a surge in applications from UK lawyers to work in its jurisdiction due to fears about Brexit, here at Mills and Reeve we are not yet consulting the ‘situations vacant’ pages. Here is why.
Even the most cursory look at the fast developing news stories of recent days illustrates the fact that the process of withdrawing from the EU will be complex and will not happen overnight. Indeed, some more sceptical commentators are questioning whether Brexit will ever come to pass at all. There is a two year period following triggering under "Article 50" of the exit process for the UK to reach its “divorce settlement” with the EU, around how to untangle the status quo.
Separately from that, it may take us a much longer period to agree a framework upon which our future relationship with the EU will be based. It will take time for us to negotiate new trade deals, with and outside of the EU (particularly if our potential trading partners want to see the terms of the “divorce settlement” with the EU before reaching any agreement with us on future trade deals).
Even once we have withdrawn, our Public Contracts Regulations 2015, Utilities Contracts Regulations 2016 and Concessions Contracts Regulations 2016 (and their Scots equivalents) are pieces of UK legislation that, unless and until amended or repealed, will stand perfectly well on their own account as our public procurement regime. Not forgetting, too, that the UK has had its own home-grown procurement law regime dating back to long before the European regime was adopted.
Of course, once we have left the EU, our legislature may amend or repeal our procurement regulations. That said, given that the priorities of the post-Brexit parliament (and the newly established "Brexit Unit" headed up by Oliver Letwin) are very likely to be elsewhere, unravelling the tangle web of our relationship with Europe, we think we are unlikely to see major legislative change to procurement law in the short to medium term, especially as we have already been through a major legislative change in 2015 and 2016.
Also, our current membership of the Agreement on Government Procurement (“GPA”) is by virtue of the our being part of the EU but, even once we Leave (and our membership of the GPA ends), we anticipate that in forging any trade details the UK would likely look to becoming a member of the GPA in its own right. The significance of this for procurement is that the GPA imposes similar obligations to the EU Directives; another reason not to throw away your copy of the procurement rules just yet. Of course if the country does a "Norway-style" deal, we will need to continue to abide by the EU procurement law regime.
Our final reason for our view there is no need for procurement teams to expect major change is that the UK government has historically had a healthy appetite for legislating in our field, sometimes going beyond, or “gold plating”, the requirements of the EU Directives. See, for example, Part 4 of the Public Contracts Regulations 2015 and its obligations around use of Contracts Finder and the regulation of the PQQ stage. These measures stem from the so-called “Lord Young” reforms and are designed, in particular, to increase opportunities for small and medium sized entities, a major policy objective of this government and one that seems unlikely to change. Another example of this is the fact that, while one of the core EC Treaty principles is “transparency”, the government has domestically been pursuing a parallel transparency agenda for a considerable time now. Even as an ex-Member State, it is almost certain that principles of transparency/equal treatment/value for money are still likely to remain high up in the UK’s priorities in any new framework for public sector contracting.
Having said all that, there is no doubt that we are in a period of dramatic change in the country’s political and economic direction and it is clear there is considerable uncertainty around its effects in the medium and longer term, both in our field and more widely.
The detailed implications of Brexit will vary depending on whether you are a contracting authority or supplier, and, for suppliers, depending on the size of the business whether your usual market is within the UK or within the EU, but as yet it is too early to say what these are in any detail. We can expect an onslaught of policy development and/or consultation from the government in due course, and we’ll be scrutinizing this and blogging on any developments relevant to our field.
June 20, 2016 11:02 AM | Posted by
Ruth Smith and Jenny Beresford-Jones |
“What is adequacy? Adequacy is no standard at all!” So said Winston Churchill in 1938 in the House of Commons, as part of his criticism of the politics of appeasement and the then government’s statement that it had an “adequate” rearmament programme.
So in the context of adequacy, how does a Court assess adequacy of damages in a procurement case, when hearing an application to lift an automatic suspension involving two not-for-profit NHS organisations? That was the difficult decision before the Court in the recent case of Kent Community Health NHS Foundation Trust v NHS Swale CCG and NHS Dartford, Gravesham and Swanley CCG  EWHC 1393 (TCC)
The facts of the case
Kent Community Health NHS Foundation Trust (the “Trust”) was the incumbent provider of adult community services in north Kent, under a contract which expired on 1 April 2016. In planning for this expiry date, the commissioning CCGs (NHS Swale and NHS Dartford, Gravesham and Swanley) decided that they would put the service out to competitive tender. As health services, the services were “Part B” services falling under the Public Contracts Regulations 2006. The Trust submitted a tender but following the tender evaluation, the CCGs announced their intention to award the contract to one of the other bidders, Virgin Care. The Trust then issued proceedings in the High Court and so triggered the automatic suspension of the contract award.
When hearing the CCGs application to lift the suspension, the Court applied the usual American Cyanamid test.
The test asks three questions:
• can the claimant bidder show that there is serious issue to be tried? Unless the bidder has no real prospect of succeeding at trial, this part of the test will usually be satisfied;
• assuming there is a serious issues to be tried, would financial damages be an “adequate remedy” for the successful party? If, in the case of a challenging bidder, the answer is “yes” then the Court will usually agree to lift the suspension and allow the contract to be entered into; and
• if damages are not adequate as a remedy, then does the “balance of convenience” favour one side or the other? In public procurement cases, this is usually shorthand for saying “does the public interest lie in allowing the contract to be awarded prior to a full trial on merits, or not?”
In this case, both parties to the application were public sector, NHS bodies with similar public sector duties to the people of Kent in respect of the provision (or commissioning the provision) of adult community healthcare services. However, they each held diametrically opposed views on how that duty should best be fulfilled and the services provided.
The application of the American Cyanamid test
The parties accepted there was potentially a serious issue to be tried and so that was quickly dealt with by the Court.
It then went on to consider, in detail, whether damages would be an adequate remedy for each party.
The Trust argued that, as it was a not-for-profit entity which exists to service the public good, damages would not be an adequate remedy and instead it needed the suspension to be maintained pending full trial of the issues. Procurement for NHS services, said the Trust, could not be treated as an ordinary commercial exercise. If Virgin Care were awarded the contract, this would undermine the Trust’s public service mission to provide integrated health care to people in Kent, in a way that could not be compensated in financial terms. In any event, said the Trust, it stood to lose 10% of revenue and would suffer from reduced economies of scale, which would impact on patient care as it would have to make savings elsewhere.
Unsurprisingly, the CCGs argued that the suspension should be lifted and the award of the contract allowed to proceed. They argued damages would be an adequate remedy for the Trust were it to win at full trial. The financial loss to the Trust could easily be calculated and the financial and reputational impact of losing the contract would not be so catastrophic as to cause the Trust’s total disintegration as an entity/service provider (in the few cases where the courts have held that damages were inadequate as a remedy, it has usually been for reasons along these lines).
In contrast, the CCGs argued damages would not be adequate remedy for them. The Court acknowledged that if the suspension remained in place, the CCGs losses were more difficult to quantify. The CCGs had some on-going concerns about the quality of the Trust’s services but, in assessing damages, this had to be balanced against possible similar or different difficulties in the bedding in of a new service in the early days the proposed contract with Virgin Care. The CCGs were concerned that any delay in finalising the new contracting arrangements, even with an expedited trial, would still present a real risk of their not having adequate arrangements in place by winter of 2016/2017 (when demand for the services would be at its heaviest).
The court accepted that in some cases damages might not be an adequate remedy on grounds other than it not being possible to calculate the financial loss incurred. For example, where the relief sought is the protection of protection of privacy, financial compensation might well be inadequate. The question of the adequacy of damages should be answered by reference to the interests of the person seeking the injunction. In principle there was no reason why damages should be regarded as inadequate simply because the Trust, as a not for profit organisation, would not suffer a substantial financial loss. The Court accepted that, in some cases, the immediate financial loss may be modest, but the knock on effects (which would not be compensated) could be catastrophic. This then might create a real interest that could not be compensated in damages to meet the substantial justice of the case.
That said, the court was not persuaded by the Trust’s arguments on adequacy of damages, and said:
• The Trust having a public service mission to provide health care services in Kent did not give it a monopoly on doing so. The chosen procurement regime set out to treat the Trust and other bidders equally, and on a level playing field of providers. There could be no justification for approaching the question of adequacy of damages differently had Virgin Care been the loser and the claimant in this case. In short, the Trust’s status as an NHS Body did not secure it any special treatment in the decision about adequacy of damages, and in financial terms its losses could be easily calculated.
• The award of the contract to Virgin Care would not cause a significant reputational loss to the Trust or have a catastrophic effect on the its ability to continue providing services.
• The Trust’s core argument was that the award of the contract to Virgin Care would undermine its public mission to deliver integrated care across Kent and the new arrangements with Virgin Care would not serve the interests of patients as well as would be the case if the contract remained with the Trust. It was a category error, said the Trust, to expect financial damages to compensate for this. Indeed, the Trust’s purpose in engaging in the procurement was not to generate money but rather to best serve the interests of patients; and its interest in pursuing the litigation was in the protection of the public good. Therefore, it would not be doing substantial justice to the Trust if the Court held that all it could recover was money.
In response to this, the Court said its role was to resolve the dispute before it, it could not and would not express a view about the comparative merits of the services depending on whether these were provided by the Trust, as part of integrated provision of a wider service, or by Virgin care as a separate provider. All it would rule on was on whether the procurement process was flawed and, if so, the consequences.
On that basis, the Court ruled that damages would be an adequate remedy for the Trust, should it win on the substantive points at full trial. In contrast, the Court said that there was a significant risk that, if the suspension remained in place, an award of damages would not be an adequate remedy for the CCGs.
Given that damages would be adequate, on a strict application of American Cyanamid, the judge noted, it was not usually necessary to look further at the balance of convenience but in this case he did.
He noted that the public interest brought a couple of issues into play: (1) the procurement exercise should be conducted fairly and (2) the CCGs should be able to put arrangements they consider in the public interest into effect promptly. The Court found that overall the balance of convenience did not weigh heavily in favour of either party.
The Court concluded the prudent course, in the interests of justice in the run up to full trial, would be to maintain the “status quo”. But what was the “status quo?. The CCGs argued, since the contract with the Trust had already expired on 1 April 2016, the status quo was that it should be free to contract with Virgin Care. The Trust argued that maintaining the status quo required its contract to be extended in the interim period. The Court favoured the CCGs reasoning, concluding the suspension should be lifted and the CCGs allowed enter into the contract with Virgin Care. In short, faced with the question of whether it was just in all the circumstances that the Trust should be limited to a remedy in damages the Court’s answer to this was “it is”.
You can read the full judgment here.
The case provides useful insight on how the Court will consider adequacy of damages in an automatic suspension case where both parties are not for profit organisations.
Interestingly, no reference is made in the judgment to the NHS (Procurement, Patient Choice and Competition) (No 2) Regulations 2013 and the CCGs duty, under those Regulations, to procure the provider (or providers) who are most capable. Indeed, the Court was quite clear in this case that its role was not to assess the respective merits of each bidder’s services but simply whether or not the procurement process was flawed.
May 27, 2016 4:27 PM | Posted by
Smith, Ruth |
Yesterday’s Press Release from the Commission (see below) relating to its infringement package for May 2016 goes like this – not 1, not 2 but yes you’ve guessed it TWENTY ONE member states told to get their act together and transpose the 3 new EU procurement directives! So it appears - as if we didn't know already - our fellow member states have a slightly more relaxed approach to EU regulation than us Brits do.
The European Commission has requested 21 Member States to transpose in full one or more of the three directives on public procurement and concessions (Directives 2014/23/EC, 2014/24/EC, 2014/25/EC) into national law. All Member States were obliged to notify the transposition of the new public procurement rules by 18 April 2016. The Commission's request takes the form of a letter of formal notice and it has been sent to Austria, Belgium, Bulgaria, Croatia, the Czech Republic, Cyprus, Estonia, Ireland, Greece, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovenia, Finland, Spain and Sweden.
March 31, 2016 5:24 PM | Posted by
Smith, Ruth |
If you’re a contracting authority, have you remembered that with effect from 1st April 2016, you must publish on the internet statistics showing, for the preceding financial year (i.e starting with 2015/16), the extent to which you have met your obligation to make payments to suppliers within 30 days?
Well in case you had forgotten, the Crown Commercial Service has issued a new PPN to remind you. The PPN is available here. The obligation stems from Regulation 113 of the Public Contracts Regulations 2015 which requires contracting authorities to include in their contracts provisions for payment of suppliers within 30 days of the date of a valid, undisputed invoice. The publication requirements, as highlighted in the PPN, are dealt with in Regulation 113(7).
Some contracts are exempt from the requirement including: contracts for NHS health care services falling within the scope of the NHS (Procurement, Patient Choice and Competition) (No 2) Regulations 2013 and contracts awarded by maintained schools and Academies.
The PPN reminds authorities, whose contracts are in scope, that the details to be published are:
- After March 2016, for the financial year 2015/16: (i) the percentage of invoices paid within 30 days and (ii) the amount of interest paid to suppliers due to late payment.
- After March 2017, (i.e. for the 2016/17 financial year and later years): in addition to (i) and (ii) above, (iii) the amount of interest the authority was liable to pay (whether or not paid and whether under any statutory or other requirement) due to a breach of Regulation 113.
Regulation 113(9) also requires authorities to have regard to guidance issued by the Cabinet Office. This guidance, which includes a model template for publishing payment performance statistics, is highlighted in the PPN and available here.
And finally … the CCS Mystery Shopper service will be conducting spot checks. So publish your statistics or be shopped … you have been warned ….!
March 24, 2016 11:52 AM | Posted by
Beresford-Jones, Jenny |
Not buses of course, but procurement regulations. Last week saw the publication of the Utilities Contracts Regulations 2016, the Concession Contracts Regulations 2016 and the unwieldy sounding Public Procurement (Amendments, Repeals and Revocations) Regulations 2016.
All of these come into force on 18 April 2016, in relation to procurements commenced on or after that date. See the Portal’s Useful Links page for a copy of each.
Utilities Contracts Regulations 2016
These will replace the Utilities Contracts Regulations 2006 and implement the 2014 Utilities Directive. We are creating new content for the Portal on these regulations and will post details when this is available. We have done a comparison of the final version against the last draft and there do not appear to have been material changes made in the interim, which is reassuring for those who read the last draft.
Concession Contracts Regulations 2016
These are new regulations to implement the 2014 Concessions Directive and will regulate public works and public services concession contracts valued at over the threshold of £4,104,394.
The regulations carefully define the characteristics and features of a concession contract. In-scope concessions will need to be advertised in the OJEU and follow a procurement procedure that meets certain minimum standards around transparency, equality of treatment and non-discrimination. Duration of concession contracts must be limited to 5 years (unless it can be demonstrated that a longer term is needed for the concessionaire to recoup its investment).
We have done a comparison of the final version against the last draft available and there are no significant changes, apart from in the section dealing with Remedies. This has been brought into line with the wording in the Utilities Contracts Regulations 2016, and will allow a tenderer to claim its costs of preparing the tender and participating in the process if it can show that it would have had a real chance of winning the concession contract but for a substantiated breach by a Utility (note, not by a Contracting Authority.)
We are creating new content for the Portal on these regulations and will post details when this is available.
The Public Procurement (Amendments, Repeals and Revocations) Regulations 2016
These regulations make amendments to several pieces of legislation but particularly to the Public Contracts Regulations 2015 (PCR 2015). From 18 April 2016, you will need to refer to an updated copy of the PCR 2015 that reflects the changes made.
The following are some of the more interesting amendments made to the PCR 2015:
- Regulation 57 (Exclusion Criteria) is amended so that an offence under section 2 or 4 of the Modern Slavery Act 2015 (i.e. human trafficking) becomes a mandatory exclusion offence. We understand from the Crown Commercial Service that it intends release a new standard form PQQ plus guidance that will include this new ground (and that it will also include amendments to reflect the fact that the European Single Procurement Document is now in force; see our article here for more on this);
- Duration of Exclusions for tax offences - Regulation 57(11) used to impose a 5-year exclusion period where there was a mandatory exclusion for an offence of non-payment of taxes and a 3 year period of exclusion where discretion to exclude was exercised in relation to a lower level breach. Although there remains an obligation to exclude where this kind of offence has been committed and discretion to exclude for lower level breaches, the “5 year/3 year” period appears to have been removed for these particular exclusion grounds;
- Permitted modifications - Regulation 72(1)(b) is amended so that, to fall within this safe harbour, you need to demonstrate that additional works/services/supplies are required, the that the value change is less than 50%, and that the contractor cannot be changed because (1) there are economic and technical reasons (e.g. interoperability with existing equipment/services) AND (2) changing the contractor would cause significant inconvenience or substantial duplication of costs. The “and” underlined here reads “or” in the current version of the PCR 2015 – so this safe harbour has narrowed significantly in scope from what is currently stated on the face of the regulations. However, the change has been made to reflect the fact that the parent Directive also uses “and” rather than “or”; our advice has been and continues to be that contracting authorities should assume that “and” is correct; and
- Permitted modifications (2) – we already have had the Edenred case and guidance from the CCS which tells us that we must apply Regulation 72 to modifications proposed after 26 February 2015, even where the original contract is governed by the 2006 Regulations, and that the Regulation 73(3) termination rights are to be implied in this situation as well. Regulation 118(5) of the PCR 2015 will now states this expressly, which provides some useful clarity on the position.
An area of interest to Commissioners and Providers in the health sector is around the coming into force on 18 April 2016 of the PCR 2015’s Light Touch Regime for the procurement of health services by CCGs and NHS England.
This area is already regulated by the NHS Procurement, Patient Choice and Competition)(No.2) Regulations 2013 (the 'NHS Regs 2013') and there is a certain dissonance between the two regimes. We did wonder whether these amendment regulations might amend either the PCR 2015 or the NHS Regs 2013 to give us a clearer steer on how the two are intended to gel together. However, no such amendments feature and it may be that the government intends to leave it to practitioners to work out how to apply the law. You can read more about the two regimes, and our advice as to how to interpret the law post 18 April 2016, in my colleague Christopher Brennan’s article here.
February 24, 2016 9:47 AM | Posted by
Ruth Smith and Tom Benjamin |
Renegotiated deal in hand, David Cameron has returned from Brussels to a mixed reception. The growing clamour for so-called ‘Brexit’ from senior Conservative cabinet ministers, and Boris Johnson, has added an urgent reality to the possibility of the UK severing its ties with the European Union.
Between now and 23 June, the country will be turning its mind to the effect that Brexit would have on lives, livelihoods and business. Some may think it could be a time to rejoice at the prospect of bidding farewell to a procurement regime often dubbed as “inflexible, complex and onerous”, whilst public sector procurement teams and lawyers may be wondering about the future security of their jobs. But it's neither time to rejoice or worry: whatever the decision on Brexit, it looks as though the current landscape of public procurement regulation, at least in the short to medium term, is here to stay.
Here are five reasons why public procurement cynics should hold off on the champagne orders and why public procurement teams and lawyers ought not to be losing sleep.
1. The EU regime is, for the most part, transposed directly into UK law
Whilst the EU Treaty and EU Procurement Directives would no longer apply in the UK, an ‘out’ decision would have no impact on the validity of the UK legislation put in place to transpose those directives (i.e. the Public Contracts Regulations 2015 and the soon to come into force Utilities Contracts Regulations 2016 and Concession Contracts Regulations 2016). Instead, there is likely to be a drawn-out process of repeal and reform in sectors in which the UK has traditionally been dissatisfied with the EU position. Wholesale reform of the public procurement regime is unlikely to be top of the government’s list.
2. The UK had a procurement regime before joining the EU
There was no single regulatory framework prior to the European system, but other regimes existed (including compulsory competitive tendering for local authorities) together with public bodies’ own internal rules and policies for regulating their procurement processes. These rules existed to achieve best value for money in the use of public funds, and to ensure accountability, probity and decisions free from bias. With the potential for judicial review where a public authority’s decision making was flawed or biased, the old pre-EU practices had all the carrots and sticks of an effective regulatory regime. The only issue was a lack of consistency, which has since been corrected by legislation. So even if existing UK procurement legislation were to be repealed it is highly likely that another, similar regime might take its place.
3. The public sector is a slow mover
Although the global market has advanced significantly since the UK’s pre-EU regime, the underlying principles of achieving value for money and accountability in public authority decision-making remain the same. These principles are now entrenched in a public sector which has, over time, become hardened to the arguably burdensome EU procurement regime. It is unlikely that authorities would quickly embrace an unregulated, or indeed an under-regulated, regime.
4. The UK’s appetite for procurement regulation
Despite being against ‘gold plating’, the UK’s approach to implementing EU law (and particularly EU procurement law) has gone beyond the minimum requirements imposed by the parent directives. Examples of this include:
• in the NHS – the NHS (Procurement, Patient Choice and Competition ) (No 2) Regulations 2013 which add further regulation to the procurement of NHS healthcare services by NHS England and Clinical Commissioning Groups;
• the Public Contracts Regulations 2015 and the additional rules in Part 4 concerning, amongst other things, advertising on Contracts Finder; use of the Cabinet Office standard PQQ and rules relating to sub-threshold contracts; and
• the Small Business, Enterprise and Employment Act 2015, which gives ministers the power to impose duties on authorities relating to their procurement processes and to investigate the processes of authorities.
So there is strong evidence the UK has a healthy appetite to regulate in this field, most recently illustrated by the Procurement Policy Note issued by the Crown Commercial Service last week. The PPN (an extract of which appears below) reminds authorities of their international obligations when tendering public contracts and expects public procurers to apply the same standards to suppliers both within and wholly outside the EU:
“Public procurement should never be used as a tool to boycott tenders from suppliers based in other countries, except where formal legal sanctions, embargoes and restrictions have been put in place by the UK Government. There are wider national and international consequences from imposing such local level boycotts. They can damage integration and community cohesion within the United Kingdom, hinder Britain’s export trade, and harm foreign relations to the detriment of Britain’s economic and international security.”
5. The regime still applies to EEA members
If the UK were to adopt the Norwegian model following an ‘out’ vote, it would become a member of EFTA and the EEA. The UK’s obligations as members of the EEA would include the adoption of the EU procurement rules. The difference, and big disadvantage with this model, would be UK’s loss of its place at the negotiating table when it came to future revisions of the EU procurement rules.
No one really knows the consequences of an ‘out’ decision on 23 June. What we do know is that the referendum would only be the start and nothing would change overnight. The UK would have its work cut out in re-negotiating its trading relationship with Europe and other trading partners. The process of reform would be a gradual one, and it could be quite some time before the regulation of public procurement found itself on the parliamentary agenda.
February 2, 2016 2:36 PM | Posted by
Beresford-Jones, Jenny |
It is now February 2016 and the Public Contracts Regulations 2015 (PCR 2015) have been in force for almost a year. It takes case law a while to catch up with statute, but we are now seeing the first cases coming through where the Court has had to consider the new regulations. An interesting recent example is the case of Counted4 Community Interest Company v Sunderland City Council  EWHC 3898 (TCC), in which the Court for the first time looked at the new Light Touch Regime for health and social services, and at Regulation 24 which requires a contracting authority to take active measures to nullify any conflict of interest.
Sunderland City Council was re-procuring a contract for substance misuse support services (the existing contract was due to run out in January 2016), The re-procurement was advertised in June 2015 and, as it was for health/social services, it fell within scope of the new Light Touch Regime (see Regulation 74 onwards of the PCR 2015). The incumbent provider was Counted4 Community Interest Company (the “CIC”), a non-for-profit business that was established for the purpose of providing these services to the Council, a job which it had been doing since 2008. The judgment does not state this expressly, but the CIC may well have been awarded the contract at that time without any advertisement or competition (as was previously permitted under the old, now repealed, Part B services regime).
The CIC was unsuccessful in its bid to operate the new contract and brought a claim during the standstill period, triggering the “automatic suspension” of the award to the successful bidder (a local NHS Trust). The Council applied to the Court to have the suspension lifted. As such, this was not a trial of the substantive alleged procurement breaches by the Council, but rather of whether the suspension ought to be maintained until full trial, or lifted. In these situations, contracting authorities are often anxious to be able to proceed with the award process to ensure continuity of services, while the claimant’s goal is to prevent the contract being awarded at all and to preserve its chance of ultimately obtaining the work.
American Cyanamid test
When deciding whether to lift or maintain a suspension, the Court will apply the test set out in the American Cyanamid case. This test poses a hierarchy of three questions:
- Is there a serious issue to be tried?
- If so, would damages be an adequate remedy for either party?
- If not, where does the “balance of convenience” lie? (this would factor in issues such as the public interest in the contract being awarded or suspended).
The CIC’s arguments
The CIC argued that the suspension ought to be maintained until a full trial of the alleged procurement breaches could be held. It alleged that the Council had breached its obligations under Regulation 24 to take appropriate measures to identify and prevent a conflict of interest. The CIC had had a very strained relationship with the Council’s employee who had been responsible for the contract management of the existing contract. It alleged that the inclusion of this employee on the evaluation panel for the procurement of the new contract amounted to a failure to take steps to nullify a conflict of interest. The CIC also alleged that there were errors during the evaluation stage in how the tenders had been marked and that certain elements of the bid had not been taken into account.
The Council’s arguments
The Council, arguing that the suspension should be lifted and that it should be allowed to proceed with the award, argued that the CIC’s case was weak and/or that it raised no serious issue to be tried. It also argued that, should the CIC eventually be successful at full trial, damages would be an adequate remedy for it and there was therefore no need to stop the contract award process going ahead before the trial. On the other hand, the Council argued, there was an urgent need to ensure service continuation for vulnerable service users, such that damages would not be an adequate remedy to the Council if the suspension were maintained; therefore, the public interest lay in allowing the award to proceed.
The Court was required to rule not on the substantive questions of whether the breaches alleged by the CIC had in fact taken place (these are questions for the full trial at a later date), but only of the issue of whether, in the interim, the suspension of the award should be upheld, or lifted.
The Court ruled that the suspension should be maintained. This is a relatively unusual decision. In most cases it proves difficult for the claimant to show that damages would not be an adequate remedy and/or the public interest element brings the Court down on the side of the contracting authority.
In applying the American Cyanamid test, the judge came to the following conclusions:
- Evidence provided about the very difficult relationship with the Council employee did suggest that there was at least a serious issue to be tried on the conflict of interest point (although at this stage the Court made no judgment about the substantive complaint)
- Previous case law is authority for the conclusion that, where there are allegations about mis-evaluation, it is logical to conclude that there is a serious issue to be resolved at full trial.
- Damages would not be an adequate remedy for the CIC, given that it was set up solely for the purpose of providing this service to the Council and that, were the contract award to go ahead, all its specially trained staff (who could not be easily replaced) would TUPE transfer over to the new provider. Significant also was the fact that the CIC would be (financially) unable to pursue the claim were the contract award to proceed.
- The public interest did not tip the balance in favour of allowing the award to proceed. Despite the Council’s evidence as to the urgency in order to secure the provision of services, the Court was not persuaded that there were any significant problems with the existing contract and, on the evidence, it did not judge the Council to have been acting with particular urgency over the course of the procurement. Given that an expedited trial of the substantive claims could be held in Spring 2016, the Court was not persuaded that a two or three month delay would be so critical as to tip the balance of convenience in the Council’s favour.
This case turns on its own facts to some extent – it unusual for the claimant to be as entirely dependent on the contract in question as CIC was in this case. Because of this relatively uncommon set of facts, the CIC here was able to successfully argue that, were the suspension to be lifted, the new contract awarded and the CIC to go on to win on the substantive claims at full trial, then damages would not be adequate compensation,. There are not many suppliers who are entirely dependent on one source of business in this way.
That said, the judgment is a warning to contracting authorities that the Court will apply the American Cyanamid test on a case by case basis and there are no guarantees that the judgment will go the contracting authority’s way.
This case will be an interesting one to look out for when it comes to full trial. It will be interesting to see what the Court has to say about the contracting authorities’ obligations around evaluation in the context of a Light Touch regime process to which the full public procurement regime does not apply. It will also be useful to get the Court’s view on the conflict of interest point; should the contracting authority in this case have taken clearer steps to nullify the conflict, such as ensuring the employee in question was not involved? Watch this space.
You can find a copy of the judgment here.
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