Hope springs eternal – and many of us will have bought at National Lottery ticket at some point or other.
But perhaps only those of us who work in public procurement will be aware that the contract to operate the National Lottery is technically a concession contract, regulated by the Concessions Contracts Regulations 2016 (CCR 2016). The relevant contracting authority is the Gambling Commission, a non-departmental government body that sits under the Department for Culture, Media and Sport.
The re-procurement of this contract has been the subject of a recent case (Camelot Lotteries and Ors v The Gambling Commission  EWHC 1664 (TCC)) which will be of interest to authorities and tenderers alike.
Following various re-licencing and extension arrangements, Camelot have held the contract to operate the National Lottery for almost 30 years. That contract is due to expire 2024, and the Gambling Commission commenced a competition for a new licence to operate in August 2020.
As do their more familiar sister regulations the Public Contracts Regulations 2015 (PCR 2015), the CCR 2016 require a compliant tendering competition to be run, the tenderers to be notified of the outcome and the holding of a ten-day standstill period prior to signature of the contract.
If, during that standstill period, a challenge is made in the High Court, this has the effect of “automatically suspending” the award of the contract until an interim hearing is held and the Court decides on whether the suspension may be lifted or not.
In this case, Camelot was unsuccessful in its tender, with the winning tender being Allwyn (an entertainment company that already operates lotteries in Austria, the Czech Republic, Greece and Cyprus, and Italy).
With everything to lose as the outgoing provider, Camelot decided to gamble on a challenge to the decision. Arguing that the Gambling Commission had breached the CCR 2016 in the way it carried out the evaluation, Camelot brought a challenge during the standstill period thus suspending the award process.
The Court then had to consider whether to lift that suspension (and allow the award to Allwyn to proceed) or to maintain it and suspend the award process pending full trial of the alleged issues.
The auto-suspension test
When considering whether to lift or maintain a suspension, the Court uses the American Cyanamid test (named after the case where the test was first set out). This test asks three questions:
- Is there a serious issue to be tried?
- Would damages be an adequate remedy for the challenger if the suspension were lifted and they succeeded at trial? Alternatively, if the suspension were maintained, would damages be an adequate remedy for the authority if at trial the challenge fails?
- If there is doubt about the adequacy of damages, where does the “balance of convenience” lie (this is essentially a public interest test)?
Generally, the application of the test usually leads down a familiar route, which is that the Court usually finds in favour of the contracting authority, the suspension is usually lifted and the contract award allowed to proceed.
The question of whether there is a serious issue to be tried is a low bar test, which only requires a claimant to show some evidence of a potential breach. This element of the test is usually satisfied easily. The other two elements are more difficult for claimants.
In relation to adequacy of damages, it is usually the case that a financial compensation payment (which is what damages amount to) is considered sufficient by the court as a just compensation to the challenger, if the suspension is lifted and the contract award allowed to proceed.
In the rare cases where the Court has decided to maintain the suspension, it has been where for relatively unusual reasons that turn on the particular facts, it is clear that a damages payment will not sufficiently compensate the claimant if it turns out the procurement was unlawful. One example of this was where an NHS Trust claimant had completely restructured itself in order to deliver the contract – without the contract the claimant entity would effectively cease to have any reason to exist.
On the “balance of convenience” element of the test, the public nature of these contracts usually makes it easy for the contracting authority to frame an argument that the suspension of the contract award would not be in the public interest. Where service delivery would be interrupted and public money wasted due to the suspension, these arguments are often persuasive.
The serious issues to be tried
In this case, it was clearly accepted that questions around whether the claim was time-barred by the limitation period amounted to a serious issue that ought to be considered at full trial.
A further interesting “serious issue” arising here was the question of who has the right to bring a claim under the regulations.
In both the CCR 2016 and the PCR 2015, contracting authorities have an obligation to treat all “economic operators” transparently, and in a way which secures non-discrimination, equal treatment, and proportionality. An “economic operator” is a wider meaning than simply those suppliers who participate in the process; rather it means any supplier of services, goods or works in the relevant market. And it is an “economic operator” (and no-one else) who has the right to claim under these regulations.
In this case, Camelot had a series of sub-contractors, the “IGT Claimants”, who were joined to these proceedings.
The IGT Claimants argued that, although they had not themselves been participants in this procurement, the fact that Camelot had lost out on the contract meant that they too, in turn, would suffer a loss as a result of what the IGT Claimants alleged was a breach of the CCR 2016.
The contracting authority argued that these sub-contractors did not have the right – or in legal speak, the “standing” – to bring a claim under the CCR 2016. The IGT Claimants argued that they did indeed have such a right, given that they were “economic operators” as widely defined in the CCR 2016 (albeit not economic operators that had participated in the procurement directly).
The Court was easily persuaded that this question was indeed a serious issue that needed to be addressed at full trial.
Adequacy of damages
Camelot tried to argue that damages would not be an adequate remedy due to the significant reputational loss and the level of loss and damages due to staff unemployment. But the Court was not convinced, finding that Camelot as a company would overall still have a proven track record of successful operation in multiple countries including its success in the UK and a strong presence globally with £107 million by the US market alone which “dwarfed” the £32 million in the European market. Further, most staff working for Camelot UK would simply be moved to Allwyn under TUPE regulations.
The IGT Claimants tried to argue that damages could not compensate for the reputational damage of losing the lottery licence. However, the Court was not persuaded, even though the lottery business represented 69% of their total revenue, and the UK was their third largest source of revenue did not amount to a reputational damage in losing this market. Despite it being acknowledged that loss of this contract would amount to potentially unquantifiable losses, such losses were held to fall within the normal risk of losing a competitive tender. Therefore, damages would be a sufficient form of compensation.
The Court decided, conversely, that damages would not be an adequate remedy for the Gambling Commission. If the suspension remained in place and it succeeded at trial – the delay to award would prejudice the exercise of its functions under the National Lottery Act 1993 and these damages would be so unquantifiable as to not be readily compensated.
Likewise, the Court decided that loss to the successful tenderer, Allwyn, could not be compensated with financial damages. Any further delays to implementing the contract would result in the reduction of contribution to good causes, which would undermine the very basis on which the Allwyn bid was accepted, as well as leading to potentially significant financial losses to Allwyn.
Balance of convenience
The Court looked at whether anything could be done to mitigate the problems of delay to award, including ordering an expedited trial or the granting of an interim stopgap contract to Camelot. However, it decided that both of these were impractical – even an expedited trial would represent too long a potential delay, while there was no power to extend the existing licence contract lawfully (and nor could the Court impose terms were the parties to fail to agree them).
The court also had to consider the public interest, and here it decided that maintaining a suspension until resolution of the dispute would cause delay and so reduce contribution to National Lottery funds, contrary to the public interest.
Overall, then, the court found that (1) there was a serious issue to be tried, (2) damages would be an adequate remedy to the claimants, and (3) the balance of convenience lay in lifting the suspension, allowing the award of the contract to proceed, and leaving the issues to be tried at a later (expedited) date post-award of the contract.
The case is reassuring to contracting authorities, being the latest in a line of cases where the automatic suspension has been lifted. It demonstrates how hard it is for claimants to succeed on the adequacy of damages and balance of convenience points.
It will be interesting to see how the new Procurement Bill affects the state of play in relation to automatic suspensions. The new legislation, likely to come into force later in 2023, does drop the American Cyanamid test and includes a new bespoke test. All procurement lawyers will be watching carefully to assess how this is applied by the Court in future. However, given that the test is broadly speaking similar to the current test and it is likely that judges will still rely heavily on the current body of case law in deciding how to apply it, it is perhaps not going to amount to a significant shift in favour of supplier-claimants in these kinds of cases.
Also of interest and a point to watch is the outcome on the question of whether the Gambling Commission will be held to hold the same duties to the IGT Claimants, the subcontractors of Camelot, as it does to Camelot itself (the actual tenderer in this procurement) and whether the IGT Claimants are ruled to have the necessary “standing” to be able to challenge under the CCR 2016.
With many thanks to Nihkel Dosanjh (trainee solicitor) for his assistance in writing this article.