UK: Procurement Pulse

Last Updated: 31 July 2019
Article by Louise AL Huson

An interesting selection of case law this month, two of which look at the extent to which a contracting authority can control aspects of its procurement procedure. The Meca case held that a contracting authority should not have to await the outcome of court proceedings before it could exclude a contractor which it already knew had been guilty of poor past performance on a previous similar contract. In the Amey case, the court confirmed that a procedure can be abandoned in its entirety if an authority has objective grounds for doing so, but that will not necessarily extinguish challenges from economic operators on grounds which existed prior to the date of abandonment. In practice, the decision to abandon if often made on the basis that it is cheaper to run a new procurement, rather than take on the costs of entering into a contract, and of a damages claim relating to the abandoned procurement. This was the scenario in the Circle case, where the court confirmed that such duplication of costs (even where expenditure is of tax payers' money) may in certain scenarios be in the public interest to ensure proper compliance with procurement obligations.

Triggering reliance on poor past performance: Regulation 57(8)(g) of the Public Contracts Regulations 2015 (PCR'15) acknowledges "significant or persistent" poor past performance as a discretionary ground on which to exclude a bidder from a procurement process. Its effect is limited by the requirement that poor performance must have lead to "early termination of the prior contract, damages or other comparable sanctions". What do those words mean? In this case a contracting authority terminated a catering contract because of incidents of food poisoning. The service provider (Serio) contested the termination through the Italian courts. Italian law did not allow discretionary exclusion if (regardless of the fact that conduct had been sufficiently deficient to justify termination of a contract) the termination had been referred to the courts. Consequently the contracting authority allowed Serio to take part in the procurement process to appoint a replacement provider. The ECJ considered that such a national provision "paralysed" the discretion to exclude, granted to a contracting authority pursuant to article 57 of Directive 2014/24, and that it did not encourage bidders to take corrective action / self-clean. It also undermined a contracting authority's right to exclude ""at any time during the procedure", and not only after a court has judgement". This might be seen as indicating that "damages and other comparable sanctions" are not damages or sanctions awarded by a court, but perhaps contractually prescribed liquidated damages or other contractual remedies on which a contracting authority can show there are objective grounds to rely? We await further decisions from the courts in this area.

Case C-41/18 Meca Srl v Comune di Napoli

Rigorous analysis of private sector business case: In this case Circle (the incumbent contractor) challenged Rushcliffe Clinical Commissioning Group, alleging an unlawful contract award to a competitor. Circle argued that the ensuing automatic suspension should remain in place because, as an alternative, damages would not be an adequate remedy for Circle. Previous judgments indicate that a claimant will only be likely to succeed in maintaining the automatic suspension in cases where:

  • the loss of the contract would cause its business operations to irremediably fail (Bristol Missing Link v Bristol City Council [2015] EWHC 876)
  • the loss of the contract would result in the loss of an entire workforce (Counted4 v Sunderland City Council [2015] EWHC 3898)
  • the contract was highly prestigious such that the damage to the claimant's reputation could not be remedied (NATS v Gatwick Airport [2014] EWHC 3133)

Circle's claim mirrored this type of ‘existential threat’ argument, and yet, the suspension was lifted - meaning Circle had to pursue a damages claim.

The judge was not afraid to question Circle's business case, and whether its chosen operating structure was the real cause of the losses it feared could not be compensated - '…if a commercial undertaking choses to carry out its operations through a series of special purpose vehicles it cannot really complain if that carries disadvantages as well as advantages’. Such risks should not be ‘used to tie the court’s hands’. Equally, a sound business case showing that the bidder intended to use the lost contract as a ‘springboard’ to obtain future work, could well be sufficient evidence to support damages for loss of reputation. If one did not exist, that did not make it the case that damages would not be an adequate remedy. Arguments that an unsuccessful bidder's business will be eviscerated will not be looked on favourably, without cogent evidence that these existential threats will have a real impact on future commercial operations - to show that damages which would otherwise be adequate, are an inadequate remedy, for the purposes of deciding whether or not to lift the suspension.

Here the court thought damages would be an adequate remedy for Circle (which was sufficient to lift the automatic suspension), but nevertheless considered it prudent to consider the ‘balance of convenience’ in case there was a factor that was so compelling that it ought to be taken into account.

  • In the court's view the complexity of the challenge - not just looking at scoring issues, but fundamental issues about the financial relationship between NHS Trusts and government - indicated a long trial period, which could prevent the contract being entered into for a further 12-18 months.
  • Lifting the automatic suspension would require the successful contractor to enter into the new contract within a very short period, and there was conflicting evidence as to whether it would be possible to properly mobilise in that time. The court did not seek to rule on that conflict, but strongly advised that Circle's contract be extended to enable a smooth transfer to the successful contractor.
  • The judge accepted that it was not in the public interest for the taxpayer to pay ‘twice over for the same service’, but that in cases where a breach is sufficiently serious to justify an award of damages it was ‘a price worth paying in order to achieve proper compliance with procurement legislation’. This did not mean that this was not a concern to be considered generally in the balance of convenience—sometimes that price might by unduly high (as in Covanta Energy v Merseyside Waste Disposal Authority [2013] EWHC 2922 (TCC) - but in his view, it would not be so in this particular case.

Circle Nottingham Ltd v NHS Rushcliffe Clinical Commissioning Group [2019] EWHC 1315 (TCC)

Abandoning the procurement process: Amey challenged the award of a highways contract to Ringway - Ringway won by one third of a mark. Although the automatic suspension had been lifted, and West Sussex would have been entitled to award to Ridgeway, West Sussex had failed to strike out Amey's claim. It therefore took the view that to contract with and pay Ridgeway, as well as being faced with the possibility of paying damages to Amey, would both put financial strain on the Council and over-stretch its personnel. Sussex' considered conclusion was to abandon the procurement procedure, arguing that bidders have no right to be awarded a contract if the procurement process does not lead to one being concluded, and that it is a necessary pre-condition to a claim for breach of the procurement rules (whether pursuant to PCR'15 or judicial review) that there is an extant procurement to challenge. The judge accepted that there is no implied obligation to carry an award procedure to its conclusion, and that a contracting authority has a broad discretion to withdraw a procurement. By doing so this may prevent private law claims coming into existence thereafter, but there is nothing in PCR'15 which limits the availability of damages if the statutory criteria for challenge have been met prior to abandonment. Regulation 98(2) provides for an award of damages for breach of statutory duty even where a challenged decision to enter into a contract may no longer be set aside. As to whether it was a "manifest error" on Sussex' part to abandon (following established precedent that a court can only overturn obvious errors made in a procurement procedure and that "manifest error" is broadly equivalent to Wednesbury unreasonableness), the court did not consider Sussex' decision to be irrational. The abandonment was lawful, even though the effect Sussex had hoped for (extinguishing Amey's claim) did not follow in law. Therefore Amey's claims of unequal treatment (because only it had an enforceable cause of action) and lack of transparency (because Sussex did not fully explain the reasoning behind pursuing abandonment) should fail.

"85 The touchstone of the PCR is the intention to ensure that any procurement gives all bidders an equal opportunity. The Abandonment Decision does not infringe that principle since all bidders were equally placed, being bidders to whom no binding commitment had been made and who accepted the risk of a rational decision to withdraw the Procurement.

86 …. As I have indicated, the reason for the Abandonment Decision was more subtle than Amey characterises. I accept that it would have been possible for the Council to explain its reason more fully or in different terms. Viewed overall, however, I do not accept that there was a lack of transparency in the reasons given which renders the Council's decision unlawful."

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