Interesting procurement case pits the public sector against the public sector

Background

The case concerned a procurement process by the defendant Council for certain Public Health and Nursing Services to children and adolescents in the Lancashire area.  The "lot" concerned related to a 5 year contract valued at around £104 million and included services such as antenatal care and child mental health services.  The claimant NHS Trusts were the incumbent providers of these services but lost out in a re-procurement to Virgin Care Services Ltd (Virgin).  The Council's procurement was subject only to "light touch" regulation under the PCR, as it related to healthcare services.  This meant that many of the onerous and detailed procedural rules in the PCR did not apply; however, the Council was required to conduct a fair and transparent process, treating all bidders equally.  

Interestingly, the Council's procurement was conducted in a matter of only two months from start to finish, despite its relatively high value and important nature.  At its conclusion, the Council notified the Trusts that they has lost out to Virgin by a margin of 4.07%, with 0.7% of the margin relating to cost (i.e. the competing bids were almost identically priced) and the remaining 4% relating to quality.  This 4% was in turn made up by the bidders' responses to only two questions in the Initiation to Tender. 

Following a short period of correspondence, the Trusts issued legal proceedings against the Council alleging legal breaches in the evaluation process, including unequal treatment, manifest error and a failure to apply to stated scoring criteria. 

The application

As in all procurement cases which are brought under the PCR before a contract is concluded, the award of that contract is "automatically suspended" by the issuing of proceedings.  The Council was not therefore able to conclude its contract with Virgin until it had applied to the High Court to have this suspension lifted. 

At the hearing, Fraser J confirmed that the correct test to be applied was that laid down in the important American Cyanamid decision which involved an assessment of: (i) was there a serious issue to be tried; (ii) were damages an adequate remedy for either party; and (iii) where did the balance of convenience lie (including an assessment of the public interest). 

The Council conceded that there was a serious issue to be tried for the purposes of its application to lift the suspension.  This is common in some procurement cases, particularly where extensive disclosure has not yet been given.  

The Court then focussed on the adequacy of damages, and addressed for the first time the impact of the Supreme Court's recent decision in NDA v Energy Solutions EU Ltd [2017] UKSC 34 on applications to lift the automatic suspension.  In NDA, the Supreme Court ruled that claimants in a procurement dispute did not have an automatic right to damages for any breach of the PCR; damages would only be awarded if the breach was "sufficiently serious".  The parties and judge agreed in this case that this issue should be taken into account when considering the adequacy of damages as presenting an additional requirement which a claimant has to satisfy to recover any award of damages. 

In making his judgment, Fraser J was clearly of the view that damages would not be an adequate remedy for the Trusts. In particular, the judge highlighted the Trusts' position as an incumbent provider and recognised that losing the contract would have a significant impact not only on the staff (as there would have to be redundancies) but also on healthcare services more generally because of the need to restructure "pathways".  On the other hand, damages were considered to be an adequate remedy for the Council because of the very slim margin between the Trusts and Virgin in delivering the new services.  Fraser J considered the inadequacy of damages for the Trusts to be determinative, but in any event also considered that the balance of convenience lay in maintaining the suspension because the Trusts would continue to provide the services to the public until an expedited trial could take place. 

Fraser J therefore refused to lift the automatic suspension. 

A further point which was considered by the Court was an argument by the Council that any extension to the existing contract with the Trusts to cover the period of the automatic suspension, if it were maintained, would be illegal because the Council appeared to argue that the original contract was awarded to the Trusts unlawfully.  This issue is interesting for two key reasons.  The first was Fraser J's point that the PCR allows a Court to decide whether or not an automatic suspension should be maintained pending a full trial: to argue that maintaining the suspension could put an authority in breach of the PCR was inconsistent.  Second, the judge highlighted that the Council was seeking to rely on its own breach of procurement law to bolster its position on the application which he considered an "odd" proposition.  In any event, the existing contract contained an extension clause which Fraser J noted could be exercised. 

Conclusions

This case is relatively fact dependent; however, it is interesting in a number of key respects: 

• it highlights the increasing occurrence of public bodies, like the NHS, acting as bidders in procurement exercises; 
• it deals with the Supreme Court's judgment in NDA and highlights that this is an additional hurdle for claimants to prove when considering the adequacy of damages; 
• although no decision was made on the lawfulness of the Council's procurement, it demonstrates the importance of conducting a proper process in proportionate timescales and not rushing a procurement, particularly where the subject-matter is high value and of critical public importance; and 
• it reiterates the importance of early disclosure by an authority in procurement disputes. 

As an aside, and at a practical level for litigation practitioners, Fraser J also delivered a warning to solicitors not to expect the Court to take responsibility for compiling hearing bundles.  The judge alluded to a "temptation" on the part of solicitors to forward a number of emails and documents to the Court in the hope that it would make the necessary administrative arrangements.  Fraser J was quite clear that this should be resisted.