The loss of a contract – the impact of reputational damage in procurement challenges

Typically, the Court will agree to lift the suspension. This is because when deciding whether to lift the suspension, one of the key issues the Court considers is whether the disappointed bidder will be adequately compensated by way of damages in the event that the suspension is lifted and it subsequently succeeds at trial. As loss of projected profits/revenues can usually be readily quantified, it can be difficult for the bidder to demonstrate that it will suffer losses which are not capable of being quantified should it lose the opportunity to secure the contract. This includes damage to its reputation. As O’Farrell J noted in Bombardier Transportation UK Ltd v London Underground Ltd [2018] EWHC 2926 TCC:

'In most cases, unsuccessful bids are part of the normal commercial risks taken by a business and will not have any adverse impact apart from potential wasted costs of the tender and lost profits. Not every failed bid will result in damage to reputation causing uncompensatable loss. There must be cogent evidence showing that the loss of reputation alleged would lead to financial losses that would be significant and irrecoverable as damages or very difficult to quantify fairly.'

Conversely, for the contracting authority, where there is likely to be a strong public interest in not delaying the project, demonstrating unquantifiable loss if the suspension is not lifted is often an easier hurdle to overcome.

In two recent cases, however, the Court agreed to maintain the suspension pending trial despite the unarguable public interest in both procurements proceeding and in so doing examined the important question of when the loss of a contract may give rise to unquantifiable loss.

In Draeger Safety UK Ltd v The London Fire Commissioner [2021] EWHC 2221 (TCC), a contract for the supply of breathing apparatus and other equipment to the London Fire Brigade (“LFB”), Draeger, the incumbent and unsuccessful bidder, argued that damages would not be an adequate remedy if the suspension was lifted and it succeeded at trial. This was on the basis that, as the incumbent supplier to LFB, the loss of the contract would damage its reputation and such losses would be very difficult to calculate. While the overall value of the contract was not significant in the context of Draeger’s global business, and the Court concluded there was no particular complexity in assessing damages, there was evidence that the procurement was being watched by a number of other fire and rescue services and was likely to be perceived as setting the standard for improved protective equipment in the sector. On that basis the Court accepted that, if the automatic suspension was lifted and Draeger was ousted from its position as incumbent provider of breathing equipment to LFB, it was arguable that it would suffer loss for which damages would not be an adequate remedy.

In Vodafone v Secretary of State for Foreign, Commonwealth and Development Affairs and another [2021] EWHC 2793 the Secretary of State (“SoS”) sought to award a framework agreement for a replacement system for secure electronic communications. Vodafone’s initial tender was unsuccessful, and the SoS appointed another bidder without further negotiation in accordance with the terms of the invitation to submit tenders. Vodafone, the incumbent supplier, issued proceedings triggering the automatic suspension which the SoS applied to lift.

In assessing whether damages were an adequate remedy for Vodafone, the Court provided further guidance on the circumstances in which the loss of a contract is of such reputational value to the claimant that damages could not be considered adequate to compensate it, notwithstanding that the value of the contract may be low in the context of the claimant’s overall business. The Court rejected the SoS’s assertion that “you win some, you lose some” and that the loss of the tender was simply a temporary setback and ordinary commercial risk. The Court accepted that the contract Vodafone had bid for was, in the field of global communications, “second only in prestige to an equivalent contract to supply those services to the USA Government”, and that such opportunities did not arise frequently (in this case, the last one was 11 years previously). The Court therefore found that it would not be just to confine Vodafone to a remedy in damages on the basis of an unquantifiable loss of opportunity to bid for and win other contracts off the back of this contract. The Court noted that whilst Vodafone could bid for other government and public sector contracts without having won this one, it would not be able to secure call-off contracts and build its standing by that means.

Whilst the position remains the case therefore that unsuccessful bids are typically part of the normal commercial risk an organisation faces, disappointed bidders should consider carefully in the light of Draeger and Vodafone whether the contract they are bidding for is one which has a reputational impact which might make an award of damages inadequate even if the contract itself does not have a high value in monetary terms. The decision in Vodafone suggests the courts will still look for something more concrete than general assertions of lost opportunity, however, such as in that case the ability to secure call-off contracts off the back of the main contract.

One final point to consider, where there is doubt as to the adequacy of damages for either party, is the balance of convenience test. This test requires the Court to consider all the circumstances of the case to determine which course of action is likely to carry the least risk of injustice to either party if it is subsequently established to be wrong. In both Vodafone and Draeger the ability of the Court to accommodate an expedited trial in a short timeframe was an important factor in its decision to maintain the suspension. As the Court’s diary is in a constant state of flux and entirely out of the parties’ control, the possibility of a window suddenly becoming available in which to accommodate a trial (as was the case in Draeger) introduces a degree of uncertainty into the outcome of such applications.

Jeremy Sharman and George Lester-Pearson

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