Putting you on hold: Vodafone v. SoS for Foreign and Commonwealth and Development Affairs
October 2021Introduction
This judgment of the High Court, which was handed down on 20 October 2021, arose from the award of a government contract for the provision of secure communication services by the Foreign and Commonwealth and Development Office (“FCDO”) and the British Council. Vodafone was the incumbent provider of the network, which is known as “ECHO 1”. It participated unsuccessfully in a tender to continue to provide these services under a new and improved communications network, called “ECHO 2”.
Vodafone has challenged the outcome of the tender process, alleging infringements of the Public Contracts Regulations 2015 (“PCRs”). Under Regulation 95 of the PCRs, if a claim is brought then an automatic suspension comes into force which prohibits the defendant from signing the contract with the preferred bidder until the claim had been resolved.
The automatic suspension is a kind of “reverse injunction”, which protects the rights of the claimant to an effective remedy; it would be prejudiced if its claim was successful but the contract had already been signed, as it would lose any prospect of winning it for itself, even if it won at trial. The Court may award financial damages but that will not always give a fair outcome. Pursuant to Regulation 96(1)(a) of the PCRs, the defendant, however, may apply to the Court to have the suspension lifted, as happened in this case.
This judgment dealt with the question of whether or not, pending the trial and resolution of the case, the defendant should be prevented from signing the contract with its preferred bidder. It also considered whether or not to follow the claimant’s proposal to hold a trial on a preliminary issue on an expedited basis, with a view to minimising disruption to the contract timetable. It did not address the merits of the claim that had been brought.
Background to the dispute
The FCDO structured the tender process in a number of stages, consisting of an initial submission of written tender responses (which would at that stage be scored), followed by the option for one or more rounds of negotiation with the tenderers.
Within the tender documents, the FCDO stated that it would consider appointing the leading bidder after scoring of the initial written submissions if a number of conditions were satisfied. These included that the leading bid met the minimum requirements of the tender documents and that there were no issues which would warrant disqualification.
The tender documents also stated that for quality questions, bidders would need to clear a certain minimum scoring threshold in order for the bid to be deemed acceptable. However, the FCDO reserved the right to waive these requirements rather than disqualify a tenderer for failing to achieve a minimum score for a designated question.
Legal challenge and automatic suspension
Vodafone was notified on 22 July 2021 that the defendants had decided to reject its tender and to appoint Fujitsu as the preferred bidder. It brought a claim on two main grounds. Firstly, as the Fujitsu bid had failed to achieve some of the required minimum scores, Vodafone argued it should either have been disqualified or the FCDO ought to have proceeded to negotiation with the remaining bidders. This is referred to in the judgment as the “Preliminary Issue”. Secondly, Vodafone challenged as irrational a number of scores which had been given to both itself and Fujitsu (referred to below as the “Secondary Issue”).
Vodafone issued proceedings on or around 3 August 2021. That triggered the statutory automatic standstill under Regulation 95(1) of the PCRs. On 9 September 2021, the defendants applied to lift the suspension.
In considering whether to grant the application, the Court recalled that the relevant test (from the case of American Cyanamid Co (No 1) v Ethicon Ltd [1975] UKHL 1) is the following:
- i) Is there a serious issue to be tried?
- ii) If so, would damages be an adequate remedy for the claimant if the suspension were lifted and they succeeded at trial; is it just in all the circumstances that the claimant should be confined to its remedy of damages?
iii) If not, would damages be an adequate remedy for the defendant if the suspension remained in place and it succeeded at trial?
- iv) Where there is doubt as to the adequacy of damages for either of the parties, which course of action is likely to carry the least risk of injustice if it transpires that it was wrong, that is, where does the balance of convenience lie?
Application of test to facts
The parties were in agreement in relation to point (i) that there was indeed a serious issue to be tried, namely whether or not the award to Fujitsu had been lawful.
On question (ii), the Judge found damages would not adequately compensate Vodafone. It would not be possible to quantify the value of the secondary opportunities under the framework, notably from other Government bodies who could request services from the scheme. Furthermore, the ECHO 1 project was global and prestigious in the sphere of secure communications. Vodafone would not have a chance to bid for a comparable opportunity for a considerable length of time (the last one had arisen 11 years ago). The damage would go beyond loss to reputation, a claim which Courts often approach with scepticism. It was relevant also that Vodafone had been the incumbent provider.
On question (iii), the Court considered whether damages could adequately compensate the FCDO. Claimants are required to provide cross-undertakings to compensate defendants for losses caused by the suspension being in place if the claimant ultimately loses.
The FCDO argued that putting in place ECHO 2 was a matter of extreme urgency in order to monitor and prevent potential dangers to national security. The Court accepted that, in general, it would consider that damages would not adequately compensate for potential threats to the national interest. However, in this case, it was likely that a trial (at least on the Preliminary Issue – as discussed below) would take place within four months.
The FCDO had not persuasively explained why delaying the award of the contract for that relatively short space of time would lead to any specific threat to national security. While the claim was resolved, ECHO 1 would continue in place.; There had been no convincing evidence why leaving ECHO 1 in place until the resolution of the case would create significant detriments. The Court noted that if there was any significant danger, the FCDO would itself have acted with greater speed to progress the procurement award.
Question (iv) examined the balance of convenience or, as the Judge put it, a consideration of which side would suffer greater “irremediable prejudice” if the suspension remained in force. There would be demonstrable and irremediable harm to Vodafone if the contract were signed but it then turned out at trial that the tender process had been unlawful.
On the other hand, the defendant had not convincingly demonstrated prejudice from delaying signature of the contract signing. There was no legal bar to Fujitsu extending its tender offer to cover that period to allow for its eventual appointment if the claim failed. There would be no prejudice to Fujitsu from denying it the contract if the claim succeeded. In that scenario, Fujitsu would not have lost anything to which it had been lawfully entitled.
The Judge indicated that question (iv) would turn on the viability of the Preliminary Issue pleaded by Vodafone and whether that could be tried separately and turned next to that issue.
Expedition of trial
The Judge turned next to Vodafone’s application to hold an expedited trial on the Preliminary Issue. Vodafone was effectively arguing for a splitting of the trial so that the question of whether the FCO had been entitled to award the contract after the first round of the tender process would be considered separately. Vodafone’s proposal was that if the trial on the Preliminary Issue was determined in favour of the defendant, the suspension should be lifted.
The Preliminary Issue was relatively self-contained and would not require the Court to consider a great deal of evidence. The salient evidence would be in paper form and no cross-examination would be necessary. The “secondary” issue (allegations of manifest errors in the scoring) would involve a more detailed consideration of scoring and so, would not be so amenable to an early determination. If Vodafone prevailed on the Preliminary Issue, that would save taxpayers from having to pay twice for the contract: once for the services and once in damages.
Accordingly, the Judge ruled:
- The automatic suspension should remain in place; and
- A trial on the Preliminary Issue should take place on an expedited basis.
In order to alleviate some of the inconvenience caused to the defendants, the Court ordered that notwithstanding the automatic suspension, the FCDO should be allowed with immediate effect to enter into the contract with Fujitsu on a conditional basis, the condition being that the Preliminary Issue was resolved in favour of the FCDO. This was a novel use by the Court of its discretionary powers under Regulation 96(1)(b) of the PCRs.
Comment
This decision is interesting for a number of reasons. First, it carries out a balancing between interests of national security against those of the claimant. It was not sufficient for the FCO to simply state that national security considerations were present; they had to be quantified and considered objectively against the claimant’s legitimate interests. Moreover, a causal link between the actual anticipated delay and the harm to national security would need to be shown. Whilst it was desirable that ECHO 1 should be upgraded, the Court saw no demonstrable harm from putting that project on pause a few months while the case was determined.
Beyond national security, the Courts have usually been willing to accede to applications from public buyers to lift the suspension and let contracts be concluded. This is the second procurement judgment in a matter of months (following Draeger Safety Commissioner v. London Fire Commissioner [2021] EWHC 2221 (TCC)) where that trend has been bucked. Increasingly, claimants are looking for ways to expedite trials, possibly by arranging for split hearings where the more meritorious or self-contained aspects are heard first. Getting the case resolved more quickly reduces the disruption to the contract timetable and also reduces the need for the suspension to be lifted.
Vodafone v. SoS for Foreign and Commonwealth and Development Affairs[1]
[1] [2021] EWHC 2793 (TCC).
Download PDF