“You cannot be serious?”: Claiming compensation for breaches of the public procurement rules

Introduction

When faced with an adverse decision in a procurement process, suppliers often face the difficult decision of whether or not to challenge.  The factors they take into account include the prospects of success in showing there has been a breach and then being given a meaningful remedy to compensate that breach.

Two recent important judgments have provided crucial guidance on when a participant in a procurement process is entitled to damages for infringements of the rules on public procurement.  One of the decisions also provides a warning for public bodies on the overuse of framework agreements to award call-off contracts which fall outside of their scope.

Consultant Connect Ltd v NHS Bath and North East Somerset, Swindon and Wiltshire Integrated Care Board & Ors [2022] EWHC 2037 (TCC)

This judgment arose from a challenge to the award of a NHS contract for the supply of communications equipment for medical practitioners, awarded by three NHS bodies, which had elected to award the contract as a call-off order to Cinapsis under a framework agreement.  The claimant was not a party to that framework (and therefore not entitled to tender) but in any event based a complaint on the fact the award had not followed the terms of that framework.

NHS Gloucestershire consulted three other framework suppliers and identified Cinapsis (ultimately declared the winning bidder) was the only supplier suitable.  The defendants decided to hold what was called a “mini-competition” under the framework, but with Cinapsis as the only competitor.  That was contrary to the terms of the framework which made clear that all suppliers who held a place on the framework should be invited to tender.  The invitation to tender was sent to Cinapsis only.  The claimant, as a non-framework supplier, was not invited to compete.  The defendants then negotiated directly with Cinapsis, eventually agreed terms and awarded the contract to Cinapsis.

The claimant issued proceedings, arguing that the defendants had infringed their obligations under Regulation 18 of the Public Contracts Regulations (which require transparency and equal treatment between tenderers) and Regulation 33 (which provides that a call-off contract may only be awarded under a framework agreement where the terms of the framework are followed).  The claimant sought damages and a declaration of ineffectiveness in relation to the awarded call off, given that this had effectively been a direct award without any competitive tender (or any exemption from the duty to tender it competitively).

The complaint also alleged a breach of Regulation 24, which prohibits conflicts of interest.  The claimant argued there was clear bias on behalf of one of the evaluators in favour of Cinapsis.  That individual, Dr. G, while working for the defendants had accepted a speaking opportunity from Cinapsis and openly publicly advocated for the capabilities of that organisation on two occasions.

In the High Court, Mr Justice Kerr largely upheld the claimant’s case.  There had been violations of the equal treatment requirement and furthermore in circumstances where the mechanisms under the Framework Agreement had been violated, the call-off could not be allowed to stand.  He also agreed that there was apparent bias on the part of Dr G.

The Judge noted that under Regulation 99(6) of the PCRs a contract may be declared ineffective when awarded in breach of any requirement imposed by Regulation 33(11); and the estimated value is equal to or greater than the relevant threshold in Regulation 5.   Those conditions were satisfied here and were not outweighed by public interest considerations set out in Regulation 100.   He furthermore characterised the behaviour of the defendants as “very poor” insofar as they appeared to have set out to favour Cinapsis to the detriment of the claimant.  He issued civil financial penalties against the defendants in accordance with Regulation 102, setting these between £10,000 and £4,000 for each NHS defendant.

Turning to the question of damages, he noted that the claimant was required to show that the breach was of a character that could be considered “sufficiently serious”.  This requirement flows from EU Law principles which continue to underlie the existing procurement rules (enacted prior to the UK’s departure from the EU).   The question of seriousness is to be determined by reference to an eight part test, first set out in R v. Secretary of State for Transport, ex p. Factortame (No. 5) [2000] 1 AC 524, at 554E-556A (see Energy Solutions EU Ltd v. Nuclear Decommissioning Authority [2017] 1 WLR 1373).

One of the eight factors to be considered is whether the rules breached are sufficiently clear and precise.  Mr Justice Kerr held that Regulation 18, 24 and 33 fell within that description.  Another is whether the infringement had been intentional or negligent.  Here the Court found that the conduct amounting to the breaches had indeed been deliberate.  The breaches of duty were only “inadvertent” in the sense that some of those involved probably believed, naively that their deliberate conduct was not unlawful.    Having considered all eight relevant factors, the Judge concluded there had been “a manipulation of the process to ensure that Cinapsis won the contract unless it should seek to charge too much”.   In such circumstances, the breach was indeed “sufficiently serious” and the award of damages justified.

Braceurself Ltd v NHS England [2022] EWHC 1532 (TCC) (20 June 2022) and Braceurself Ltd v NHS England [2022] EWHC 2348 (TCC) (16 September 2022) 

These related judgments flowed from a challenge to the procurement of orthodontic services in East Hampshire.  The claimant had based its complaint on a range of issues arising on the procurement, including a series of scoring issues where it alleged the defendants had committed manifest errors

In its first judgment, the High Court upheld one of these complaints.  It determined the defendant had made a manifest error in its scoring of question CSD 02 which led to it awarding the claimant a score of 3 (good) in respect of that question rather than a score of 4 (excellent).  The question was concerned with Clinical and Service Delivery. One aspect of this criterion concerned accessibility to the premises of the service provider. The claimant’s premises were on the first floor which meant that its bid needed to cater for those patients who could not use the stairs to access the service.  In evaluating the claimant’s answer, the defendant misconstrued the words “stair climber” as a proposal for the claimant to fit a stair lift.  The defendant also mistakenly thought the claimant was proposing to provide services at alternative premises for patients who could not use the stairs.  In fact, the use of the alternative address was only to be a backup plan if the claimant’s primary site became unusable.

These mistakes influenced the defendant’s scoring by only one point.  However, that differential had decisively swung the outcome of the competition away from the claimant.   The Court agreed that the defendant was entitled to a margin of appreciation in its scoring of the criterion as a whole.  However, that discretion in scoring would not excuse it from straightforward misconceptions of the bid, which were not questions of judgment or assessment.  The Court adjudged those to be manifest errors which had breached the procurement rules and cost the claimant the contract.

In its second hearing, the Judge considered the question of whether the defendant’s breach could be considered sufficiently serious to justify an award damages to the claimant.   The eight-factor test from Factortame (No 5) was applied, although this time with a different outcome to that reached in Consultant Connect.  Contrasting that case with the current one, the Judge concluded that it would be appropriate mitigation to take positive account of the mere inadvertence of the breach.  Whereas the defendants in Connect had acted deliberately, here the mistakes had been unintentional and committed in good faith.  Moreover, the defendant’s concerns with the claimant’s answer, while wrongheaded, had been underpinned by the laudable aim of ensuring access to services for disabled patients.  Having considered the other elements of the test, the claimant failed to reach the threshold of sufficient seriousness; damages were not available.

Conclusion

So where does this leave bidders and public buyers?  We draw the following conclusions:

• Public bodies should consider carefully whether call-off contracts fit within the scope of a framework agreement before embarking on any award or even tendering process. They must also have regard to all the relevant mechanisms of the framework (including how mini competitions will be conducted).  Bidders should not hesitate to call them out if they think either that the call-off does not fit within the subject matter or value of the framework, if it is being used to sidestep competition in favour of a particular bidder or if the award procedures laid down in the framework are not being respected.
• On learning they have been unsuccessful, tenderers should carefully consider the feedback in the award decision notice against their original answers. One of the questions they need to ask is whether their bid has been properly understood.  They should also consider the stated evaluation matrix and the award criteria set out in the tender documents.  While contracting authorities have a margin of discretion when scoring, that does not permit them to misconstrue the content of the bid and score on that basis.
• Conversely, contracting authorities should take steps to ensure bids have been understood. Allocate appropriate time to consensus scoring meetings and encourage active engagement from scorers at those meeting to ensure that scoring decisions are well documented, reasoned and defensible.  Keep a good audit trail.  Where necessary, be ready to seek clarifications from bidders but keep questions limited so they are not given the chance to improve their bid further.
• Before bringing a claim, bidders should consider the nature of the breach and reflect on whether it is likely to be deemed “sufficiently serious”. One determinant will be whether the contracting authority has acted in good faith (although that is not the only consideration).  Taking a case all the way to trial involves a considerable investment of time and money.  It would be a shame to get all the way to Court, to have the Judge agree with you but in her next breath to say she was not prepared to award you any money for your efforts.

In all then, good and bad news for both claimants and defendants.  We consider that on balance defendants will be the happier with the judgments.  Braceurself in particular sounds a warning that there is no hard and fast entitlement for damages for claimants, who will need to run the gauntlet of the eight-factor test.  That test being a hang-over from the time of the UK’s membership of the European Union may not last long into the future, particularly if the provisions of the Procurement Bill find their way onto the statute books.  Until then, the headache will remain for unsuccessful bidders pondering a possible challenge to an adverse award decision but wanting to avoid a pyrrhic victory.