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Fresh hope for a fresh award process – High Court upholds automatic suspension on contract-making in a public procurement action

25 November 2014

On 27 October 2014, the High Court issued a significant ruling which demonstrates that the Courts will stop a public contract being entered into where there is a possibility it may have been entered into illegally, without a valid contract notice and/or tender process.

Claimants have often not been protected by the courts!

All too frequently, tenderers in actions under the public procurement rules are left with damages as their only remedy at trial. 

This is because, although Regulation 47G of the Public Contracts Regulations 2006 (as amended) (“Regulations”) provides that upon the commencing of proceedings the entering into of contracts by the defendant contracting authority is automatically suspended, almost invariably that authority succeeds in any application it subsequently brings to have this suspension lifted.

The usual expectation is that public interest considerations in essential services not being delayed or disrupted pending the outcome of a potentially lengthy dispute resolution process will persuade a judge to make an order in favour of an authority to lift the suspension on contract making.

Whilst, in many cases, these considerations are entirely valid and genuine, the consequence for claimant economic operators is that their only remaining option is to pursue a remedy in damages; and, since many actions revolve around a tender process that has been omitted altogether, a claimant’s prospect of recovery in damages can often be relatively low. 

This is because of the uncertainties associated with the counterfactual question of “what would have happened” in the event a tender process had been carried out, even before one gets into the potentially thorny issues of quantum surrounding those levels of profit the claimant would have made had it been awarded the contract(s) in question.

Normally, what the claimant operator wants (and has always wanted) is the chance to compete fairly for the relevant contract(s). It is for this reason that the upholding of an automatic suspension on award is so often of critical importance in safeguarding their rights. 

It is therefore promising to witness a relatively rare decision whereby an application by a contracting authority to have a suspension lifted has been refused.  This is what the High Court has done in the case of R (Edenred (UK Group) Limited) v HM Treasury and others [2014] EWHC 3555, in which it has ruled that an automatic suspension should remain in place until trial has concluded.

What has happened in the Edenred case, and why is it different?

Edenred (UK Group) Limited (“Edenred”) brought an action claiming that a decision by HM Treasury (“HMT”) to enter into a contract for the provision of services as part of the government's new tax-free childcare scheme (“TFC”) with National Savings and Investments via a private company (Atos) was made unlawfully. 

Specifically, it claimed that this constituted either a new award or a material variation of an existing (previously tendered) arrangement with Atos, either of which would require a fresh tender process, which had not been conducted. 

The issuing of Edenred’s proceedings gave rise to an automatic suspension on contract award, which HMT applied to have lifted.  

However, the High Court refused this application, ruling that there was a critical issue to be decided; namely, whether introducing Atos to provide the services required for the purpose of the TFC scheme amounted to a material variation or fell within the scope of the work for which Atos had already successfully tendered, as HMT argued.

This was not an issue which the Court was prepared to consider on the merits in the context of the application, given that a trial on this substantive question would take place relatively soon.

However, the key factor behind the Court’s ruling appears to be that, were the suspension to have been lifted and HMT subsequently permitted to enter into the relevant contracts, Edenred would be left only with a claim for damages. 

The likely damages remedy was considered too low for the claimant to realistically pursue it, meaning proceedings for a remedy would almost inevitably cease.  

By contrast, if Edenred’s case was well-founded and the arrangements were indeed unlawful, lifting the suspension would lead to the award of a contract worth £160 million without the requisite tender process.

What has this ruling demonstrated?

Significantly, although the court recognised that it was in the public interest to avoid delays in launching the TFS scheme, this was outweighed by the even stronger public interest in ensuring compliance with the Regulations, and thus held that the suspension should remain in place until the conclusion of the trial.

This demonstrates that in cases of clear non-compliance with the public procurement rules, particularly with regards to any failure to issue a notice and conduct a compliant tender process (notably, where there has been a material variation to existing contractual arrangements), the combination of promoting a culture of compliance with the Regulations (which, ultimately, encourages fair competition in public markets) and maintaining the claimant’s access to a meaningful remedy in these sorts of circumstances make the case for keeping in place the automatic suspension much stronger.

In claims such as that brought by Edenred, the prospect of holding up the relevant contract(s) and potentially obtaining an order for a tender process to be run may be such that bringing a swift set of proceedings is essential. 

That said, even successful litigation entails cost and risk and the order for a tender process gives no guarantee of securing the relevant contract(s).

A claimant therefore needs to be highly confident that, if it can get an order for the authority to open up a contract to tender, it will be in a strong position to succeed in the ensuing tender process.

This article was written by Paul Henty.

For more information please contact Paul on +44 (0)20 7427 6506 or paul.henty@crsblaw.com