Procurement Law – Summer 2019 Update

Procurement Law – Summer 2019 Update

Welcome to our procurement law update. This is a round up of some of the more significant decisions you may have missed over the summer holiday period.

In June, a CCG successfully applied to lift an automatic suspension on the basis that damages were an adequate remedy for the claimant despite the alleged impact on the claimant’s reputation. Some interesting observations were made by the Judge in respect of mobilisation and the lack of contingency planning which show that the court has an awareness of such issues in a health context.

Then, in July a Council defeated a claim for a declaration of ineffectiveness because it had advertised the contract in OJEU and the Court found that the notice had a sufficiently clear connection to the contract which had been signed. This means it will be very difficult for a claimant to bring a successful application for a declaration of ineffectiveness (but not impossible in certain circumstances) where the contract has been subject to competition and the final contract remains closely connected to the original notice.

Finally, in August, another case reminding practitioners of the importance of the 30-day limitation period for bringing a claim and that if a provider decides not to participate in a procurement process it will not have the same rights in relation to duties owed to it under the regulations that a participant has.

CCG Contract Suspension Lifted – June 2019

NHS Rushcliffe CCG (“the CCG”) ran a procurement in 2018 for elective day case and patient treatment at the Nottingham Treatment Centre. Circle Nottingham Limited (“Circle”) was the incumbent provider and had provided services at the Centre since 2008.  The procurement was challenged by Circle and was subsequently abandoned by the CCG with an interim contract put in place between the CCG and Circle until the end of July 2019.

The CCG commenced a new procurement in October 2018 for a five-year contract. Standstill letters were sent in December 2018 (indicating a relatively short procurement process) and Circle was informed that its bid had been unsuccessful and the successful bidder was Nottingham University Hospital NHS Trust (“the Trust”).

Circle issued a claim form on 10 January 2019 and so the automatic suspension came into force such that the CCG was not permitted to enter into the contract with the Trust. This decision relates to an application by the CCG to lift that suspension.

The Court notes that “matters then took an unusual turn” because under the terms of the ITT any bidder had to inform the CCG if there was a material change in its financial circumstances. On the 16 January 2019 the Trust informed the CCG of such a change, including a forecasted £18.9 million deficit variance from the control total to 1 April 2019.

The CCG, having been notified of the change, undertook a re-evaluation of the bids and issued further standstill letters on 5 March 2019: Circle was again unsuccessful and the suspension remained in place.

As we have set out in previous articles the Court will consider whether to lift an automatic suspension by reference to the American Cyanamid principles.

1.     Is there a serious issue to be tried? The Court did not need to consider this as the CCG had conceded that there was a serious issue to be tried;

2.     Were damages an adequate remedy for Circle if it succeeded at trial?

3.     Were damages an adequate remedy for the CCG if the suspension remained in place and Circle provided a cross undertaking in damages?

4.     If the answer to 2 or 3 is no, then the Court must consider whether the balance of convenience favours retaining the suspension or not.

If the Court is satisfied that damages would be an adequate remedy for the claimant “that is usually the end of the inquiry” and the suspension will be lifted. In this case, the Court also considered the balance of convenience notwithstanding.

Damages an adequate remedy for Circle?

Circle argued that damages were not an adequate remedy. In particular, it provided evidence to the Court about the company structure of Circle and the main argument advanced by Circle was that not only would Circle lose all the revenue from the contract in question but there would a reputational impact on the group and the brand.

The Court held that it is the position of the claimant that must be considered, not the group or the brand. Evidence of commercial repercussions from damage to reputation had not been shown and if Circle were successful at trial, they would recover loss of profits over the five-year contract period: this could be adequately and fairly assessed by the Court. Therefore, the Court found nothing unjust about confining Circle to its remedy in damages.

This finding allowed the Court to lift the suspension but as a great deal of evidence had been provided on the effect on patients of lifting the suspension and the continuity of services, the judge thought it prudent to consider the balance of convenience test.

If the suspension were not lifted then a new contract could not be signed for up to 15 months (more if there were an appeal) to allow for a trial to be held. The Court was faced with contradictory evidence from the parties about the continuity of services which it could not resolve. The Court was unable to reach a conclusion that the balance of convenience favoured either party and so the least prejudicial action would be to preserve the status quo, i.e. Circle’s contract would come to an end at the end of July 2019. However, the judge expressed some concerns about the viability of the mobilisation programme proposed by the Trust and the lack of contingency planning which he hoped the parties would consider in terms of an extension to the current Circle contract.

Circle Nottingham Limited v NHS Rushcliffe Clinical Commissioning Group [2019] EWHC 1315

Valid OJEU Notice Defeats Claim for Ineffectiveness – July 2019

This case concerned a development agreement entered into between Basingstoke and Deane Borough Council (“the Council”) and Newriver Leisure Limited (“NRL”) on 19 March 2018 (“the Agreement”). The Agreement had been the subject of a full procurement process and was advertised in the Official Journal on 21 June 2013: as with most complex development agreements the procurement process and negotiations took quite some time.

The Claimants (“AEW”) were not tenderers in the original procurement process but had various retail investments in Basingstoke. AEW had begun to contact the Council, via its solicitors, from December 2016 about concerns they had with the conduct of the procurement.

The Claimants issued proceedings in September 2018 against the Council seeking a declaration of ineffectiveness and damages in respect of the Agreement.

AEW alleged that the Council could only enter into an agreement that met the requirements of the original OJEU notice and that the Agreement was materially different to the scope of the original OJEU notice (and therefore a “new” contract which had not been properly advertised and competed).

The Court was asked to consider, as a preliminary issue, whether a declaration of ineffectiveness was available in these circumstances.  The Council and NRL argued that the remedy was not available because in this case the contract had been properly advertised in the OJEU and so the first ground for a declaration of ineffectiveness (failure to advertise) was not available.

The Court held that the remedy of a declaration of ineffectiveness was not available to AEW.  The Court held that there was a sufficiently clear and close connection between the OJEU notice and the Agreement without having to undertake a detailed analysis of the Agreement itself.  However, it is worth noting that the Court did say that had the Council published the same notice and then entered into a contract for a 1,000 dwellings “one can readily see that such a contract went so far beyond what was covered by the original Notice that it bore no relation to it at all” and the Court disagreed that the remedy is only available in circumstances where there has been no notice at all.  The case confirms the requirement for a close connection between the notice and the final contract.

(1) AEW Europe LLP (2) Trustee 1 FB Limited (3) Trustee 2 FB Limited v Basingstoke and Deane Borough Council [2019] EWHC 2050 (TCC)

Challenge by Trust Against Council Struck Out – August 2019

Royal Cornwall Hospitals NHS Trust (“the Trust”) issued a claim  on 24 May 2019 against Cornwall Council (“the Council”) for breach of the Public Contracts Regulations 2015 (“PCR”). The Council applied to Court to strike out the claim.

The Trust is the incumbent provider of certain reproductive and sexual health services to the Council. The current contract is worth £2.88 million per annum but the Trust currently spends £3 million in providing the services and therefore makes a loss of around £120,000 per year.

The Council undertook pre-market engagement for the relevant services in 2018 and early 2019. As part of that engagement the Council indicated that there would be a financial cap (affordability threshold) of £2.5 million for the new contract. The Council then published an OJEU notice for three separate contracts to provide sexual health services in Cornwall, including a contract covering the services provided by the Trust, in February 2019. The new contract was for 7 years and had a financial cap of £2.5 million.

The Trust accessed the tender documents on 25 February 2019 and the Trust accepted that as from that date it was aware of the financial cap. The Trust said that it did a significant amount of work to 18 March 2019 to determine whether it could provide a compliant financial bid but concluded that to meet the financial cap would entail a deterioration in patient safety, clinical effectiveness, patient experience and staffing.  On the 18 March the Trust informed the Council that it would not bid for the new contract.

On the 9 May the Council informed the Trust that it intended to award the new contract to Brook. On the 24 May the Trust issued proceedings against the Council claiming:

(1)  Breach of general principles in specifying tender requirements that are impossible to satisfy and/or irrational and/or unreasonably risked patient safety and/or clinical effectiveness due to the financial cap;

(2)  Breach of the principle of transparency by refusing to provide the Trust with the information necessary to enable the Trust to determine whether the Council had properly followed its process, particularly as regards enforcement of the financial cap.

The Trust believed (from its own modelling and speaking to other providers) that Brooks could not deliver the services for the financial cap or could only do so by breaching the service levels in the specification and so had requested information from the Council to determine this point.

The Council argued that the limitation period ran from 25 February 2019 when the Trust had sight of the tender documents and knew about the financial cap. Time for bringing a claim therefore expired on the 26 March at the latest and so the claim issued on the 24 May was out of time.

The Trust argued that there were good grounds to extend the 30-day period (the Court has discretion to do this up to a period of 3 months) because it had taken time to investigate the impact of the financial cap. The Court said that even if this was the case the latest date would still be 18 March when the Trust informed the Council it would not bid and so the claim was still out of time (30 days expiring 17 April). No evidence was given to the Court to explain why the Trust had not brought proceedings within that time period. The Court therefore struck out item (1) of the claim.

In terms of item (2) the Trust argued that it was an economic operator under the PCR and the Council was under a duty to treat it fairly and provide documentation about the evaluation of the tenders for the new contract.

The Court disagreed – if the Trust was right it would mean that any economic operator would be owed the specific duties under the PCR. The Court said that the PCR was structured to regulate procurements in relation to those who wished to participate in them.  The Court also said that even if it were wrong on this point the Trust would not be able to show it had suffered or risked suffering loss in consequence of any breach of duty “because the effective cause of any loss or risk of loss is the Claimant’s decision not to participate in the procurement”.  The Court therefore struck out item (2) of the claim.

This decision is another reminder of the importance of the 30-day limitation period for bringing claims and that if a provider decides not to participate in a procurement process it will not have the same rights in relation to duties owed to it under the PCR that a participant will have.

Royal Cornwall Hospitals NHS Trust v Cornwall Council [2019] EWHC 2211 (TCC)

Hempsons’ Free Procurement Law Update Seminars Autumn 2019