Wrongly losing a contract – not necessarily a “sufficiently serious” breach of procurement law?

In our previous article on the decision in Braceurself Limited v NHS England [2022], we set out the findings of the Court on issues of liability. The Claimant successfully established that the Defendant had made a manifest error in the evaluation of the Claimant’s bid response for one question, and that the Claimant should have scored more highly for that question. Because the scores awarded to the Claimant overall were only slightly below that of the successful bidder, the Court held that the Claimant’s bid should have been successful.

During the case, the automatic suspension imposed by the Public Contracts Regulations 2015 (“PCR”) had been lifted, and the Defendant had entered into a contract with the highest scoring bidder. As such, the Claimant’s only remedy was an award of damages to reflect the losses it would have suffered as a result of not receiving the contract.

However, following the decision of the Supreme Court in EnergySolutions EU Ltd v Nuclear Decommissioning Authority [2017] UKSC 34, the Claimant needed to show that the breach of procurement law was “sufficiently serious” to justify an award of damages, even though it had established that NHS England had acted unlawfully. The Court has now handed down its judgment on this point and concluded that there had not been a sufficiently serious breach to justify an award of damages. The judgment can be found here.

Assessing Seriousness of Breach

The Court carried out this assessment in line with the approach set out in Francovich v Italian Republic [1995] ICR 722, which was followed in the EnergySolutions decision referred to above. When assessing whether any established breach of procurement law is “sufficiently serious” to justify an award of damages, the Court will consider eight factors. It is important to note that none of the eight factors are, on their own, determinative, and the decision in each case will depend on the particular facts involved. We set the factors out below, together with the Court’s conclusions on each issue.

1. the importance of the principle which has been breached – the Court concluded that the obligation under the PCR to award contracts to the most economically advantageous tenderer was very important, in particular where the Claimant had lost a contract which it would otherwise have received. This factor worked in the Claimant’s favour.
2. the clarity and precision of the rule breached – the Court concluded that the terms of the procurement and the bid received were clear, and that there was no margin of appreciation for the Defendant.  This factor worked in the Claimant’s favour.
3. the degree of excusability of an error of law – the Court noted that it was potentially artificial to focus on whether an error was one of law or of fact, as both would often be closely linked. The Court noted that the Defendant had, other than the error identified in the evaluation of one question, run a fair and transparent process, and concluded that this factor worked in the Defendant’s favour.
4. the existence of any relevant judgment on the point – there were no relevant previous judgments and this was treated as a neutral factor.
5. the state of the mind of the infringer, and in particular whether the breaches were deliberate or inadvertent – the Defendant argued that it was relevant that the breach was inadvertent, and further asked the Court to take account of the fact that the Defendant was attempting to maximise access to the orthodontic service when it made the error. The Court accepted that both factors were relevant and weighed in the Defendant’s favour.
6. the behaviour of the infringer after it has become evident that an infringement has occurred – the parties agreed that this was not relevant here.
7. the persons affected by the breach, including whether there has been a complete failure to take account of the specific situation of a defined economic group – here, the overwhelming impact of the breach was on the Claimant, which had lost the opportunity to secure a contract which it should have received. However, the Court also considered the impact on the patients of the service. Because the scores were so close, the bidder which received the contract had put in a bid which had scored very nearly as highly as the Claimant’s bid should have been scored. There was no reason to conclude that patients would receive a significantly worse service as a result. The Court also noted that the contract itself was relatively small (£2.7m over its lifetime) and that the impact was significantly less than in the EnergySolutions case, where contracts had a value of £4.2bn. The loss of this contract was not an existential threat to the Claimant. This factor was therefore relevant to both the Claimant and the Defendant.
8. the position taken by one of the Community institutions in the matter – this did not arise.

Conclusion

When weighing the above factors, the Court also noted that the error on this occasion only had a substantial effect because the scores were so close.  The Court emphasised that the requirement that any breach be “sufficiently serious” is an additional hurdle, and a Claimant must show something more than the fact that there was a breach that had caused loss. The threshold for whether a breach is “sufficiently serious” is relatively high, and, on this occasion, the Court concluded that the breach was not sufficiently serious to justify an award of damages.

This decision emphasises the need not to overlook the requirement for a challenger in a procurement claim which is seeking damages to show that any breaches were “sufficiently serious”. Had the automatic suspension remained in place, the Claimant would likely have sought an Order requiring that the contract award be quashed and would very possibly then have received the contract. However, because the contract had been signed following the lifting of the suspension, the Claimant was left with a claim for damages only and has ultimately not been awarded any damages despite showing that the Defendant had acted unlawfully.

Damages claims are, for many reasons, less appealing to bidders than overturning the outcome of procurement processes. This decision further emphasises the significance of lifting the automatic suspension. It may discourage challengers from agreeing to the suspension being lifted if there is any prospect of persuading a Court that it should remain in place and may dissuade them from pursuing claims further/at all in circumstances in which the relevant contract has been entered into.

Hempsons’ specialist procurement team regularly advise both bidders and contracting authorities on potential challenges to the outcome of procurement processes.

If you have any questions then please do contact Sam or Tim and click to read more about our procurement services.