2014 is set to be a year of change for public procurement. At the time of writing, the European Parliament and Council were weeks away from adopting new directives designed to overhaul the existing EU public procurement regime. Once adopted, member states have two years to transpose the directives into domestic law, however the UK Government has set itself an "ambitious" transposition timetable of implementation before the end of 2014. Whenever the new UK rules are implemented, they will replace the existing rules in their entirety.
However, it is the public procurement developments in the UK this year which are the focus of this article. In the courts, judges have continued to clarify the public procurement rules and develop case law in this area, providing guidance to tenderers and public authorities alike. Outside the courts, in August the Department of Health (the "DoH") launched a new NHS procurement strategy (the "NHS Strategy"), in order to 'save the NHS £1.5 billion'. This article will discuss some UK case law developments this year and briefly address the main features of the NHS strategy.
First stop, the courts
The UK lags behind some of its EU counterparts in terms of the volume of cases concerning public procurement. There are a number of possible explanations for this: the cost of litigation; the short time limits for bringing a claim (which vary across the EU); the difficulty of bringing a claim and/or the fact that matters often settle before they reach a courtroom. Two decisions this year have dealt with two of the difficulties tenderers can face in attempting to start public procurement proceedings. The first difficulty being obtaining disclosure of information before issuing proceedings in light of the tight time limits and the second, getting the court to uphold the automatic suspension of an authority's ability to enter into a contract with a winning tenderer after proceedings have been issued.
Losing tenderers often find it difficult to gather enough information to determine whether or not there has been a breach and therefore whether they should issue proceedings. They often suspect that a process has gone awry, however they need to understand how the process was conducted to assure themselves of that fact. To do this, tenderers need information that they can only obtain from the authority involved. Tenderers have only 10 days from the date of the award decision notice to issue proceedings if they want to stop the authority awarding the contract and in any event, only 30 days from the date they knew or ought to have known that a breach occurred. Essentially therefore, a tenderer has very little time to engage with an authority and get the information it needs to make an informed decision about its next steps. Government guidance recognised this and consequently encouraged authorities to be more forthcoming with information in the award decision notice. The difficulty is that losing tenderers still often feel that the award decision notice is insufficient. A further issue is that the Government guidance has had the effect of making authorities reluctant to engage in additional meetings (or 'debriefs') to give information beyond the scope of the notice, which can be frustrating for tenderers.
One solution is to make an application for pre-action disclosure under Rule 31.16 of the Civil Procedure Rules (the "CPR"). If a tenderer has already chosen to issue proceedings, they can make an application for specific disclosure under Rule 31.12 of the CPR. One case in which the tenderer made such applications, was Roche Diagnostics. Roche Diagnostics made the applications to assist with its challenge to the fairness of an NHS Trust's evaluation of its unsuccessful bid for a contract for the provision of laboratory services. The Trust in this case had provided further information about the evaluation process, but the responses had been "inconsistent" and contained "manifest errors".
Mr Justice Coulson ("Coulson J") recognised that a Claimant in a procurement case is in a "uniquely difficult position" when it comes to its level of knowledge. He stated that in light of the short time limits, the authority ought to provide "essential information and documentation relating to the evaluation process", to the tenderer "promptly" (subject to proportionality and confidentiality) so that the tenderer can take a view of the fairness and legality of the process. In addition, Coulson J set out the following principles for applications for early specific disclosure in procurement cases:
- the court should consider applications for specific disclosure on their individual merits and have regard to the "clear distinction" between a tenderer with a prima facie case and those who are aggrieved but have little or no grounds;
- requests for specific disclosure must be "tightly drawn and properly focused"; and
- the court must balance the tenderer's lack of knowledge about what happened against the need to guard against an application for specific disclosure being used as a 'fishing expedition'.
Although Coulson J did not expand upon the meaning of "essential information", nor did he provide similar guidelines for applications for pre-action disclosure, this case is the first time that a judge has set out in such clear terms what information a tenderer is entitled to at the outset of a dispute. On the meaning of 'essential information', we will wait to see whether further guidance on this point is provided by the court, but in the meantime tenderers will no doubt apply their own interpretations.
It is hoped that the court will treat Roche Diagnostics as the starting point when considering an application for pre-action or specific disclosure in a public procurement challenge. The case was referred to in the September judgment of Pearson Driving Assessments which concerned another specific disclosure application. In that case however, the application was not granted because the court considered the Claimant had enough information for its purposes and also, standard disclosure was scheduled to take place a fortnight after the hearing. Nonetheless, going forward, tenderers should couch their requests for information in Roche Diagnostics terms to try and give themselves the best chance of successfully compelling an authority to provide information. Likewise, an authority may have more success challenging such a request or application, if it deals with the request by reference to the guidelines.
Suspending the award of a contract
If a tenderer issues proceedings within the 10-day period following an authority's announcement of its decision - known as the 'standstill period' - the authority's power to enter into the contract is suspended. To lift the suspension, the authority must make an application to court, or the tenderer's claim must be disposed of (e.g. discontinued or determined). Automatic suspension was introduced in the UK in 2009, following the adoption in the EU of the Remedies Directive 2007. Prior to this, under the old rules if a tenderer wanted to prevent the award of the contract, they had to apply to court for an injunction. There were numerous hurdles for the tenderer to overcome and such applications were rarely successful. The burden was shifted because, "there is now…a definite emphasis on remedies which strive to allow an unsuccessful bidder to challenge a proposed contract before it has been let." Despite this, in all reported cases, every authority has been successful in securing the release of the suspension. There may, though, be a ray of light for tenderers with the decision in Covanta Energy.
Covanta Energy bid for a contract worth over £1 billion to process millions of tonnes of waste delivered by the Merseyside District Councils and residents for 30-35 years. The authority ran the tender process using the competitive dialogue procedure which involved lengthy negotiations with the tenderers, who were eventually narrowed down to Covanta Energy and one other bidder. Nevertheless, when Covanta Energy received the results of the tender (after ten months of deliberation by the authority) they were dismayed to discover that not only had they lost, but that two elements of their tender scored zero on the basis of being, "fundamentally unacceptable". A peculiar feature of the tender process was that it took almost 7 years (July 2006-April 2013). As a result of this, the first issue for Coulson J was whether the new rules applied to the tender or not, as the tender process began before automatic suspension was introduced, but the alleged breach occurred afterwards.
After analysing the wording of the relevant legislation, Coulson J concluded that the dispute was governed by the old rules that were in force before the UK implemented the Remedies Directive. The effect was that Coulson J had to determine not whether an automatic suspension should be lifted, but whether an interim injunction should be granted to Covanta Energy, against the authority. Despite the burden shifting, the principles the court applies have remained the same; known as the American Cyanamid principles. The court asks:
- Is there a serious issue to be tried?
- If so, then are damages an adequate remedy, either to the Claimant seeking the injunction (or, under the current rules, to uphold the injunction) or to the Defendant in the event the injunction is granted (or, under the current rules, in the event the suspension is maintained)?
- Finally, where does the balance of convenience lie?
The first question was moot, as at an earlier hearing the authority had conceded that there was a serious issue to be tried. Coulson J agreed with that concession. He noted that the circumstances of the dispute included the fact that the tenderer scored zero on two key areas of their tender, despite the lengthy and detailed negotiations they had been engaged in with the authority. Coulson J suggested, "that something, somewhere, went very wrong with the tender process".
Coulson J then examined the relevant principles from other case law authorities. He concluded that damages would not be an adequate remedy for Covanta Energy given the difficulties of ascertaining quantum of a loss of a chance claim. This would, he found, be "virtually impossible" in this case because of the extensive communications which had passed between the tenderer and the authority which would require analysis. Coulson J also found that damages would be an inadequate remedy for the authority as there would be a detrimental environmental effect if the contract was delayed.
Coulson J finally moved on to the balance of convenience, analysing the factors in favour of granting versus refusing the injunction. He again considered the environmental impact of delaying the contract (for the approximately 9 months it would take the matter to get to trial) and concluded that the balance of convenience lay in granting an injunction as this involved the least risk of injustice. Although Coulson J found that the old rules were applicable, had the new rules applied instead and given that the applicable principles are the same, the authority would not have succeeded in having the suspension lifted. Therefore, although technically a decision under the old rules, many consider this to be the first decision since the implementation of the new rules in which the automatic suspension has not been lifted. Tenderers may therefore find that this judgment provides useful guidance when responding to an authority's application to lift an automatic suspension.
The NHS Strategy involves four key initiatives which encompass a number of objectives to be achieved over the next three years. Some elements, such as ensuring there are opportunities for small and medium-sized enterprises, might be considered laudable. Others could however, be a significant cause of concern for tenderers. One of the initiatives is to improve data, information and transparency. To achieve this, the DoH proposes to enable hospitals to publish what they pay for goods and services and establish a 'price index' which will enable hospitals to compare their spend with one another. The DoH believes that by making more information about NHS deals publicly available, they will expose 'poor value for money and bad contracts'. The NHS Strategy also calls out suppliers of orthopaedic implants specifically. The NHS Strategy alleges that the costs of orthopaedic supplies are double those found in other sectors. Its somewhat damning view of this is that: "…the business model by which orthopaedic suppliers sell to the NHS is inefficient, outdated and not in the best interests of either party."
At present, the NHS Strategy is largely aspirational - another of its key features is the appointment of a private sector 'Procurement Champion': a figurehead to promote and support the delivery of the programme, who at the time of writing has yet to be appointed. However, suppliers will need to reconcile their need to ensure that elements of their offerings to authorities remain confidential, with the DoH's desire for transparency and information-sharing. Suppliers in the healthcare sector may be concerned about this focus on information-sharing, however they may have little scope to push back given that it reflects the Coalition's transparency initiative which was introduced in 2010.
More broadly, healthcare suppliers will be less than thrilled by the DoH's ambition to save £1.5bn albeit that they will be increasingly familiar by now with pressure being applied to their prices. The challenge for suppliers and NHS bodies is to come up with innovative structures that allow savings to be made without undermining the value for either party or breaking procurement rules. We have already seen this manifest itself in ideas such as joint ventures and collective purchasing, but no doubt we will see more in the years to come.
Although the legal developments concerning UK procurement law this year are likely to be overshadowed by what is to come next year, they are still important. The courts have provided clearer guidance about a key feature of procurement challenges - disclosure of information - and an automatic suspension has (in essence) been upheld for the first time. The changes in the NHS (provided they too survive the general election) could make the landscape within which authorities and suppliers negotiate and agree contracts even more difficult to navigate. Watch this space.