Since the Public Contracts (Amendment) Regulations 2009 came into force, the following have been features of procurement challenges and are now to be found in the Public Contracts Regulations 2015 ( “The Regulations”):
- Once a claim has been issued in a case where a contract has not been entered into, contract-making is automatically suspended under Regulation 95(1);
- The Regulation 95 suspension can be brought to an end by the Court making an interim order under Regulation 96(1)(a).
When a Court considers whether it should bring the suspension to an end it must, under Regulation 96(2), consider were it not for the automatic contract-making suspension under Regulation 95(1), whether it would be appropriate to make an interim order requiring the contracting authority to refrain from entering into the contract. If the Court considers that it would not be appropriate to make such an interim order, it may end the suspension.
In practice, the outcome of an application to end the suspension can determine whether a claim proceeds. It is not uncommon for a Claimant to abandon its claim (and choose not to pursue a damages only claim) if it fails to resist an application to end the suspension.
The starting point is for the Court to consider whether it should grant or refuse an application for an injunction preventing the Authority from entering into the contract with the winner as if the suspension did not exist. That requires applying the well-known principles of American Cyanamid Co v Ethicon Ltd  AC 396.
The relevant Cyanamid principles are:
- Is there a serious issue to be tried?
- If there is, are damages an adequate remedy?
- If damages are not an adequate remedy, where does the balance of convenience lie?
In the past 18 months or so there have been a number of cases concerning ending the suspension, many of them in the healthcare area involving not for profit claimants. They have not all gone the same way.
Solent NHS Trust v Hampshire County Council  EWHC 457 (TCC) – Community based drug and alcohol treatment service – not for profit organisation – suspension lifted.
Bristol Missing Link Ltd v Bristol City Council  EWHC 876 (TCC) – Domestic violence and abuse support services – the Claimant was a not for profit organisation which would have received a small margin as a contribution to overheads if it had won the contract. It was held that this could not be equated to profits. The loss of the income if it lost the procurement would have had a catastrophic effect on the other services it provided and damaged its reputation. Suspension not lifted.
OpenView Security Solutions Ltd v London Borough of Merton  EWHC 2694 (TCC) – Traffic management system procurement – the suspension was lifted as damages were held to be an adequate remedy and the public interest issues in implementing the award decision were not regarded as influential on the application to end the suspension. As OpenView had an established place in the market the balance of convenience favoured ending the suspension.
Counted 4 Community Interest Company v Sunderland City Council  EWHC 3898 (TCC) – Substance misuse services. Damages were held not to be an adequate remedy because the Claimant, a not for profit organisation, would lose its workforce and also its main source of income if the contract was not awarded to the Claimant. Suspension not lifted.
Kent Community Health NHS Foundation Trust v NHS Swale Clinical Commissioning Group and Another  EWHC 1393 (TCC) – Adult community services. Not for profit organisation. Damages were held to be an adequate remedy. Suspension lifted.
Perinatal Institute v Healthcare Quality Improvement Partnership  EWHC 2626 (TCC) – Quality and Safety Maternity Care, not for profit organisation Claimant. Damages were an adequate remedy. Suspension lifted.
Alstom Transport UK Ltd v London Underground Ltd  EWHC 1521 (TCC) – Procurement for traction motors for a fleet of trains. Damages were an adequate remedy as lost profits could be calculated. The Claimant’s contention that losing the procurement would lead to a loss of expertise in the area of the procurement and its competitive edge in winning other procurements was rejected. Suspension lifted.
Sysmex (UK) Ltd. v Imperial Healthcare NHS Trust  EWHC 1824(TCC) – Provision of pathology services and equipment. Damages held to be an adequate remedy and quantifiable by reference to the profit margin in the Claimant’s tender. The argument that losing a prestigious contract would lead to a loss of reputation and could not be compensated in damages was rejected. A damages award would restore any lost reputation. The adverse effect on patient care by delaying implementation was a powerful factor in lifting the suspension. Damages payable under a cross undertaking in damages would not be adequate for the Defendant. Suspension lifted.
Each case is likely to be different factually so it is not possible to draw a unifying answer as to whether the discretion to end the suspension will be used. The following considerations, however, are likely to be relevant:
- The nature/public interest importance of the service or goods being procured.
- The public interest in starting the contract promptly.
- The impact on the Claimant if the suspension is lifted. For instance, will it be “catastrophic” financially, as the Claimant will lose a major source of income, or operationally, as it will not be able to keep its staff, expertise or its place in the market to enable winning future tenders?
- Does the nature of the procurement mean damages are difficult to quantify, so they are not an adequate remedy?
- Depending on the tenderer and its bid, a not for profit organisation may not be adequately compensated in damages. The question of its financial loss, as opposed to covering its costs of providing the services, will be relevant. If it was to receive an overhead margin, damages may be an adequate remedy.
- Are damages payable under a cross undertaking in damages an adequate remedy for the Defendant?
- The argument that losing the procurement means a loss of reputation which cannot be compensated in damages may be difficult to maintain in the light of Sysmex. However, there are other decided cases which suggest that an award of damages is not a complete answer to this argument.
- Given the judgment in Sysmex, and absent special circumstances, a Defendant would be wise to accept there is a serious issue to be tried rather than spend lots of resources on the strength of the merits of the claim.