Summary: Does the recent Lancashire ruling reflect a useful progression of procurement law principles for public sector challengers, given the increasingly commercial activities of public bodies; or does it indicate a distortion of the original objectives of procurement law which could help un-do it post Brexit?

In Lancashire Care NHS Foundation Trust and Blackpool Teaching Hospitals NHS Foundation Trust v Lancashire County Council [2018] EWHC 200 (TCC), the Court refused to lift the automatic suspension, pending an expedited trial, in a claim by the two Foundation Trusts against the County Council for breach of the public procurement rules.

The two claimants were incumbents in the provision of public health and nursing services to the defendant Council and lost out on the re-procurement of the services to Virgin Care Services Limited. They issued a claim (pre-signature) in respect of numerous breaches of the Regulations pursuant to the remedies available to a “light touch regime” procedure. The contract award was automatically suspended and the Council applied to have the suspension lifted.

The Court applied the American Cyanamid principles of: (i) whether there is a serious issue to be tried; (ii) whether damages would be an adequate remedy for either party; and (iii) where the balance of convenience lies (including an assessment of the public interest).

One key issue was on principle ii); whether damages would be an appropriate remedy. The Court found that it would not in the circumstances.

The interesting thing about this judgment is that the case pits public sector against public sector in our civil courts. The case is also unusual because it goes against the tide in UK Courts of lifting the automatic suspension and allowing Contracting Authorities to go on and sign the contract which is the subject of the claim, on the basis that damages will in most circumstances be an adequate remedy.

Fraser J took the view that damages would not be an adequate remedy for the Trusts. Specifically, he pointed out that losing the contract would have an immediate impact on healthcare services more generally because of the need to re-structure “pathways”. The income that the Trusts received from the services contributed to general overheads and so the judge considered that other contracts for children’s health services would potentially be affected as skilled staff would be lost. Fraser J concluded “There will be a significant impact upon the operational activities of the two Trusts, and as a result, upon the quality of healthcare generally which they provide”.

So, the judge took the view it did in order to protect other public services which might be impacted as a result of one public body’s treatment of another. The judge also found it unsatisfactory that if damages were to be considered sufficient, one public body should be required to pay substantial sums to another public body (robbing Peter to pay Paul), stating “It seems to me to be at least a factor that if damages are an adequate remedy, they would be being paid by one public body to another. It is in no way a determinate factor, but it cannot be ignored.”

Other claimants which have successfully maintained the automatic suspension have also been not-for profit organisations so this is a logical application of the law. If profit is not your main objective then it is easier to argue that damages are not sufficient. As more and more public bodies turn to selling services to other public bodies to help gap-fund their statutory service obligations it is not a stretch to say that public bodies will therefore be more likely (though it will be dependent on facts) to persuade a court that the automatic suspension should be maintained than their private sector counterparts.

The wider point is that there can be few areas of law which are made use of by public sector bodies to take action in the civil courts against other public sector bodies – and fewer still where special precedents for public sector vs public sector emerge putting the public sector in an arguably better position than the private.

What is absolutely clear is that procurement law was never intended to provide a forum to deal with internal nation state issues around the structure or funding of public services provided by public bodies. How the state chooses to manage its service provision – whether outsourced or in-house is a matter for the collective state. It was about allowing access to free trade and genuine competition for economic operators across European borders.

In more recent years, the European Commission has also explained it is about ensuring the public gets value for money from the contracts it chooses to put to tender. The fact that this claim can occur at all and the outcome of this ruling in Lancashire may be perfectly rational for procurement lawyers but it is this second objective which makes a costly legal claim between two public bodies unpalatable. Might it provide ammunition to anti-procurement law agitators post-Brexit?

We think this ruling is a necessary application of the law in an era where public bodies are increasingly encouraged to turn to commercial contracts and arrangements to generate income to cross-subsidise mandatory services (mostly from other public bodies). If they are to be encouraged to compete on an even playing field with private sector competitors, they do need appropriate remedies that take into account their special circumstances.

After the referendum vote took place, we asked readers “What changes to UK procurement law would you like to see post-Brexit?” Query whether post-Brexit procurement challenges from one corner of the public sector against another should have another less costly “off-line” mechanisms for resolving their issues?

Note: A further consideration of the Court was the previous ruling by the Supreme Court in Nuclear Decommissioning Authority v ATK Energy EU Ltd (formerly Energy Solutions EU Ltd) [2017 UKSC 34] that for damages to be available the breach must be “sufficiently serious”. It was not possible, to determine this at an interlocutory hearing and this must also be a factor in deciding whether to uphold the automatic suspension. More on this in Part 2 of this blog.