Member News

PROCUREMENT PULSE: Our View on New Developments this Month

By DLA Piper Insights

This month we look at the Lancashire case, where Mr Justice Fraser dispels a myth about procurement law, and raises new issues which might be thrown into the balance whilst deciding whether or not to lift the automatic stay.  We also look at the Arpacal case which confirms the law on collusion in the context of a procurement for insurance services. The EU Commission’s “notice to stakeholders” (see below) makes the point starkly that, if no agreement is reached on a transition period for Brexit, and there is no GPA accession, UK bidders will be “third country tenderers” on 30 March 2019. Transitioning out of the EU on a measured basis is important, and we will track further developments in terms of procurement law in Procurement Pulse as UK/EU negotiations progress.

Lifting the automatic stay where parties to the proceedings are both public sector bodies : In this case Lancashire CC advertised a contract for public health nursing services to enable its “0-19 Healthy Child Programme”. Virgin Care Services Limited was successful, and Lancashire Care NHS Foundation Trust and Blackpool Teaching Hospitals NHS Trust (the incumbent providers who were competitive on price, but around 2 marks behind Virgin on quality) challenged. In accordance with the Public Contracts Regulations 2015, the Council was automatically prevented (stayed) from entering into the contract with the successful bidder, Virgin.

  • Lifting the stay : Where a judge is faced with a request to lift the stay, s/he will decide whether or not there appears to be a case against the relevant contracting authority (“CA”), and, if there is, must then decide which course of action to take in relation to the automatic stay. To do this, s/he determines whether damages would be an adequate remedy for:
    • the CA if s/he rules that the stay is left in place – and the court ultimately rules that the procurement procedure was compliant, and the CA should be allowed to proceed with the contract.
    • the unsuccessful bidder/challenger, if s/he lifts the stay, and the court ultimately rules in favour of the challenger.

If it is a close call – ie each party’s case appears at this stage, as strong as the other’s – s/he must predict where the “balance of convenience” (American Cyanamid case [1975] UKHL 1) lies, or put in another way, which course causes “the least irremediable prejudice” (National Commercial Bank Jamaica case – [2009] 1 WLR 1405) or “least risk of injusticeSysmex [2017] EWHC 1824) to one party or the other.

In making the prediction as to which party would be least prejudiced in this case, Mr Justice Fraser put the following into the balance :

  • that, were damages to be awarded, they would be paid by one publicly funded body to another.

  • that, whilst any organisation which loses a major contract will suffer reorganizational losses (staff redundancies etc), restructuring in the public sector can often  be more complex – “This is a restructuring of delivery of … what are called “pathways” which are delivery routes through which healthcare is supplied. In addition to the cost and disruption that will cause – which I find would be considerable – the loss of the Contract will make it more difficult for the Trusts to deliver other similar public services which they are contracted to deliver, and these will require new pathways to care to be developed…. the effect upon both the Trusts goes far wider than simply those aspects to which a money figure can be attributed. … These are precisely the sort of effects, in my judgment, that cannot be compensated for by damages. 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.”

  • that the court was able to offer an expedited trial of the case due to its considerable public importance; and

  • that services could continue uninterrupted up to the date of judgment.

In his view the balance was therefore overwhelmingly in favour of the Trusts – and maintaining the stay / not allowing the Council to enter into the contract with Virgin, was the course which would cause “least risk of injustice”.

  • Extending the incumbent’s contract whilst the stay is in place : The Council was concerned that, if the court did not lift the stay, it would be forced to extend the term of the contract with the incumbent Trusts – when it knew that contract had not been advertised in accordance with the procurement rules in the first instance. It would therefore be compounding an already illegal situation. The court disagreed, and would not allow the issue as part of the argument that the stay should be lifted (so that it could contract with a bidder appointed pursuant to a formal procurement procedure). In terms of grounds for extending, the incumbent’s contract made specific provision to extend, but the judge considered that extension would be allowed during the period of the stay in any event – “This would be the case whether there was a contractual option within the existing contractual obligations, which can be exercised, or not”.

  • Following the NDA case [2017] UKSC 34, a claimant no longer has an automatic right to damages. To what extent – if at all – should this be addressed when considering adequacy of damages? All parties agreed that the approach in this case should be that at interlocutory stage, the court could not come to a decision on the question of whether the alleged breaches were or could be classified as “sufficiently serious“. Ultimately discussion on the point would be left to a later hearing.

Lancashire Care NHS Foundation Trust & Blackpool Teaching Hospitals NHS Foundation Trust v Lancashire County Council [2018] EWHC 200 (TCC)

More on the duty to investigate collusion : Pursuant to Italian legislation which allowed contracting authorities to exclude tenderers if they appeared to be controlled by a “single decision making centre”, Arpacal excluded two Lloyds syndicates from participating in a procurement for insurance services. This was on the basis that the tenders of each syndicate were signed off by the same Special Agent of Lloyds General Representative in Italy. Relying on case law (the relevant procurement Directive was 2004/18), the court held that any legislation/grounds for exclusion must be proportionate : “automatic exclusion of candidates or tenderers that are in a relationship of control or of association with other competitors [in national legislation] goes beyond that which is necessary to prevent collusive behaviour and, … constitutes an irrebuttable presumption of mutual interference in the respective tenders, for the same contract… Accordingly, it precludes the possibility for those candidates or tenderers of showing that their tenders are independent and is therefore contrary to the EU interest in ensuring the widest possible participation by tenderers in a call for tenders”. So the fact that two bids are signed by the same individual is not sufficient to show that they were not drawn up independently. The court went on to say – “ … the Court has already held that groups of undertakings can have different forms and objectives, which do not necessarily preclude controlled undertakings from enjoying a certain autonomy in the conduct of their commercial policy and their economic activities, … Relationships between undertakings in the same group may in fact be governed by specific provisions such as to guarantee both independence and confidentiality in the drawing-up of tenders which may be submitted simultaneously by the undertakings in question in the same tendering procedure (Assitur, C‑538/07).” This is in line with the Advocate General’s opinion in case C-531/16 Specializuotas Transportas that, where a contracting authority is aware of the existence of links between tenderers, a high level of diligence is required – “the active role expected of it, as a guarantor of effective competition between tenderers, should normally lead it to make certain that the tenders submitted by those tenderers are separate.” It is also in line with grounds now set out in article 57(8) of Directive 2014/24, which allows exclusion, where there are plausible indications of participating bidders having entered into agreements aimed at distorting competition.

Case c-144/17 Lloyds of London v Agenzia Regionale per la Protezione dell’Ambiente della Calabria (Arpacal) – 8 February 2018

Brexit preparedness, and the demise of UK tenderers to third country tenderers : The EU Commission is concerned that a level of “Brexit preparedness” be achieved by both the public and private sector, in the event that no transition agreement is signed. It has therefore issued a number of notices to stakeholders in different sectors (including public procurement) so that they are alert to the implications, and can plan accordingly. The notice to stakeholders in the field of public procurement is stark – businesses with a pan-European footprint who are used to bidding freely for public contracts across the EU27, would find themselves in the same position as third countries (non-EU members) on 30 March 2019. This would mean that EU27 public bodies could exclude UK bidders from any procurement procedure, and in the following scenarios:

  • operators in the utilities sector offering supply contracts which comprise goods, more than 50% of the value of which originate in the UK (or another non-EU country) may be rejected from an EU27 procurement process and/or may not be awarded contracts where there are other equivalent offers with less than 50% by value of goods from the UK;

  • for those participating in EU-based defence and security contracts, UK security clearance procedures for contracts which contain classified information may not be recognised by the EU27, even where they consider them to be equivalent to their own national system of security clearances.

The UK is in the process of adjusting its trading arrangements with the rest of the world. What the EU says in its notice is subject to the outcome of those negotiations, including any withdrawal agreement and any future UK accession to the Government Procurement Agreement. The EU Commission draft Withdrawal Agreement, published on 28 February 2018, includes provisions confirming that EU rules will continue to apply to procurement processes which have started but are not finalised, and existing framework agreements which have not yet expired/terminated, until the end of the Transition Period (31 December 2020).