In a highly-anticipated judgment dated January 30, 2024, the Court of Appeal confirmed that in a procurement challenge under the Public Contract Regulations 2015 (PCR), a finding of a manifest error will not automatically mean that the error is ‘sufficiently serious’ to justify an award of damages.
This blog piece is a reduced version of our wider commentary on the case, which is available here.
Background
The procurement in question was for the provision of nationwide orthodontic services, although the challenge related to a contract for services in East Hampshire for a 7-year term worth £32.7 million (the Procurement). Braceurself was the incumbent, but its bid (one out of two) was unsuccessful, and the contract was awarded to a company known as PAL in these proceedings. The difference between the two bids was very close: PAL scored 82.5%, whereas Braceurself scored 80.25%.
Braceurself issued proceedings challenging the Procurement on a number of fronts, seeking to have the score corrected and the contract awarded to Braceurself. The issue of proceedings engaged the automatic suspension under the PCR. NHS England brought its application to lift the automatic suspension and was successful, primarily as Judge Bird found that “in this case damages would be an adequate remedy”.
As a result of the suspension being lifted, the contract was awarded to PAL, and Braceurself amended its pleadings to proceed for the remedy left available: damages. In a bifurcated process, on June 20, 2022, Mr Alexander Nissen KC, sitting as a Deputy High Court Judge (the Judge), handed down the ‘liability decision’ and held that there had been a single manifest error. On September 16, 2022, the Judge handed down the ‘Frankovich decision’ and held that, after considering the Factortame checklist, the balance overall fell in NHS England’s favour and that there should not be an award of damages. In particular, the Judge emphasised that he found that there was one single breach in an otherwise carefully planned, well organised Procurement, and that the purpose in the scoring of the relevant question, which was to maximise access to publicly funded orthodontic services for those who have a disability, was laudable.
Court of Appeal Decision
The main issue on appeal was:
“In considering whether the breach is ‘sufficiently serious’ for the purposes of Francovich damages, is the finding that, but for the breach, the contract would have been awarded to the appellant, decisive?”
Put simply, Coulson LJ said no. This was for a number of reasons, including:
- If a breach is sufficiently serious because the wrong bidder got the contract, without nothing more and regardless of the circumstances of the breach itself, then the second Francovich condition would add nothing and would “collapse” into the third.
- What matters for the purposes of the second condition is the nature or quality of the breach, not its effect. And in this exercise: “A deliberate decision to do something with a high change that loss will be caused is at one end of the culpability spectrum; something going wrong due to inadvertence, misunderstanding or oversight, is at the other”.
- An approach that makes the first two factors of the Factortame checklist decisive of the ‘sufficiently serious’ test is not in accordance with the domestic authorities.
Comment
In our experience, in most procurement challenges, the Claimant’s first priority is not usually seeking damages – they want the contract (or at least for the procurement to be re-done). However, once the procurement challenge is brought (with the result that the procurement is automatically stayed), the contracting authority will inevitably bring an application to lift the automatic stay. For this application, the appropriate test is whether damages would be ‘an adequate remedy’, which is a high hurdle for the Claimant to overcome, unless the contract being procured is particularly novel and/or the loss of the contract will create a threat to the Claimant. The contract will thus be awarded to the other bidder and the Claimant will be left only with its claim for damages.
Claimants in public procurement challenge often face an uphill battle – at the start of a claim, the Claimant has none of the documents, and when documents are disclosed, they may be within a confidentiality ring. However, the importance of documentation was emphasised by Coulson LJ in relation to the second issue on appeal: Braceurself’s submission that a manifest error can never be excusable. Coulson LJ recognised that two of the factors to be considered in relation to the seriousness of the breach, focused “squarely” on the conduct and state of mind of the infringer, and that in his experience : “it is often quite easy to track a mistake made during an evaluation process back to its source; indeed, that is the whole point of there being a proper ‘paper trail’ relating to the tender evaluation, which an aggrieved tenderer can follow to see precisely where the process went wrong”. In our experience, this is not always so easy, but perhaps we can place some comfort on Coulson LJ’s statement that “the judge can draw inference from the evidence he or she does have”.
So what then, if after the final hearing (having overcome all the struggles with disclosure) the Claimant is able to show that there has been a manifest error, and the judge concludes that there is to be no award for damages? Has the Claimant been left without any effective remedy?
This question was expressly addressed by Coulson LJ, who accepted that, in a public procurement challenge, “there is a potential conflict between the result at the interim stage of the litigation (when the respondent sought to remove the stay) and the final stage (when the judge came to consider whether the breach that he had found was sufficiently serious to warrant damages)”. Whilst acknowledging that this result was “most unfortunate”, Coulson LJ found that it was “not incoherent” – it is the consequence of there being two different exercises, two different sets of evidence and two different sets of governing principles in the interlocutory and final stages, which may produce different results.
In this regard, Coulson LJ again focused on the otherwise well-run procurement in this particular case, concluding that “A single, inadvertent breach in an otherwise impressive and careful procurement exercise caused the wrong result” but this was, in his experience, very rare.
Recently, it has been a favoured tactic of the claimants, when facing an application to lift, to try and get a concession from the contracting authority that they will accept that, should the suspension be lifted, any breach is sufficiently serious so as to entitle the Claimant to damages. There was a brief discussion by Coulson LJ of such ‘informal’ agreements between the parties and the judgement says nothing that might undermine such agreements.
Some commentators have claimed that this judgment could make it more difficult to recover damages in procurement claims. However, in our view, this judgement was focused on the particular facts in that case, and it is important to remember the focus placed both at first instance and by Coulson LJ on the finding of just one error, in an otherwise well-run procurement. We note that Coulson LJ observed that this case was “unusual, if not unique” and in our experience, it is uncommon to find just one single, material error.
Finally, we note that all of this comes at a time where the new Procurement Act 2023, along with the accompanying amended Provider Selection Regime 2023 for NHS services (the PSR), have just come into force. The PSR will mean that fewer NHS services contracts need to be procured in the first instance. Public authorities will still need to comply with standards of fairness and transparency but moving forward it any challenge to decisions made under a competitive process under the PSR will need to be made via a judicial review.
