Standing to bring a Procurement Challenge

In a trial of two preliminary issues in Community R4C Ltd -v- Gloucestershire County Council [2020] EWHC 1803 (TCC) the Court held that a consortium was not an Economic Operator under the Public Contracts Regulations 2015 (PCR 2015).  Even if it was, in a hypothetical tender the consortium would not have had the financial standing to pass a hypothetical PQQ or have had the relevant experience to pass.  The second preliminary issue concerned a time bar defence under Regulation 92(2) of the PCR 2015.

Background

In 2013 following a competitive procedure under the PCR 2015 in 2009, Gloucestershire County Council (“the County Council”) entered into a waste disposal contract.  In 2016 the County Council entered into a similar contract with the same contractor. Both concerned energy from municipal waste. The County Council maintained that the 2016 contract was a lawful modification of the 2013 contract undertaken in accordance with the machinery under the 2013 contract and, therefore, did not require a separate procurement.  The consortium disagreed and contended that the 2016 contract was not a lawful modification of the 2013 contract (as it changed the economic balance in favour of the contractor) and it was a new one which should have been the subject of its own competitive procedure.

The Community R4C Ltd (“CR4C”) sought damages on the grounds that it suffered the risk of loss in that had there been a tender for the 2016 contract, it would have formed a consortium and that entity would have had a substantial chance of winning a hypothetical procurement for that contract.

Loss of a chance damages (on the balance of probabilities) are available in procurement challenges since PCR 2015 allows for risk of a loss claims flowing from a breach of a duty owed to economic operators under the PCR 2015– most notably under Regulations 18 and 89.  Under Regulation 91 (“Enforcement of duties through the Court”) a breach of duty owed is actionable by any “…any economic operator which, in consequence , suffers , or risks suffering ,loss or damage”. The loss of the chance of winning has to be “real” or “substantial” as opposed to “fanciful” or “speculative” (see paragraph 125 of the judgement).

First Preliminary Issue – (i) Contracting Authorities owe duties to Economic Operators

Economic operators are defined at Regulation 2 of PCR 2015 as “Any person or public entity or group of such persons and entities, including any temporary association of undertakings, which offers the execution of works or work, the supply of product or the provision of the services on the market”.

In determining the first preliminary issue, and analysing the cause of action, the Court decided that it must assume the scenario of competitive dialogue taking place in and about 2015/2016 for what became the award of the 2016 contract.  On the hypothetical chronology, the PQQ stage commenced in October or November 2015, and the hypothetical PQQ assessment date was 15 January 2016.  However, and crucially, CR4C did not exist at the time of the initial 2009 procurement; it was set up as an informal association around July 2015 and(most importantly) it was registered as a community benefit society in February 2016. As such, CR4C did not have a legal personality when the hypothetical procurement started in 2015 or when the hypothetical PQQ assessment took place. All of these factors played into a two stage inquiry that a claimant is firstly required to establish a material interest in a procurement ( by asserting a missed opportunity)  before it can establish that it is protected by “…the extended concept of harm”. (Paragraph 135 and 136 of the judgement).

It was held that : the Regulation 2 definition required the execution of works or supply of services on the market to be at least occasional and the consortium as a whole needed to have a presence ; the PCR provided remedies to those who actually offered work, products or services and not to the putative who are only able to say that they would like to be given the opportunity to offer – “If the duty were to be extended to those whose “operations” were merely putative , rather than real, then that would open the class of potential claimants to pretty much anyone, no matter how slim the prospects might be of the claimant then establishing in the litigation a lost chance…” (Paragraph 149 of the judgement).

In short: at the time of the hypothetical procurement CR4C did not have a legal personality and it did not offer works or services within the meaning of Regulation 2 and so it was not an Economic Operator under the PCR 2015 . Whilst the persons who made up the consortium may have had a common interest at the time of the hypothetical procurement, they were not bound together in any recognisable legal way until registration in February 2016. Practically that meant it could not complete the mandatory requirements of the PQQ – date of registration, address, VAT number registered number. (See paragraph 204 of the judgement).

A CR4C argument that to come within Regulation 91 there is lower threshold test than the balance of probability was rejected  – there was no “…watering down of the test of actionability under the Regulations, so that a claimant is not even subject to the civil burden of proof in doing so” . (Paragraph 122 of the judgement).

First Preliminary Issue –(ii) would CR4C have passed the hypothetical PQQ under Regulation 58?

Holding that CR4C was not an Economic Operator was enough to determine the first preliminary issue in favour of the County Council so CR4C had no standing to bring a claim under the PCR 2015. Nevertheless, the Court usefully went on to consider whether CR4C could have passed the hypothetical PQQ stage – if it did not then it would not have had a substantial chance of going on to win the hypothetical procurement. This exercise involved the use of a shadow PQQ (being the 2009 PQQ) and adopt the PQQ assessment date as 15th January 2016.

The Court held that there was no chance that the members of CR4C passing the financial standing requirements – either individually or collectively.

Further, the 2009 PQQ required demonstration of technical ability and track record through major capital infrastructure projects in the previous five years. On the evidence it was held that CR4C did not have the track record and could not have achieved the required number of marks to pass the technical experience PQQ stage. CR4C tried to meet this deficiency by saying it in 2015 it would have included other potential partners over and above the three consortium members but there was no commitment between those members and the potential ones. That approach of potential rather than actual members was rejected as being “proof” of resources under Regulation 60(3) and Regulation 63 – reliance on capacity of other entities.

Second Preliminary Issue – Time Bar /Limitation

The judgement referred to the test of knowledge for the purposes of starting time to commence proceedings under Regulation 92 by reference to Sita UK Ltd. V Greater Manchester Waste Disposal Authority [2011] EWCA Civ 156. The requisite knowledge was “…of the facts which apparently clearly indicate, though they need not absolutely prove, an infringement”.

On the facts the Court held that CR4C only had the requisite knowledge for Regulation 92 purposes when the County Council released information in December 2018 under FOIA concerning capital expenditure and to decide  otherwise would entail time starting to run because CR4C may have gained the requisite knowledge by reverse engineering figures from information available to it before the FOIA disclosure.

Conclusions

The judgement: continues (sensibly in the writer’s view) to resist the expansion of interest in a public contract for the purposes of standing to bring procurement challenges[1]; confirms that there is no lower threshold of simply proving a risk of loss and the usual balance of probabilities burden applies.  It also illustrates and illuminates how the Court effectively handles the “what if” scenarios in loss of a chance cases. The judgement also examines the seldom visited permissible scope of proof of appropriate means in Regulations 60(3) and reliance on capacity of others in Regulation 63.

[1] See R (Wylde) v Waverley BC [2017] EWHC 466 (Admin) on the class of persons who are entitled to bring a claim for judicial review in a procurement and AEW Europe LLP v Basingstoke & Deane BC [2019] EWHC 2050 (TCC) concerning the available scope for an economic operator to seek a declaration of ineffectiveness.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any of the issues raised in this article, please contact us today by telephone or email enquiries@sharpepritchard.co.uk.

 

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