To lift or not to lift? Automatic suspensions in procurement challenges

20 December 2018

Hector Denfield and Anna Moon review two cases that sought to lift the automatic suspension.

The standstill period is often a nervous time for a public body running a procurement competition. The end is in sight – all bidders have been notified of the result, and the public body crosses its fingers for 10 days and hopes none of the unsuccessful bidders issue a challenge.

If a challenge is received then an automatic suspension kicks in, and the public body is prevented from entering into a contract with the successful bidder. Earlier this year, two cases were heard two weeks apart, both concerning the removal of this automatic suspension: Central Surrey Health Ltd v NHS Surrey Downs CCG [2018] 10 WLUK 296 and Eircom UK Ltd v Department for Finance [2018] NIQB 75. In the former, the suspension was maintained. In the latter, it was lifted. This article explores the judges’ reasoning in both cases and offers tips for public bodies when they face similar challenges to their procurement awards.

American Cyanamid principles

When deciding whether to lift an automatic suspension, the court is guided by what is known as the American Cyanamid principles:

  1. 1. Is there a serious issue to be tried?
  2. 2. If so, would damages be an adequate remedy for the claimant if the suspension were lifted and it succeeded at trial?
  3. 3. If not, would damages be an adequate remedy for the defendant if the suspension remained in place and it succeeded at trial?
  4. 4. Where there is doubt as to the adequacy of damages for either or both parties, which course of action is likely to carry the least risk of injustice if it transpires that it was wrong, that is, where does the balance of convenience lie?

Central Surrey Health Ltd v NHS Surrey Downs CCG

In this case, the defendant (NHS Surrey Downs) procured adult health and social support services and attracted only one bidder - an NHS led consortium. The defendant accepted their bid, but imposed several conditions upon consortium members - one of which required them to enter into a binding joint venture. The members were unable to agree joint venture terms and the claimant (Central Surrey Health Ltd, who was also the incumbent) was consequently removed from the consortium.

The invitation to tender gave the defendant discretion to deselect the preferred bidder without liability if a material alteration was made to the bid after it had been accepted. The claimant applied for the award to be suspended, arguing that their removal from the consortium constituted a ‘material alteration’ and that the defendant should re-run the procurement exercise so that the claimant could bid on its own in competition with the consortium.

The suspension was maintained for the following reasons:

  1. 1. Serious issue to be tried: on three grounds the claimant had a real prospect of success at a full trial – whether there had been a breach of the equal treatment principle, whether there had been a material change in the tender, and whether the defendant should have undertaken a new procurement exercise. In particular, the defendant’s own correspondence showed that it considered the change in the consortium to constitute a ‘material change’.
  2. 2. Adequacy of damages: the court considered damages to be an adequate remedy for the defendant but not the claimant. The defendant claimed that patient deaths were likely if their service provision were delayed, but provided insufficient supporting evidence to convince the court that this was more than mere speculation. In fact, the claimant was able to provide the necessary services in the interim period and the trial was imminent (likely to take place in early 2019). As for the claimant, damages were considered an inadequate remedy for:
    1. a. the claimant’s loss of chance;
    2. b. the impact on the good work the claimant did in the community generally;
    3. c. the impact on the claimant’s other contracts as a result of their staff transferring under TUPE to the consortium; and
    4. d. the claimant’s reputation. The ruling in Bristol Missing Link was applied here. Because the claimant was a relatively small organisation, heavily reliant on its track record, it faced reputational damage as a result of being the unsuccessful party to this tender. By losing this contract it would lose the ability to deliver its core services, which would also affect its reputation.
  3. 3. Balance of convenience: given the above, the court concluded it was more convenient to maintain the status quo in the interim before trial as the trial was probably only three months away. Importantly, the case would not effectively be decided solely on this decision whether to lift the suspension.

Eircom UK Ltd v Department for Finance

In this case, Eircom was the incumbent supplier of network services in Northern Ireland. The services were re-procured and BT submitted the cheapest bid and was awarded the contract. Eircom alleged that BT’s bid was abnormally low and the automatic suspension kicked in.

The suspension was lifted for the following reasons:

  1. 1. Serious issue to be tried: the defendant (the Department for Finance) conceded that there was a serious issue to be tried.
  2. 2. Adequacy of damages:
    1. a. Firstly, Eircom argued that its business in Northern Ireland pivoted on this contract and that the loss of work would be significant enough to force the company to cease all operations within the region. In contrast to Central Surrey Health v NHS Surrey Downs above, here Eircom offered little in support of this suggested inevitability and, on inspection, its accounts revealed many other large contracts based in Northern Ireland. Each of these spanned multiple years and had a value in the millions. When questioned on this, Eircom provided insufficient evidence in rebuttal and failed to file any explanation of their income stream.
    2. b. Secondly, Eircom requested to be judged as a ‘single legal entity’, in isolation from the successful commercial group to which it belonged. The court declined, reasoning that Eircom had ‘access to very substantial assets’ because the group’s annual turnover exceeded €1bn. Horner J explicitly refused to open a route for highly profitable organisations to ‘game the system’ by bidding through smaller subsidiaries, which could then claim they would be forced to liquidate if not awarded a particular tender. This is very similar to the argument in Central Surrey Health, but here the court held that the collapse of the incumbent company was not a decisive factor where the company was part of a bigger commercial group.
    3. c. Thirdly, as a trial date had not yet been set for this matter, it was unclear how long an interim injunction would be in place if one were ordered. Horner J considered it unlikely that a judgment would be delivered before summer 2019 because of the various complex issues within the case, including a competition law claim, and the fact that Eircom was still to file a statement of claim. The defendant faced a reasonable risk that the unknown delay – as opposed to the short, three month delay in Central Surrey Health – would cause BT to retract their highly competitive offer for one less favourable. BT had warned the court (and consequently each party) against assuming their offer would remain the same. Horner J was cautious therefore to prevent Eircom from being able to utilise this delay to ‘time out’ BT’s tender.
  3. 3. Balance of convenience: ultimately, in light of the above reasons, the court was reluctant to deprive the general public and public bodies of Northern Ireland of efficient network services; and held that the balance of convenience favoured lifting the suspension. Here, as in Central Surrey Health, the public were prioritised. Eircom’s assertion that the public interest favoured ensuring that there was no abnormally low tender or breach of competition law was rejected as it prejudged issues which could only be fully explored in a full trial.

Comment

Contracting authorities can draw several lessons from these cases when faced with an automatic suspension due to a procurement challenge:

  1. 1. If the claimant argues that, if they won at full trial, damages would be an inadequate remedy, then consider their financial strength and ask the following questions:
    1. a. Are they are part of a larger group of companies and/or do they have access to funds beyond their own accounts? These cases show that subsidiaries do not enjoy the same protection as ‘independent’ companies.
    2. b. How reliant is the claimant on this particular contract – both in terms of their finances and their reputation?
    3. c. How will the loss of the contract impact their employees and other business?
  2. 2. If the contracting authority believes that, if it won at full trial, damages would be an inadequate remedy, prepare detailed evidence to support this claim:
    1. a. What would be the impact on the services in the interim before trial?
    2. b. Will there be any knock-on effects as a result of a delay in the handover to the new provider?
  3. 3. Where a trial date has not been set the court may sympathise with the contracting authority as the potentially long period of uncertainty can be very disruptive.

In both cases, the judge emphasised that the decision was fact-specific: “No two cases are the same and it would be quite wrong to try and draw unrealistic parallels from different facts.” Your case will always have its own unique properties to consider. The Sharpe Pritchard procurement team can advise you in the case of any procurement challenge you receive to give you the best chance of success. For more information please contact hdenfield@sharpepritchard.co.uk

Case citations: Central Surrey Health Ltd v NHS Surrey Downs CCG [2018] 10 WLUK 296; Eircom UK Ltd v Department for Finance [2018] NIQB 75.

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.

« Back to news index

Register for updates

Click here to register »

Share this news

© Copyright 2019 Sharpe Pritchard