Stark reminder on the realities of the remedies available for breach of the public procurement rules

Two recent procurement cases provide a useful reminder on the realities of the range of remedies available to the Courts for breaches of the public procurement rules. 

Contracting authorities may be tempted to view the potential risks associated with a breach of the public procurement rules as being somewhat of an empty threat, relying on the Courts traditional preference for damages awards only. However, two recent cases have seen UK courts move away from their reliance on the use of damages to ensure contracting authorities are strictly held to their public procurement obligations, including the first order of ineffectiveness in the UK:

Lightways (Contractors) Limited v Inverclyde Council [2015] CSOH 169

The Public Contracts (Amendment) Regulations 2009, introduced the new remedy of ineffectiveness which if ordered has the result of cancelling all positive obligations under the contract (and is fully incorporated in the Public Contracts Regulations 2015). Until now UK courts have been reluctant to use their powers regarding ineffectiveness, however in December 2015 a Scottish Court became the first Court to order a declaration of ineffectiveness as remedy for an unlawful direct award of a contract.

The case involved a mini competition under a Framework Agreement for the provision of street lighting services under which Amey OW Limited ("OW") was appointed to the Framework. In September 2015 Inverclyde Council (the "Council") awarded a call-off contract to Amey Public Services LLP, a joint venture owned by a company in the Amey group (not OW) and North Lanarkshire Council. Lightways (Contractors) Limited ("Lightways"), claimed that as Amey Public Services LLP was not a supplier appointed to the Framework Agreement the award of the call-off contract was a unlawful direct award without advertisement or prior notification through a fresh procurement exercise.

The court allowed the application by Lightways despite the fact it is not appointed to the Council's Framework. This was because they were challenging the Council's entitlement to make any award at all under the Framework without carrying out a fresh procurement exercise. Lightways claimed to have suffered a loss and damage as a result of not having been given the opportunity to participate in a new procurement exercise.

The Council claimed it would be a disproportionate response to order a declaration of ineffectiveness against the award of the contract with Amey Public Services LLP. The Council claimed that the error had been purely an administrative one which could be easily resolved by novating the contract. The Court rejected this argument as OW and Amey Public Services LLP were different entities with their own employee, assets and businesses and as such were substantially different economic operators.

The Court held that the Council had intended to award the contract to Amey Public Services LLP. Whilst the Council contended that it would be contrary to the principle of proportionality to hold the award of the contract as unlawful and ineffective, this was rejected by the Court and an order for ineffectiveness was made.  The associated financial penalty against the Council and Lightways' entitlement to damages is yet to be decided.

Counted4 Community Interest Company v Sunderland City Council [2015] EWHC 3898 (TCC)).

In this case the High Court refused an application under Regulation 96(1) of the Public Contracts Regulations 2015 ("PCR 2015") to lift an automatic suspension that occurred following proceedings being issued and served on Sunderland City Council (the "Council") for breach of the PCR 2015.

The Council advertised a contract and issued invitations to tender for the provision of substance misuse treatment and harm reduction services. Counted4 Community Interest Company ("CCIC") was established solely to provide these services and had been the incumbent provider since 2008. CCIC's existing contract with the Council was due to expire in January 2016.

CCIC was informed on the 19 October 2015 that its bid to be reappointed the contract was unsuccessful and that the contract would be awarded to Northumberland Tyne and Wear NHS Foundation Trust ("NTW"). CCIC challenged the award decision and alleged that the Council has breached the PCR 2015 on the following grounds:

• A conflict of interest has occurred which the Council had failed to remedy in breach of Regulation 24.1 of the PCR 2015. The Council's employee, Mr Seale, who was responsible for managing CCIC's existing contract also sat as a member of the Council's evaluation panel for the re-procurement and had an "other personal interest" in the outcome; and
• The Council had failed to follow the published award criteria and/or applied undisclosed criteria or methodologies and/or acted in a discriminating manner and/or committed manifest errors in respect of the scoring of several aspects of CICC's bid.

The Court accepted that a potential conflict existed due to the repeated challenges from CCIC regarding Mr Seale's competence which "were beyond normal managerial issues". Mr Seale's personal interest to protect his professional reputation and/or his role at the Council may have compromised his impartiality and independence. Secondly the Court found that CCIC's concerns regarding scoring and methodologies were not hopeless, frivolous or vexatious, however it was difficult to establish the strength in CCIC's argument in the absence of full disclosure.

Whilst the Council submitted that it was in the public interest to remove the suspension to protect vulnerable service users in Sunderland, this was rejected by the Court who held that whilst there was a dispute as to how well the services were currently operating, a service would remain in place if the suspension was retained.

The Court concluded that it was in favour of maintaining the suspension, noting that damages would not be an adequate remedy for CCIC as TUPE would transfer the highly trained workforce with their specialist skill set to NTW (the new provider) effectively destroying CCIC's business. Following this transfer CCIC would not be in a position to carry on with the claim.