Public procurement challenges: Update on recent cases

Business meeting 15 Print publication

29/11/2018

We have written previously about the significant legal and procedural hurdles raised by public procurement challenges. In this briefing, Commercial Dispute Resolution specialists, Gwendoline Davies and Lynsey Oakdene, consider two recent court decisions in the context of public procurement challenges: the first on disclosure and confidentiality; the second on setting aside an automatic suspension of the procurement process.

Disclosure vs confidentiality

In Marston Holdings Limited v Ministry of Justice (HM Courts & Tribunals Service) [1] the claimant, Marston, applied for specific disclosure of tender documents submitted by Excel, one of the successful bidders in a public procurement exercise for the award of a single national contract, or regional contracts, for the supply of approved enforcement agency services on behalf of the Ministry of Justice (MoJ). Marston was awarded the top quality mark for the potential national contract, but it failed against other tenderers for the regional contracts. In the end, no national contract was awarded and regional contracts were awarded to a number of others including Excel.

Marston issued proceedings seeking to challenge the procurement exercise on the basis of defects in the evaluation of the tenders and arguing that it should have been seen as the overall most economically advantageous tender for the national contract. The MoJ had provided early disclosure prior to issue of the claim. It admitted that there had been discrepancies and inconsistencies which led to revisions and alterations to the evaluation of the tenders, and that changes were made to scores during the evaluation exercise, but said that any error in the approach taken would have affected all of the tenderers, and Marston would not have been awarded the national contract in any event.

As often happens with procurement challenges, there were ‘confidentiality rings’ in place: one for the members of the parties’ legal teams; the other for a client representative of Marston. If Marston’s legal team considered it necessary for the client representative to review any documents, a written request had to be made to the relevant party, identifying the information sought and why it was reasonable and necessary to provide access. Inspection could only take place in hard copy at Marston’s legal team’s office. The court had to decide whether disclosure of the full Excel tender documentation was necessary for it to fairly and proportionately dispose of the issues in the case. Excel opposed the application, submitting that disclosure of the full documentation was not relevant to the issues. The parts relevant to the specific questions challenged in Marston’s pleading had already been disclosed into the confidentiality ring.

Specific disclosure was ordered by the court, which had very wide powers. The fact that documents might be confidential was not an automatic defence to any order for disclosure. Disclosure was necessary and proportionate. Marston had made out a prima facie case for its challenge based on the fact that it was awarded the top quality mark. The other bids were significant because, in order to ensure that it might be awarded the national contract, Marston would have to establish that it was ahead of the first five winning bidders for the regional contracts. It was therefore necessary for all of the tenders to be considered. The discrepancies, inconsistencies and changes during the evaluation raised an issue which the court had to look at. It would have to look at the way in which the evaluation and moderation exercise was carried out across the board to determine the claim.

Provided that there was adequate protection for the confidential information, which there was in this case, all of Excel’s tender documentation was disclosable. The court held that the documents should be disclosed first to the legal team confidentiality ring, followed by a discussion as to whether redactions needed to be made before placing the documents in the Marston client confidentiality ring.

Where does the balance of convenience lie?

In Bombardier Transportation UK Limited and other cases v London Underground Limited [2], the defendant London Underground (LUL), supported by successful bidder Siemens, applied for the lifting of the automatic suspension which had arisen on the issue of claims by Bombardier, Hitachi and Alstom under section 45G of the Utilities Contracts Regulations 2006 (UCR 2006). The proceedings concerned a procurement exercise in respect of the Deep Tube Upgrade Programme, with up to £2.5 billion worth of potential contracts lasting 40 years. Bombardier and Hitachi acting as a joint venture (JV), and Alstom, were shortlisted but ultimately unsuccessful bidders. Various proceedings were issued seeking to challenge the procurement as contrary to the UCR 2006. The automatic suspension prevented LUL from entering into the relevant contracts with Siemens. At the same time, Hitachi, supported by Bombardier and Alstom, applied for an expedited timetable for the trial.

The judge (who also decided the Marston application) swiftly dispensed with an application from LUL’s counsel for the court to sit in private for part of the hearing because he wished to refer to confidential material in the pleadings and evidence. The arguments did not justify overriding the principle of open justice. The court had the benefit of unredacted versions of full written submissions, pleadings and evidence. Counsel were entitled to refer to the redacted sections to develop their submissions and properly put their clients’ case. That was achieved by counsel drawing attention to the relevant parts on which they wished to rely without quoting from them in open court.

As to the suspension lifting application, the court had to consider the following issues, applying the well-established American Cyanamid [3] balance of convenience test:

  • Was there a serious issue to be tried?
  • If so, would damages be an adequate remedy for the JV and /or Alstom if the suspension were lifted and they succeeded at trial?
  • If not, would damages be an adequate remedy for LUL if the suspension remained in place and it succeeded at trial?
  • Where there was doubt as to the adequacy of damages for any or all of the parties, which course of action was likely to carry the least risk of injustice if it transpired that it was wrong – where does the balance of convenience lie?

As to issue 1, LUL had conceded that there was a serious issue to be tried for the purpose of the application, but sought to rely on perceived weaknesses in the claims as factors tipping the balance in favour of lifting the suspension. The judge considered that the pleadings in each claim disclosed an arguable cause of action and that it would be inappropriate for the court to attempt to weigh the likely strengths and weaknesses of each party’s case without the benefit of full evidence and reasoned submissions.

As to issue 2, the claimants submitted that damages would not be an adequate remedy. They argued that: loss of the procurement, which was highly prestigious, very high value and of global interest, would adversely affect their reputation in the global market; they would lose the opportunity to develop and exploit technological advancements and innovations; there would be an adverse impact on their strategy for investment in factories and employment in the UK and other entities within the supply chain; there would be great difficulty in accurately and fairly quantifying the loss; and a recent Supreme Court decision [4] raised the real prospect that if the suspension were lifted and the claimants established their claims, they would be deprived of any damages.

The judge was satisfied that the loss of the contracts was likely to have a substantial adverse effect on the claimants’ reputation which would cause losses that would be very difficult properly to quantify. In most cases, unsuccessful bids are part of the normal commercial risks taken by a business and will not have any adverse impact apart from potential wasted costs of the tender and lost profits. Not every failed bid will result in damage to reputation causing uncompensatable loss. In this case, the procurement was distinctively prestigious because of its size, location and value. Success would enhance the winning bidder’s reputation in the global rolling stock industry and provide evidence of competence and expertise that could be used to increase its chances of securing other high-value commercial opportunities. Failure through unlawful procurement procedures would deprive the unsuccessful bidder of those advantages and place it at a disadvantage in competing for other commercial opportunities. The judge was not persuaded by the claimants’ other arguments.

As to issue 3, LUL submitted that, in addition to the financial losses that could be compensated by way of damages, it would suffer very considerable non-financial prejudice to the delivery of its core public functions and public service mission if the suspension were maintained and the introduction of the new trains delayed until after conclusion of the proceedings. Loss of public benefits such as comfort and accessibility, and wider economic benefits, such as housing and employment, do not have a direct financial cost or would be very difficult to quantify for the purpose of claiming damages. The judge rejected the claimants’ submission that delay in implementation of the project could be avoided if the suspension were not lifted, saying that it was ‘fanciful’ for the claimants to suggest that a project of this scale could be re-sequenced to fit around their legal challenge. Having rejected that suggestion, it followed that LUL would suffer non-financial losses and it was likely that damages would not be an adequate remedy if LUL were to succeed at trial.

As to issue 4, the judge noted that the court may have regard to the public interest when determining where the balance of convenience lies. The starting point in assessing the balance was to consider how long the suspension might have to be kept in force, which required the court to consider the claimants’ application for an expedited trial. The claimants submitted that the parties could be ready for trial by spring/summer 2019. The judge disagreed. The trial would not be ready before November 2019, given that disclosure looked to be a substantial exercise likely leading to amendments to the claims, the trial would probably involve large numbers of documents, and it was likely that expert evidence would be required given the technical nature of the procurement under challenge. Time would have to be allowed for judgment and a potential appeal. The application was refused.

LUL submitted that introducing the new trains would enable it to offer a significantly improved service in terms of capacity, frequency, comfort and accessibility. There was credible evidence that reliability of the existing stock was decreasing and age-related failures were difficult to predict. They would likely cause more and more disruption. The judge decided that further delay was not justified in this case. The evidence showed that there was a strong public interest in introducing the new trains as soon as possible. Maintaining the suspension was likely to cause years of delay to the works and the public benefit had already been deferred as a result of the collapse of an earlier public private partnership. The judge was unconvinced by the claimants’ arguments, which included that LUL was unable to point to actual urgency that would arise from the suspension remaining in place, and the detriment to the public interest if LUL had to pay twice. She also disregarded LUL’s submission that the court should take into account further delay that would be necessary in the event that LUL was required to re-run the procurement exercise. The balance of convenience lay in lifting the suspension and permitting LUL to enter into the contracts with Siemens.

WM Comment

There is a delicate balance to be struck between disclosing documents relevant to the issues in dispute, for example to enable the claimant to plead its case properly, and maintaining the confidentiality of bidders’ commercially sensitive information. The Marston decision reiterates the fact that, while the court will take account of the issue of confidentiality, confidentiality is not a bar to disclosure. The Bombardier decision reiterates that the need to protect confidential information must be balanced by the basic principle of open justice.

There are a variety of measures which can be put in place to deal appropriately with confidential documents, both pre-action and post-commencement of proceedings, including the use of redactions and confidentiality rings and undertakings. The Technology and Construction Court’s Guidance Note on Procedures for Public Procurement Cases sets out guidance on these issues, including catering for interested parties and the approach parties should take in providing one another with information, taking into account any genuine concerns with regard to confidentiality (whether they are their own, or those of third parties).

In Bombardier, not unsurprisingly, the court was clearly heavily swayed by LUL’s public benefit argument for the lifting of the automatic suspension. Commercial parties who find themselves in a similar position to the claimants in this case should proceed with caution. Public procurement claims raise unique and significant challenges for potential claimants. Obtaining early specialist legal advice is key.

Should you have any queries arising from any of the issues highlighted in this briefing, please do not hesitate to contact Gwendoline, Lynsey or any other members of the team, who will be very happy to help.

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[1] [2018] EWHC 3168 (TCC)
[2] [2018] EWHC 2926 (TCC)
[3] American Cyanamid Co (No.1) v Ethicon Ltd, [1975] UKHL 1. The balance of convenience test is intended to identify the course of action that should be taken by the court at an interim stage that will cause the least risk of injustice if it proves to be wrong. The balancing exercise is required because the court does not know at that time what the final outcome will be.
[4] Nuclear Decommissioning Authority v EnergySolutions EU Ltd (now called ATK Energy EU Ltd), [2017] UKSC 34, which determined that breaches of procurement law would only be actionable for damages where the claimant was able to prove that the breach was “sufficiently serious”.

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