05/09/2016
Challenging a procurement decision is not easy, especially given the short time-frame the standstill period provides between acceptance of a tender and the signing of the contract (typically 10 days). However, in the recent case of EnergySolutions EU Ltd v Nuclear Decommissioning Authority (NDA) [2016] EWHC 1988 (TCC), [2016] All ER (D) 16 (Aug), the fact that the appellant fought this case to trial (and to the Supreme Court on the preliminary issues) reflects a broader trend of bidders being prepared to pursue procurement challenges in the courts, despite the risks.
In this case, they were successful. The judgment gives a definitive position on the availability of damages despite EnergySolutions’ failure to issue a claim within the standstill period. Unsuccessful bidders might previously have been reluctant to pursue a claim for damages only, however this case shows that contracting authorities do sometimes get procurement procedures wrong and a financial remedy is available to unsuccessful bidders.
The facts of the case
The defendant - the NDA - is responsible for the clean-up and decommissioning of the UK’s nuclear sites. It tendered for a contract to manage and operate the decommissioning process for a maximum contract term of 14 years. The NDA’s funding limit for the first seven years of the contract was £4.2bn.
The NDA used the competitive dialogue procedure under the Public Contracts Regulations 2006 (the procedure was commenced before the Public Contracts Regulations 2015). This procedure did not require the contracting authority to issue a full technical specification with the procurement notice, but rather allowed for a period of dialogue with bidders to identify the solution that would meet its needs. The dialogue phase in this case involved the submission of interim indicative offers, on the basis of which the NDA selected four bidders to submit final tenders. The claimant, EnergySolutions, was one of those bidders. It submitted a final tender, but was unsuccessful.
EnergySolutions did not issue proceedings within the statutory ten-day standstill period, or indeed before The NDA signed the contract with the purported successful bidder. Accordingly, the automatic suspension was not engaged. EnergySolutions did however write to the NDA expressing concerns about the procurement process.
NDA entered into a contract with the successful bidder on 15th April 2014. On the 28th April 2014, EnergySolutions brought a claim for damages totalling £100 million, the amount of profit it believed it had lost due to not being awarded the contract.
The legal issues
The NDA sought to defend the claim for damages on two grounds:
1. EnergySolutions’ failure to issue proceedings within the standstill period broke the chain of causation in regard to any potential damages, and
2. even if it was established that EnergySolutions had suffered loss as a consequence of a breach of PCR 2006, the court had discretion as to whether to award damages or not.
The Court of Appeal also had to decide whether NDA had met its obligations of transparency, equal treatment and of the duty to conduct a procurement free from manifest errors. If it had not, the question was whether EnergySolutions had suffered a loss of profit as a consequence of these breaches.
To throw a spanner in the works, shortly before judgment was to be handed down, it emerged that EnergySolutions had entered into agreements with some of its witnesses under which they would receive bonuses if the litigation were successful. Following this revelation, the NDA issued an application seeking a dismissal or striking out of the whole claim or alternatively a declaration of mistrial.
The Court of Appeal’s decision
The Court of Appeal decided in EnergySolutions favour on both issues.
The court accepted that several manifest errors had been established by showing a lack of equal treatment in the tenders’ evaluations. The judges also found that the contract award had been unlawful on the basis that the preferred bidder’s tender should have been excluded for failure to meet minimum standards. Either way, on adjusted evaluation, the court held that EnergySolutions had in fact submitted the most economically advantageous tender, so should have been awarded the contract.
This established a causal link between EnergySolutions not being awarded the contract and a loss of profit.
Regarding whether or not the court had discretion as to whether or not to award damages; in the lower court, Edwards-Stuart J held that English law principles were applicable to an award of damages, and that once a breach of the Regulations was established, the award of damages was not discretionary. This conclusion was challenged by NDA who argued that any award of damages was at the discretion of the court, even if causation was established.
NDA relied on the European Court of Justice decision in Francovich v. Italy (C-6/90) which set out the following conditions which must be met before an award of damages is made in EU law:
(i) the rule of law infringed must be intended to confer rights on individuals,
(ii) the breach must be sufficiently serious, and
(iii) there must be a direct causal link between the breach of the obligation and the damage sustained by the injured party.
The Court of Appeal held that the Francovich conditions set out a minimum standard for damages awarded for breach of an EU law right. However, the liability and assessment of damages was for domestic courts to establish, and they could be more generous in providing for compensation to people harmed by a wrongful award in a procurement competition.
Because under English law there is no requirement for a private law claim based on breach of statutory duty to be shown to be "sufficiently serious" before damages could be awarded, the court held that this approach prevailed over the second Francovich condition. In the Court of Appeal's view "a breach is a breach" and once a breach was established the victim was entitled to be compensated such as to put it in the position it would have been in had there been no breach.
NDA has been given leave to appeal to the Supreme Court.
What this decision means
The Court of Appeal’s decision clarifies that an unsuccessful bidder can make a claim solely based on damages despite not invoking the automatic suspension provisions. Causation can still be established regardless of whether or not the unsuccessful bidder’s rights under the standstill period are invoked.
Fisher Scoggins Waters are a London based law firm who specialise in construction, manufacturing and engineering law. If you would like more information about procurement law, please phone us on 0207 993 6960.