UK: High Court Lifts Automatic Suspension in Procurement Case

Last Updated: 6 December 2010
Article by David Marks, Susan Barty and Siobhan Costello

In the first case of its kind under the new public procurement remedies rules, the High Court has lifted an automatic suspension of entry into a contract.  Under the new rules, when a disgruntled bidder issues and serves a claim form prior to contract signature, the contracting authority is automatically prevented from entering into the contract.  It is then incumbent on the contracting authority to apply to court to lift the automatic suspension.

Indigo Services (UK) Limited v The Colchester Institute Corporate (judgment given on 1 December 2010) is the first application by a contracting authority under Regulation 47H of the Public Contracts Regulations 2006 (as amended) to lift an automatic suspension of entry into a contract for cleaning services.

The Court treated the application as though it were an application for an injunction and applied the American Cyanamid test.  The Court looked at whether: (i) there was a serious issue to be tried; (ii) the balance of convenience lay in keeping the suspension in place; and (iii) damages would be an adequate remedy.

Based on the balance of convenience (or the "balance of irremediable prejudice"), the suspension was lifted. 

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Full Article

In the first case of its kind under the new public procurement remedies rules, the Public Contracts Regulations 2006, as amended by the Public Contracts (Amendment) Regulations 2009, the High Court has lifted an automatic suspension of entry into a contract. Under the new rules when a disgruntled bidder issues and serves a claim form prior to contract signature, the contracting authority is automatically prevented from entering into the contract. It is then incumbent on the contracting authority to apply to court to lift the automatic suspension.

Indigo Services (UK) Limited v The Colchester Institute Corporate (judgment given on 1 December 2010) is the first application by a contracting authority under Regulation 47H of the Public Contracts Regulations (as amended) to lift an automatic suspension of entry into a contract for cleaning services.

The Court treated the application as though it were an application for an injunction and applied the American Cyanamid test. The Court looked at whether: (i) there was a serious issue to be tried; (ii) damages would be an adequate remedy; and (iii) the balance of convenience lay in keeping the suspension in place.

Based on the balance of convenience (or the balance of "irremediable prejudice"), the suspension was lifted. The judgment is interesting in a number of respects.

The claimant's case

The Court concluded that it would "substantially emasculate" the effect of the new regulations if they required the claimant challenging the award to establish that it would have been awarded the contract, but for the defects in the procurement process. The Court therefore concluded that the proper test was whether, by reason of the defects in the process, the claimant has lost a "more than fanciful" chance of obtaining the contract.

A "steer" in favour of an injunction to maintain the suspension?

Indigo argued that the new regulations provided a "steer" in favour of an injunction, namely a bias falling short of a presumption. This was not accepted by the Court, although the Court further concluded that the conclusion reached in the judgment would not have been affected even if this had been the case.

Pre-qualification complaints

A number of the complaints related to the pre-qualification process. Since Indigo was successful in pre-qualifying, the Court discounted these as having no causative effect.

Time-limits

The Court discounted Indigo's complaints as to the lawfulness of the Contract Notice, which was issued on 7 May 2010. The Court applied the ECJ's judgment in Case C-406/08 Uniplex strictly and found that these complaints were time-barred.

Since the alleged infringements were apparent from the face of the Contract Notice the Court found that the limitation period of three months from knowledge or deemed knowledge had expired. It rejected Indigo's arguments that time could not run until there was a completed cause of action at least in the form of a lost chance which it could only know after the award decision.

Causation

A number of complaints were advanced in relation to the tender process and, in particular, to the scoring methodology announced in the ITT and how it was applied. The College did not dispute the facts behind the allegations, but claimed they had no causative effect.

The Court accepted that there were defects in the process and that there was a serious issue to be tried. However, whilst conceding that Indigo had a "more than fanciful chance" of obtaining the contract if it were re-run according to the rules, the Court concluded that the College's case on causation would be more likely to be accepted at full trial, and that, in any event, there was only a low likelihood that the Court at trial would assess that chance of a loss as much more than the minimum threshold level of non-fanciful.

These were issues which might also be relevant in connection with the balance of convenience.

Damages not an adequate remedy

The proposed contract was for a period of three years with two possible annual extensions. Whilst the Court accepted that future wage levels and other costs could be estimated, such estimates would necessarily be uncertain. The Court found, therefore, that quantification of the profits that could be earned by Indigo would be difficult (although the Court could, if required, carry out a quantification) and that damages would not be intrinsically an adequate remedy.

Comparative prejudice to the authority

The Court then considered the balance of convenience, by assessing which course seemed likely to cause the least irremediable prejudice, taking into account, not only each of the parties, but also irremediable prejudice to third parties and the wider general public, as is important in the context of public procurement. In this respect, the Court found that the continuation of the suspension would result in the forced closure of the Colchester site, if only because of the impact of the health and safety regulations. The current cleaning contract was due to expire on 31 December 2010 and the suspension would mean that no contract could be put in place on expiry. Closure would affect both students and staff at the site. The Court rejected Indigo's argument that the present contract could be simply extended for three months. As far as the Court was concerned this was not a solution because it ignored the possibility of appeal and further delay while the tender process was re-run. Moreover, although the contract provided for a possible extension, the Court concluded that this was for only one extension, which had already been granted, and did not provide for any further extension.

In conclusion, the Court found that the prejudicial impact on the College and the wider public of leaving the suspension in place far outweighed any prejudice which may be caused to Indigo by lifting it.

Click here to see the judgment.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 03/12/2010.

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