Articles

Automatic Suspension: Two Very Different Views

Over the last few years the courts have had to address the issue of the automatic suspension under the Public Contract Regulations 2006 (as amended) (PCRs) a number of times. In this article we look at two cases that are covered by the other procurement regulations, the Defence and Security Public Contract Regulations 2011 (the 2001 Regulations) and the Utilities Contracts Regulations 2006 (the Utilities Regulations). It is fair to say that the 2011 Regulations and the Utilities Regulations contain many of the same features as the PCRs and offer further, useful, insight into the approach of the courts generally. The cases were both brought by incumbent contractors as well, adding another layer of complexity to the arguments.

Since the Remedies Directive came into force in England and Wales, Regulation 47G of the Regulations states that a contract that has been awarded, but not yet entered into, cannot be completed until either an interim order is granted that the contract can be entered into or the case is dismissed or discontinued at first instance (Regulation 47H). At a preliminary hearing, the aim of the contracting authority in question is to get an interim order that allows them to enter into the contract and for the judge to decide that there is no serious issue to be tried that could result in a damages claim at the full trial.

Historically, the courts have in most cases considered that the decision whether to lift the automatic suspension in public procurement cases should follow the principles and approach laid down in House of Lords decision in American Cyanamid Co v Ethicon [1975] AC 396. In brief this provided that any court considering the lifting of an injunction must determine the answer to three tests:

1. Whether there is there a serious question or issue to be tried;
2. Whether damages are or would be an adequate remedy; and,
3. The balance of convenience by comparing the difficulties, problems or prejudice to be suffered by each party (and other interests) if the statutory suspension is or is not continued.

In this article we refer to this as the ‘AC Test’.

The interim injunction boat was rocked (a little bit) earlier this year by the Irish High Court when it ruled that the AC Test wasn’t the correct test to use when deciding whether the automatic suspension of a procurement process should be lifted or an interim injunction put in place. In the case of OCS One Complete Solution Ltd v The Dublin Airport Authority PLC [2014] IEHC 306, the Irish High Court ruled that the AC Test was not the correct test to use when considering whether the automatic suspension that occurs when a challenge is brought under the procurement directive should be lifted. Instead, the Irish court held that the correct test was simply a balance of interests test and that to include the questions of whether damages were an adequate remedy and whether a cross-undertaking could be given was to add to the requirements under the Remedies Directive in a way that the directive did not allow for. In both the cases in this article, it seems that the English courts don’t have any current appetite to follow this change of position.

NP Aerospace Case

NP Aerospace Limited and Ministry of Defence [2014] EWHC 2741 (the NP Aerospace Case) is a case looking at a public procurement run by the MoD involving the conversion of armed vehicles. The claimant in this case (NP Aerospace) was the incumbent provider of a vehicle conversion services to the MoD but had been unsuccessful in the tendering process which had been run by the MoD to seek a new provider. NP Aerospace had commenced proceedings on the 19 May 2014 and the statutory suspension on the placing of the contract with the successful tenderer had come into force on that date. The case raises some very interesting issues about alleged abnormally low tenderers and predatory pricing, although at this hearing those issues were not assessed as such although they were looked at for their seriousness in relation to whether or not the automatic suspension should be lifted.

Lord Akenhead in this judgment also referred to Araci v Fallon [2011] EWCA CIV 668 and Lord Jackson speech:

“The real question is whether it is just in all the circumstances that the Claimant should be confined to his remedy in damages”.

Lord Akenhead then looked at the three questions in the AC Test in relation to the issues in the case:

• Firstly, he looked at whether there was a serious question to be tried. Of the issues and claims made by the claimant it would seem that the most serious of these was whether the contracting authority (the MoD) was obliged to both investigate and indeed reject an abnormally low tender. In particular the claimant had claimed that the tender price was abnormally low due to a predatory pricing approach by the successful tenderer. Lord Akenhead did accept that there was a serious argument to be assessed. However, in line with the American Cyanamid decision did not make any further comments on his view of the potential success save to confirm that he did not consider that this proposition could be described as a weak one.
• Secondly, he looked at whether damages would be an adequate remedy. The position put forward by the claimant included a number of claims in relation to the damage it would suffer as a result of the contracts being awarded to the successful tenderer which would not be adequately compensated by monetary damages alone. These included difficulty in assessing its loss, reputational damage through losing the tender, workforce impact, damage to future chances of winning contracts and the advantage that the successful tenderer would receive as a result of the information about NP Aerospace current work for the MoD. Lord Akenhead dismissed all these points and was quite clear that damages in these circumstances would be both an adequate remedy and relatively straight forward to assess.
• Finally, the court looked at the balance of convenience and this, it would seem, was a particularly strong argument for the MoD. The MoD required this contract to progress as soon as possible in order that the national defence interests of the United Kingdom were not put at prejudice. There is no doubt that this was given some significant weight by the court and Lord Akenhead agreed that a continuation of the suspension had significant potential for a significant impact on the UK national interest. Accordingly the balance of convenience was with the MoD and the ending of the suspension.

This is another case where the automatic suspension has been lifted and this is clearly more good news for contracting authorities when defending public procurement challenges and entering into contracts which they genuinely need in order to fulfil their public duties. In that regard, this case is not surprising in its result in that it follows the majority of recent cases and the principles laid down in American Cyanamid. However, this clearly is quite an interesting case in relation to the assessment and approach that contracting authorities should take in relation to abnormally low tenders and will need to be monitored when it comes to full trial. Although, of course, that position is in any event due to change as a result of the requirements set out in the New Public Procurement Directives which will require contracting authorities to take a different approach to the assessment and indeed rejection of abnormally low tenders.

Gatwick Airport Case

In complete contrast to the NP Aerospace Case, the very recent case of NATS (Services Ltd v Gatwick Airport Ltd and Anor [2014] EWHC 3133 (TCC) (the GAL Case) looked at the use of the AC Test in relation to the Utilities Regulations and came to very different conclusions for the three questions. For the purposes of this article the relevant sections of the Utilities Regulations are the same as in the Regulations and we have referred to the Regulations since they are more likely to be applicable to the readership of this newsletter.

The GAL Case is a challenge as to the use of undisclosed, irrational and inappropriate criteria in a tender process for air navigation services (air traffic control) and maintenance and repair of equipment at Gatwick Airport. The application for the proceedings included that the contract award process was automatically suspended under regulation 45G of the Utilities Regulations (the same wording as regulation 47G of the Regulations). GAL responded with an application for any automatic suspension to be lifted and, in the alternative, for NATS to provide an undertaking in damages.

The argument put forward by the applicant in the GAL Case was that the AC Test was not the correct test to determine whether the automatic suspension should be lifted and that the balance of interests test should be used as it was in the Irish case. Despite the judge deciding that the correct test was in fact the AC Test, the applicant was successful in having an interim injunction put in place. The judge held that:

• There was no reason to move away from the use of the AC Test as there was nothing in the test which was inconsistent with Article 2 of the Remedies Directive as it did not seek to limit or define the way in which national courts exercise their discretion in balancing the interests of the parties;
• There was a serious issue to be tried on the question of whether GAL was a ‘relevant person’ under the Utilities Regulations. Alternatively, whether there was an implied contract in the tender that the Utilities Regulations would be used because the process was started under an OJEU notice that did not state that GAL was not covered by the Utilities Regulations. The first argument of the applicant was based on the ‘special or exclusive right’ to carry out an activity, such as running an airport, which is granted by a competent authority. GAL was granted various licences and other authorities from the Secretary of State and as set out in legislation and the applicant concluded that this met the necessary test. The judge agreed that it needed to looked at in more depth than was possible at the preliminary hearing and, indeed, GAL had said as much themselves;
• The calculation of damages for this claim would be very complicated and therefore, it cannot be said, at the preliminary hearing stage, that damages would be a sufficient remedy. This was because of the difficulty in estimating damages based on the mis-use of criteria and also because of the negative effect on NATS of no longer being able to claim that they held the contract with GAL;
• Due to the extended nature of the tender exercise run by GAL, which was over 2 years behind its original schedule, waiting between 6 and 12 months before entering into the new contract would not cause undue problems for GAL. Additionally, while GAL would gain efficiencies under the new contract, there was an existing contract in place that ensured that the services would continue to be performed. The judge said that there was a “strong public interest in ensuring that complex and significant procurements are carried out in a proper and lawful manner”.

For all of the reasons above, the judge held that the automatic suspension should not be lifted. He did recommend that there is an expedited full hearing so that the contract can be entered into as soon as possible.

The GAL Case is in a very small minority of cases where the automatic suspension has not been lifted. When looking at it in contrast with the NP Aerospace Case, a lot of the issues seemed to be the same. This indicates the sensitivity to the facts of the case, particularly the importance of the contract being entered into quickly.