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Procurement case update:
consequences of breach

Procurement case update: consequences of breach

Published: 27th June 2018
Area: Corporate & Commercial
Author: Uddalak Datta

Due to the cost and risk of taking legal action, as well as a list of evidential and procedural hurdles in doing so, procurement challenges are increasingly rare.

This is not to say that there is no risk, but where the contract is extremely valuable and the stakes are high, the risk of an unsuccessful bidder challenging a procurement process increases.

In a recent case, the MoD tendered for port agency services. The invitation to tender document provided a detailed list of questions in the usual way, which included a number of questions which were scored and a number marked as “Pass/Fail” questions. There are, typically, three likely consequences of a “fail”. A fail could entitle the authority to reject the bid in its entirety if it chooses to; it could mean that the tender is automatically rejected; or a fail could attract a score of “0”, but still be considered as part of the overall evaluation.

The MoD rejected a tender which, aside from that rejection, would have won the procurement competition. The ITT did not, however, explicitly set out that a “fail” would mean that the tender would be automatically rejected regardless of the remaining score. As a result the court in a decision at the end of last year found that the procurement process was flawed, and that the MoD had acted unlawfully in rejecting the bidder’s tender.

Following that decision on liability the case has been followed up with a decision on remedy. The court awarded the bidder a declaration that the MoD acted unlawfully in rejecting its tender. However, the court did not make an award of damages, based on the contentious view that it would be very difficult to assess the quantum of such loss. While difficult, this is not beyond the scope of a commercial court’s skillset. The English courts set out the principle for calculating damages in procurement cases almost 20 years ago.

In addition, the court permitted the MoD to plead austerity – that it would suffer undue hardship because it would be required to use public funds for both the procurement of the services and compensation for loss of the contract. This is, I think, not an argument that says much for the rule of law and equal treatment of public authorities. It is not the first time that this has been used – it has been raised by contracting authorities in the health sector – and it would be interesting to see if this extended to education sector clients in the right circumstances.

In the end, the court ordered that the original decision be set aside and made a declaration that it would be lawful for the MoD to award the contract to the losing bidder, but stopped short of mandating that it must do. This leaves the otherwise winning bidder, after a great deal of time and cost, still without a contract and without a remedy in damages, even though that remedy is specifically authorised. On the other hand, it is a good result for the challenging bidder, which still has its chips at the poker table – which shows that it can be well worth challenging. And this is still an excellent result for the MoD, and for contracting authorities which can still benefit from an outcome which, other than the time and cost of managing a challenge, has, in effect, no materially negative consequences. A full report of the case is available here.

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