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Case comment: Amey Highways Limited v West Sussex County Council

  • United Kingdom
  • Commercial agreements
  • Commercial litigation
  • Competition, EU and Trade
  • Procurement strategies
  • Public law
  • Local government

01-07-2019

The recent High Court decision in Amey Highways Limited v West Sussex County Council has clarified that abandoning a procurement will not automatically extinguish pre-existing causes of action.  Breaches of the procurement regulations which result in the claimant suffering financial loss or damage could still give rise to substantial claims for damages even if the procurement is subsequently abandoned and the relevant opportunity put back out to tender. 

This judgment is likely to be seen as favourable to disappointed tenderers and highlights some of the difficult strategic decisions likely to be faced by contracting authorities when a procurement challenge is threatened or made.  The judgment also raises questions about the steps that contracting authorities and successful tenderers should be taking to protect their interests in cases where the challenger is alleging that the outcome of the procurement is wrong and that the challenger’s tender was in fact the most economically advantageous.

Facts

Amey Highways Limited (“Amey”) lost out on a contract to provide highways maintenance services to West Sussex County Council (the “Council”) by just 0.03%.  Amey issued a claim against the Council alleging that mistakes had been made during the evaluation of tenders, that Amey’s score should have been higher and, if the evaluation had been performed correctly, Amey would have been awarded the contract.  Amey sought an order from the Court setting aside the decision to award the contract to the successful tenderer, Ringway Infrastructure Services Limited (“Ringway”).  Amey also claimed damages in the alternative.  The headline sums claimed by Amey were loss of profits over the projected life of the contract, in the sum of just under £28 million; and/or just under £1 million as the wasted costs of preparing its tender.   

The Council applied to strike out key elements of Amey’s claim and Amey responded by applying for summary judgment.  Both of these applications were rejected, meaning that Amey’s claim would have to proceed to trial in the usual way.  After receiving notice that the Court had rejected its application to strike out key elements of Amey’s claim, the Council informed all participants in the procurement that it was abandoning the process.  It was the Council’s hope and intention that the decision to abandon the procurement and run a new competition would effectively extinguish Amey’s claim.

When Amey learned of the Council’s decision to abandon the procurement, instead of withdrawing the original claim Amey issued a second claim which (i) alleged that the decision to abandon was itself unlawful, and (ii) challenged the effect of the abandonment (i.e. by asserting that it did not have the effect of automatically extinguishing Amey’s original claim).

The Court ordered that Amey’s two claims should be managed and heard together and on 24 May 2019 handed down judgment on a critical preliminary issue, i.e. whether the Council was right in its contention that abandoning the procurement when it did had the effect of bringing Amey’s original claim to an end.

The Court’s decision

The Court clarified that lawfully abandoning a procurement may prevent private law claims coming into existence thereafter.  As such, abandoning a procurement may be a useful way to mitigate the risk of a successful challenge in certain circumstances.  The Court gave the following non-exhaustive list of examples of such circumstances:

  1. where pursuing the procurement to the award of a contract would mean awarding a contract that was not the most economically advantageous;
  2. where taking the procurement to the award of a contract would not be expedient from the point of view of the public interest; or
  3. where continuing with the procurement would result in the authority acting in breach of duty in a way that would enable an economic operator to bring a private law claim (or a suitably interested party to bring a public law claim).

However, the Court ruled that the lawful abandonment of a procurement did not have the effect of cancelling an accrued cause of action, i.e. a claim relating to a breach of duty by the relevant authority which occurred prior to the decision to abandon the procurement and which is alleged to have caused the claimant to suffer loss or damage. 

In this case, the Court noted that the alleged breaches of duty which led to the incorrect scoring of Amey’s tender took place during the evaluation process (i.e. prior to the decision to abandon the procurement).  The Court also noted that the Council had not advanced any argument that the successful tender may also have been scored incorrectly.  As a result, assuming Amey’s allegations that its tender should have received a higher score were proven, Amey’s tender would have received the highest score and should have been awarded the contract.  In essence, if the alleged breaches of duty were proven, this would have resulted in Amey suffering loss or damage in that they had resulted in Amey not being awarded a significant contract (or at least deprived Amey of a significant chance of being awarded the relevant contract).  The Court also held that the Council would not have abandoned the procurement but for the complaint made by Amey, i.e. the procurement would not have been abandoned in any event.  As such, all of the constituent elements of a valid cause of action were present prior to the Council’s decision to abandon the procurement.   

Notwithstanding the fact that Amey’s primary claim was for an order setting aside the decision to award the contract to the successful tenderer (with a claim for damages being advanced in the alternative), the Court held that Amey’s accrued cause of action was not affected by the Council’s subsequent decision to abandon the procurement (which was based solely on a desire to bring the litigation with Amey to an end).  As a result, although the decision to abandon the procurement was lawful, Amey’s claim for £28 million lost profit and/or £1 million wasted tender costs should be allowed to continue.

In justifying this conclusion, the Court reasoned that although tenderers should be taken to have accepted the risk that a contracting authority may in some circumstances lawfully decide not to award a contract, there is no obvious basis for asserting that they also accept the additional risk that, if this happens, they will be deprived of causes of action that have accrued at the time the decision to abandon the procurement is taken.

Comment

This decision gives rise to some interesting practical issues for both contracting authorities and private sector entities participating in procurement processes which are the subject of complaints or legal challenges.  Some of the most important issues include the following:

  1. It is now clear that simply abandoning a flawed process and starting again may not be sufficient to dispose of claims for damages by disappointed tenderers who believe they should have been awarded the contract if the published process had been applied correctly.  As such, contracting authorities will have to give careful consideration as to how they respond to any complaints made by disappointed tenderers in circumstances where the authority does not wish to take on the risk of litigating the complaint.  Authorities not wishing to fight a claim through to trial are likely to find themselves in the difficult position of having to decide whether to (i) seek to reach an early settlement with the challenger(s), recognising that this may well involve having to abandon the procurement and/or make a substantial financial payment to the challenger and possibly the successful tenderer; (ii) abandon the procurement without having reached a settlement and accept the risk that the challenger may still issue (or continue) a damages claim; (iii) attempt to "re-wind" the procurement to an earlier stage, such as the call for final tenders, and then re-run it from that point, with the associated risk of a further challenge when the revised results are announced; or (iv) withdraw its decision to award the contract to the successful tenderer and award the contract to the challenger instead (which should satisfy the challenger but is likely to run the risk of an adverse reaction and challenge from the previously successful tenderer, whether justified or not).  Although the level of risk associated with these options will be highly fact-dependent, none of them are ideal and all will carry a degree of risk.  To help keep risks to a minimum, it is essential to take all possible steps during the original process to ensure that the procurement is conducted lawfully and an appropriate audit trail of all decisions kept so that the authority is in as strong a position as possible in the event that a complaint is received.
  2. When faced with potential claims from unsuccessful tenderers, contracting authorities may wish to consider undertaking a detailed review of the evaluation process and the scores awarded to all tenderers, not just the challenger.  In circumstances where further potential issues are identified, this may support an argument that a subsequent decision to abandon the procurement is justified and was not taken simply to try to defeat a pre-existing cause of action on the part of a disappointed tenderer.  In essence, the authority may be able to argue that any claim relating to the pre-existing cause of action should fail because the decision to abandon the procurement would have been taken in any event (i.e. there is no causation between the alleged breaches and the fact that the claimant has not been awarded the contract).  However, in circumstances where any detailed review is only triggered as a result of the allegations made by a disappointed tenderer, it may be difficult to convince a Court that the procurement would have been abandoned in any event and that the decision to abandon is not simply the result of the claimant’s complaints.  
  3. If additional issues with the procurement are identified as a result of a further review following the receipt of a complaint, contracting authorities may wish to consider whether, as an alternative to any argument that all scores are correct, it could (and would want to) allege that insofar as the challenger succeeds in demonstrating that it was under-scored, then the successful tenderer’s bid was also under-scored.  The benefit of such an argument is that, if successful, the Court may conclude that even if there have been errors in the scoring of the challenger’s tender, it may accept that there have also been errors in the evaluation of the successful tender and that the successful tenderer’s corrected score (post any upward revision) would still exceed the upward-revised score of the challenger.  As such, the Court may conclude that the outcome of the procurement would have been the same and the challenger has not suffered any loss or damage as a result of the alleged issues with the process.  The obvious downside to arguing that the authority may also have made errors in relation to the successful tender is that it may undermine the strength of its primary position that the process and evaluation were performed in a compliant manner and without error.  This is an issue which is likely to be of keen interest to successful tenderers whose position could be adversely affected if the challenger succeeds in arguing that its score should be amended upwards, as they are likely to be keen to ensure that they adopt an approach in relation to any potential challenges which maximises the prospects of the original decision being allowed to stand.  There are various tactics which could be adopted by successful tenderers to help achieve the desired outcome in this regard. 

In conclusion, the most effective way for a contracting authority to limit the risks associated with challenges to procurement processes is to ensure that all possible steps are taken to run the procurement in accordance with the published process and to carry out appropriate checks to identify and rectify any errors prior to sending standstill letters.  Doing so will ensure that the authority is in the best possible position to resist any complaints and to defend any subsequent claims.  If an authority is not prepared to take the risk of litigating a complaint through to trial, it should consider its options carefully. 

In practice, and notwithstanding the specific facts in this case, disappointed tenderers will often be prepared to settle potential claims in exchange for an agreement to abandon the procurement and to put the opportunity back out to tender.  Depending upon the strength of the claimant’s position, they may also try to negotiate a financial payment, often couched in terms of compensation for wasted bid costs.  The final outcome of such negotiations is likely to be heavily influenced by the strength of both parties’ case (including the strength of any arguments that the authority is entitled to abandon the procurement for legitimate reasons which are not solely related to the disappointed tenderer’s complaints), and the position they have adopted during pre-action correspondence / negotiations.  The position of the successful tender may also affect the authority’s decision.  If early settlement cannot be reached, the authority will typically have a choice between either (i) defending the claim through to trial or until a settlement can be reached; (ii) seeking to lift the automatic suspension, awarding the contract to the successful tenderer and then defending the claimant’s damages claim (either through to trial or until a settlement can be reached); or (iii) abandoning the procurement without having reached a settlement and accepting that the claimant may well continue to pursue a damages claim.  Faced with these choices, the Amey Highways case suggests that there may be little advantage to be gained from simply abandoning the procurement without having first agreed to compromise any relevant claims (although the final outcome of Amey’s claim will not be clear until the trial of the main issues has taken place).

It is also important for successful tenderers to consider their position when they become aware of a challenge.  Although they will be keen not to do anything which could undermine their relationship with the contracting authority before it has even got going, it is important to recognise that the interests of the successful tenderer and the contracting authority will not always align.  Adopting an approach which is too sympathetic to the sensitivities of the contracting authority may risk prejudicing the successful tenderer’s position as the challenge progresses.

It will be interesting to see how this case develops, particularly if the Council decides to appeal the Court’s judgment on this preliminary issue.  Assuming this judgment is not overturned on appeal, and that Amey is successful in its ongoing claim for damages, the Court may also have to deal with some interesting questions relating to the quantification of damages, particularly if Amey is successful in any future procurement run by the Council for the same services.  In Woods v Milton Keynes, Coulson J suggested that the damages payable to the challenger are likely to be affected by the outcome of any relevant future procurement.  However, to date there have been no further judgments which deal with this point.

Eversheds Sutherland’s specialist public procurement team is consistently ranked in the top tier of firms for advice in this field across the UK and Europe.  We regularly provide strategic advice to clients dealing with the type of issues raised in this case are more broadly. 

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