No Damages Available Under U.K. Public Procurement Rules Unless Breach is Sufficiently Serious

October 3, 2022 Publications

On 16 September 2022, the English High Court held in the case of Braceurself Limited v NHS England [2022] EWHC 2348 (TCC) that damages would not be awarded against an English public contracting authority for breach of the Public Contract Regulations 2015 (PCR 2015) – the main regulations governing the letting of public contracts in England – unless the breach of the PCR 2015 was proved to be “sufficiently serious.” The Court proceeded to refuse to award any damages notwithstanding the fact that the Claimant had clearly demonstrated that, absent the breaches of the PCR 2015, they should have been lawfully awarded the contract.

This case is significant for two reasons. First, it sends out a clear signal to claimants that it is not enough to prove that, absent the breach of the public procurement rules, they would be entitled to the award of the contract. Successful claimants now must go on to prove that the degree and severity of the breach meets the high threshold of “sufficiently serious” to be entitled to an award of damages according to the principles set out in two leading Court of Justice of European Union cases (CJEU) of Francovitch (Francovich v Italian Republic [1995] ICR 722) and Brasserie du Precheur (Brasserie du Pêcheur SA v Federal Republic of Germany [1996] QB 404).

Secondly, the judgement very usefully sets out in some detail the considerations the Courts should take when assessing whether a breach is “sufficiently serious”.

Facts

The Braceurself case involved a claim for damages by Claimant Braceurself Limited (B) against the Defendant, National Health Service England (NHSE), in respect of the letting of a contract for orthodontic service under the PCR 2015 (SI 2015/102). In February 2019, NHSE completed a nationwide procurement for the provision of orthodontic services of which the contested Lot was part. B was the incumbent provider and one of two bidders for the relevant competition, which comprised a seven-year contract. The other tenderer was Eva Petersfield and Alton Limited (PAL). The outcome of the competition was very close. After marking the relevant bids received, the NHSE awarded B a score of 80.25% and PAL a slightly higher score of 82.5%. Accordingly, NHSE awarded the contract to PAL.

B objected to the award and initially sought to set aside the award of the contract to PAL. However, the automatic suspension stay on the award of the contract was lifted by the Courts in November 2019 on the basis that the balance of convenience lay with NHSE and that damages would be an adequate remedy. The contract was then awarded to PAL. After that, B amended its pleadings to include a claim for damages in the sum of £4.7 million for loss of profit, bid costs of £26,500 and loss of goodwill, which was not quantified.

On 20 June 2022, the case came before the Technology and Construction Court (TCC) which dealt with all issues in the case except that concerning the seriousness of any breach. The TCC held that NHSE had made a manifest error when assessing B's answer to a question, which affected the overall question score awarded.

The Defendant had misinterpreted various aspects of the Claimant’s bid about how it proposed to provide the services. This led to the Defendant erroneously marking down B’s bid. The Court said that having heard the evidence, it was clear that had the Defendant not made the manifest error in scoring B’s bid, the Claimant’s score would have been higher. The Court held that, absent the manifest error made by the Defendant, the consequence would have been that B would have achieved a score of 4 up from 3 in respect of the relevant sub-Lot. The effect of that would have increased the Claimant’s total bid score by 2.5% in circumstances where the difference between the two bidders had been 2.25%. Therefore, in that scenario the Claimant would have been awarded the contract, having scored 0.25% higher than PAL.

The case then came back for a further hearing before the TCC in September 2022 to consider whether the breaches were sufficiently serious to justify an award of damages.

Damages in Procurement Cases

The PCR 2015 implement the provisions of the EU Public Sector Directive (Directive 2014/24/EU) and the Remedies Directive (Directive 2007/66/EC) into English law and remain in force as part of English law after Brexit. In interpreting the provisions of the PCR 2015, the English courts still have regard to the jurisprudence of the EU Commission and the CJEU.

The leading U.K. case on the availability of damages against public authorities is the case of EnergySolutions EU Limited v Nuclear Decommissioning Authority [2017] UKSC 34. In that case, the U.K. Supreme Court held that EU law liability of a contracting authority under the Remedies Directive for breach of the Public Procurement Directive would only exist where the minimum conditions set down by the CJEU were met. An award of damages could only be made under EU law when a breach of the Public Procurement Directive (implemented by the PCR 2015 into English law) was sufficiently serious, applying the principles laid down in Francovich and Brasserie du Pêcheur.

In the EnergySolutions case, the Supreme Court considered that the Court of Appeal had erred in assuming that any claim for damages was no more than a private claim for breach of a domestically based statutory duty subject to ordinary English law rules. These included no requirement for a breach to be "sufficiently serious" before damages are awarded. The Supreme Court held that it is not sufficient to show that an infringement of the procurement regulations had taken place and that a direct causal link exits between the breach and the loss or damage sustained. It was also necessary to prove that the breach was “sufficiently serious”.

It was common ground before the TCC in the Braceurself case that an assessment of whether the breach was sufficiently serious needed to take place. However, the question was what criteria should be used to assess whether the breach in the case was “sufficiently serious.”

What is a “Sufficiently Serious” Breach?

The TCC, in examining the breach in the Braceurself case, had regard to the eight factors identified by Lord Clyde in R v Secretary of State, Ex p. Factortame Ltd [2000] 1 AC 524, HL. (and set out more recently in Delaney v Secretary of State for Transport [2015] EWCA Civ 172). In having regard to these factors, the Court recognised that they were nonexhaustive, and the weight placed on one or more of the factors would vary from case to case. The seriousness of the breach would always be an important factor

The relevant factors could be summarised as follows:

  • Importance of the principle breached.
  • Clarity and precision of the rule breached.
  • Degree of excusability of an error of law.
  • Existence of any relevant judgement on the point.
  • State of mind of the infringer, and in particular, whether the breaches were deliberate or inadvertent.
  • Behaviour of the infringer after it has become evident that an infringement has occurred.
  • Persons affected by the breach, including whether there has been a complete failure to take account of the specific situation of a defined economic group.
  • Position taken by one of the European Community institutions in the particular matter under consideration (not relevant post-Brexit).

Application of the Law to the Braceurself Case

The TCC reviewed the above eight factors. Central to their conclusions were the Court’s examination of the following:

  1. Importance of the principle breached.

This factor favoured B. The correct principle to apply here was the obligation on NHSE to award the contract to the most economically advantageous tenderer who had emerged as the winner of the competition and that such a principle was an important one which lay at the heart of the procurement process. The entity with the highest score should then have been awarded the contract. But PAL was erroneously awarded the contract.

  1. Clarity and precision of rule breached.

This factor was also in also favour of B. However, in combination with the first factor, it could not, of itself, be decisive. The rule breached was clear and precise and was not to be confused with any discretion or margin of appreciation within the evaluation process. The manifest error made arose out of very simple facts. The second factor was concerned with the clarity and precision of the procurement rules breached.

  1. Degree of excusability of error of law.

Under this heading regard had to be had to why the breach occurred and whether it was understandable how it had occurred. Mitigating factors for the occurrence of the breach could be considered. This factor operated in NHSE’s favour. The Court held there had been a single breach made by NHSE which was at the “excusable end of the spectrum”. The procurement had been well planned, and the error committed was minor and due to a misunderstanding. Here the Court appears to have been unduly lenient to NHSE. Whilst it is accepted that the error may have been minor, the corollary had been determinative of the competition in making an erroneous award to PAL.

  1. State of mind of infringer.

The mistake by NHSE was inadvertent, rather than deliberate and occurred in good faith. The TCC was also satisfied that NHSE's purpose in carrying out the scoring was to maximise access to publicly funded orthodontic services for those who have a disability. Its purpose was a laudable one. Therefore, this factor was in favour of NHSE.

  1. Persons affected by the breach.

This factor operated in favour of both parties but in different ways. The impact on B had to be balanced against the lack of any impact within the wider community.

The Court assumed that the loss of this contract will have been significant for B and the resultant financial loss it incurred due to the loss of NHS work. However, the loss was not existential, and B had remained in business. The impact (or the absence of any impact) on any wider group of people directly affected by the breach should also be taken into account. The competition was close, but the broader public would have been almost equally well served by either practice. This was a case in which the breach had a very low impact on wider public access to orthodontic treatment.

Court’s Assessment

In balancing the above criteria, the Court concluded that this breach was not sufficiently serious so as to entitle B to a remedy in damages. The phrase "sufficiently serious" indicated that a “fairly high” threshold must be passed before it can be said that the test had been satisfied and, having regard to all the circumstances, the Court did not consider that it had been in this case. This was on the basis that there was a single breach in a close competition where the error happened to have a powerful impact on the outcome. The breach was at the excusable end of the spectrum, was inadvertent and occurred because of a misunderstanding. The procurement had a laudable purpose of maximising access to publicly funded orthodontic services for those who have a disability and generally the procurement was carefully planned and well organised.

While the impact of the breach on B was significant, in that it was not awarded the contract that it should have been and may well have suffered financial loss as a result, the impact upon it was not existential. By contrast, there was no, or no material, impact on the wider public access to orthodontic treatment. The public would have been almost equally well served by either bidder. The impact on the narrow group for whose benefit the relevant evaluation factor was, in part, directed was very limited.

The Court concluded that this case was very different from the multiple breaches in the EnergySolutions case which concerned a national multibillion-pound contract for nuclear decommissioning.

Conclusion

This case is of interest because of the detailed analysis given by the Court as to whether a breach is sufficiently serious.

The balancing exercise undertaken by the Court could easily have gone the other way in this case. However, one does have to ask how the rights of B were adequately protected in this case and whether, post-Brexit, the EU-originated concept of sufficiently serious is being exploited as a convenient device for government to remove liability and accountability from public contracting authorities for a range of procurement breaches.

Another issue is whether the “fairly high” threshold of “sufficiently serious” and the limitation it places on the availability of damages to the Claimant should also be considered when Courts consider whether to lift a suspensory stay on the award of contracts at an interlocutory stage. This rule would appear to appreciably affect the ability of the Claimant in obtaining damages and therefore should be taken into account when considering where the balance of convenience lies.

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