Public Procurement: a balancing act in an application to lift the automatic suspension

The latest in the series of applications by contracting authorities to lift the automatic suspension in procurement challenges was decided by O'Farrell J in the TCC on 17 August 2018. The judge was also asked to consider the Claimant's application for summary judgment at the same hearing.

We last reported on an automatic suspension application in February, when the judge in Lancashire Care NHSFT and Blackpool Teaching Hospitals NHSFT v Lancashire County Council [2018] EWHC 200 bucked the trend to some degree by ordering that the suspension should be maintained pending the final trial, on the basis that damages would not be an adequate remedy for the Claimants in the event the claim was successful. This was based on the significant impact of losing the contract on the hospitals' care pathways and on the ability to maintain other interlinked activities. While the judge briefly considered where the balance of convenience lay (and found that it fell in the Claimants' favour), his judgment was predicated on the basis that damages would not be an adequate remedy.

The recent case of DHL Supply Chain v Secretary of State for Health and Social Care [2018] EWHC 2213 (TCC) saw the judge having to go beyond the question of whether damages were an adequate remedy to consider in detail where the balance of convenience lay. The case relates to the Department of Health and Social Care's ("DHSC") major overhaul of its supply chain contracts under which the existing contract covering the procurement of all medical devices and hospital consumables, associated IT, logistics and transactional services (known as the Master Services Agreement, and operated since 2006 by DHL) is being replaced with the Future Operating Model ("FOM").  Under the FOM, 11 separate contracts for the procurement of these devices and consumables (known as Category Towers) are to be awarded, alongside a single IT contract and a single logistics contract. This case relates to the DHSC's procurement of the logistics contract.

Following a procurement process run using the Open Procedure, the DHSC confirmed its decision to award the logistics contract to Unipart in June 2018. DHL challenged the decision on the basis that its interpretation of the tender documentation was such that the requirements relating to past experience could not be met by Unipart meaning that it should have been excluded. In this respect, the Selection Questionnaire included a question requiring bidders to:

"demonstrate that it has experience of managing a service in the Health and Social Care Environment of similar size, complexity and scope… [and] additionally, demonstrate that the bidder has experience in delivering an "across the threshold" service irrespective of sector." ("Across the threshold" referred to the requirement for drivers to enter into patients' homes to deliver packages.)

DHL argued that this meant that bidders had to be able to show evidence of experience of managing a logistics service of a similar size, complexity and scope to the FOM logistics contract. The DHSC argued that this would be unworkable given that the only similar contract of this scope was the contract currently run by DHL, thereby unfairly excluding all other bidders, and that the wording of the tender documents was intended to simply refer to a home delivery service of a similar size, complexity and scope. These points were considered by the Court in the context of the application by DHL for summary judgment, with the judge finding that given that the DHSC's position was supported by some of the definitions in the tender documents, it had a real prospect of successfully defending the claim such that summary judgment would not be granted.

On the application to lift the suspension, the judge concluded that damages would not be an adequate remedy for DHL for two reasons. First, she held that the loss of this significant contract would have a substantial adverse effect on DHL's reputation, potentially prejudicing its ability to win future contracts, which would be very difficult to quantify. Second, she found that the loss of a skilled workforce through TUPE transfers would place DHL at a disadvantage that would be difficult to quantify. As with the Lancashire case, this appears to represent a softening of the previous hard line that if damages could be financially quantified, they were an adequate remedy (e.g. Kent Community Health NHSFT v NHS Swale CCG [2016] EWHC 1393 and Sysmex (UK) Ltd v Imperial College Healthcare NHS Trust [2017] EWHC 1824 (TCC)). The automatic suspension has been kept in place in the past as a result of the prestige of the contract (NATS Ltd v Gatwick Airport [2014] EWHC 3133) and as a result of the loss of staff (Counted4 Community Interest Company v Sunderland County Council [2015] EWHC 3898), but these tests have generally been considered to be high hurdles to get over.  

The judge also found that damages would not be an adequate remedy for the DHSC if the suspension were kept in place and it was subsequently found that the contract award decision was lawful. This was because of the interdependencies between the other contracts under the FOM and the logistics contract and the disruption to the FOM that would be caused by the new logistics contract being delayed. 

It was necessary therefore to carefully consider where the balance of convenience lay. Having concluded that the Claimant's assertions that a swift trial could take place in September 2018 were unrealistic given the work still to complete before trial, the judge noted that the Court was entitled to have regard to the public interest when determining the balance of convenience. She found that the public interest fell strongly in favour of lifting the automatic suspension for five reasons:

1. The anticipated savings under the FOM would free up scarce resources.
2. The ability to implement the FOM was dependent on the logistics contract.
3. A transition period of at least five months was necessary and the current DHL Master Services Agreement expired in February 2019, such that if a trial could not take place until October/November 2018 the logistics service would not be ready.
4. While there was a delay in the procurement exercise for the FOM, this was relatively short and in any event unsurprising in the context of a procurement for 13 contracts with a combined value of £1.2bn.
5. There would be a risk that the DHSC would have to pay twice for the same service if the claim succeeded (Unipart for delivering it and DHL for lost profits), but the evidence showed that given the significant savings from the new contract, there would still be a saving overall.

In the circumstances, the automatic suspension was lifted.