24/10/2019

Procurement: Lifting the automatic suspension – reputational damages and a judge’s view of extension of an existing contract

Circle Nottingham Limited v NHS Rushcliffe CCG and Nottingham University Hospital Trust

In June 2019, the Technology and Construction court handed down a further decision in the chain of applications by contracting authorities in procurement cases to lift the automatic suspension[1].

The claimant, Circle Nottingham Limited (“Circle NL”), had been the incumbent provider of various healthcare services at Nottingham Treatment Centre since 2008 and was unsuccessful in a tender for the award of a new 5 year contract for elective care services at the Centre. Circle NL challenged the decision by the contracting authority, NHS Rushcliffe Clinical Commissioning Group (“Rushcliffe CCG”) to award the contract to another provider. This challenge triggered the automatic suspension. Rushcliffe CCG applied to the court to lift the automatic suspension.

Circle NL asked the court to keep the automatic suspension in place. One of Circle NL’s main arguments in support of keeping the automatic suspension in place concerned the reputational impact of the loss of the contract, and there are interesting discussions in the judgment on this issue. However, the judge did not accept Circle NL’s arguments. He held that damages would be an adequate remedy for Circle NL if it won at trial and, having considered arguments on the balance of convenience, ordered that the suspension be lifted.

 
Facts

In early October 2018, Rushcliffe CCG published a contract notice in the Official Journal of the European Union for a five year contract for the provision of elective care services at Nottingham Treatment Centre. The opportunity was advertised as a light touch regime procurement using the open procedure. The successful bidder was announced in December 2018 as Nottingham University Hospital NHS Trust (“NUH Trust”).

Circle NL issued court proceedings, triggering the automatic suspension. Very shortly after those proceedings were issued, NUH Trust (the successful bidder) notified Rushcliffe CCG that there was a material change in its financial circumstances – including a forecast £19 million deficit for the current financial year. This information, together with issues raised by Circle NL in its claim, prompted Rushcliffe CCG to undertake a re-evaluation of financial and price sustainability aspects of the bids. In early March 2019, Rushcliffe CCG issued fresh standstill letters to all bidders, explaining the outcome of the re-evaluation process. Circle NL was, again, unsuccessful.

At the end of March 2019, Rushcliffe CCG wrote to Circle NL asking them to agree to lift the automatic suspension. Circle NL refused, prompting Rushcliffe CCG to apply to the court to lift the automatic suspension.

Issues considered by the Court

 As we have previously reported[2], the Court, when deciding whether to lift the automatic suspension, will apply the test laid down in American Cyanamid v Ethicon [1975] AC 396 which requires it to look at (1) whether there is a serious issue to be tried, (2) whether damages would be an adequate remedy for the claimant and (3) where the balance of convenience lies. 

As is common in applications to lift the automatic suspension, Rushcliffe CCG accepted that there was a serious issue to be tried. The judge therefore looked first at whether damages would be an adequate remedy, and concluded that they would be.

The judge’s view was that having decided that damages would be an adequate remedy, he was not obliged to consider the question of balance of convenience. However he felt that it would be prudent to do so here. This was in case there was a factor which was so compelling that it ought to be taken into account, despite the conclusion that damages were an adequate remedy.

Are damages an adequate remedy where there is a potential adverse reputational impact?

Circle NL argued that damages would not be an adequate remedy. One of their arguments was that the lack of an orderly and safe handover as well as the loss of the contract itself would have significant adverse reputational consequences on “Circle”.

In considering this argument, the judge noted inconsistent references in the evidence to “Circle” which were used, according to the context, to refer to the Circle Group, group companies or the Circle brand rather than the claimant itself, Circle NL. He ruled that it is the reputational position of the claimant itself, Circle NL, which must be considered and not the position of the Circle Group or the Circle brand.

The judge accepted that the Circle Group may suffer loss of reputation or some tarnishing of the Circle brand as a result of losing the contract. The judge did not, however, find any link between the damage (if any) to the reputation of Circle NL itself and its effect on Circle NL’s future commercial operations.

He also noted that if Circle NL were to suffer damage to its reputation there was no evidence or suggestion that any damage would last longer than the five year period of the new contract. He commented that if Circle NL succeeded at the full trial it would recover its loss of profit over that five year contract period, and that to award additional damages for loss of reputation would amount to double counting. He added that in the event that Circle NL’s claim succeeded and it were held that the contract was wrongly awarded then any damage to Circle NL’s reputation would be “largely swept away”.

The judge rejected Circle NL’s contention that damages would not be an adequate remedy because lifting the automatic suspension would result in Circle losing a critical part of its overall business. He also rejected arguments concerning the loss of key personnel and academic research and training as well as the “existential threat” to Circle NL due to a loss of revenue.

The balance of convenience

Having held that damages would be an adequate remedy, the judge decided to look at the question of balance of convenience, since a substantial part of the evidence was devoted to the effect of lifting the suspension on the continuity of services. He confirmed that what the court had to consider in this case was “which course of action is likely to carry the least risk of injustice if it transpires that it was wrong”?

Circle NL sought to argue that a trial could take place very swiftly, with judgment possible by November 2019 and service commencement following mobilisation by mid-2020. This was resisted by Rushcliffe CCG’s barrister, particularly in light of the likely lengthy and complex disclosure process that would have to take place. The judge accepted that it may well be 15 to 18 months or more before a new contract could be entered into.

The judge then went on to refer to the conflicting evidence provided by the parties on a number of matters including, particularly, the length of the mobilisation period necessary for proper and orderly handover and the potential effect of creating a hiatus in service delivery, and concluded that in an interim application such as this, he was unable to decide whose evidence was correct. He concluded in the circumstances that the balance lay in favour of preserving the status quo by lifting the suspension and allowing Circle’s current contract to expire. However, he went on to note a number of “concerns” in relation to Rushcliffe CCG’s current plans, including the “feasibility and robustness of the NUH Trust’s mobilisation plan”. He therefore indicated that an extension of the existing Circle NL contract might well be prudent to prevent avoidable problems arising. If such an extension were to be agreed, of course, the automatic suspension would in effect remain in place for a longer period than desired by Rushcliffe CCG, and potentially as long as Circle NL was arguing would enable the parties to get to a final trial.

 

 

[1]       

 Circle Nottingham Limited v NHS Rushcliffe CCG and Nottingham University Hospital Trust [2019] EWHC 1315 (TCC).

[2]       

https://www.bevanbrittan.com/insights/articles/2018/public-procurement-a-balancing-act-in-an-application-to-lift-the-automatic-suspension/

https://www.bevanbrittan.com/insights/articles/2018/application-to-lift-the-automatic-suspension-bucking-the-trend/

https://www.bevanbrittan.com/insights/articles/2016/lifting-the-automatic-suspension-whats-money-got-to-do-with-it/