NHS trust gets automatic suspension lifted

An NHS trust has become the second public sector organisation in a matter of weeks to apply successfully to the courts for the lifting of an automatic suspension of entry into a contract.

The first case saw Colchester Institute persuade Deputy High Court Judge David Donaldson QC to lift suspension on a contract for the provision of cleaning services.

This second case covered a tender process carried out by University Hospitals Coventry and Warwickshire NHS Trust (UHCW) that involved the establishment of a framework agreement for transferring the responsibility of managing and operating the Healthcare Purchasing Consortium (HPC). HPC is a collaborative procurement hub run by UHCW for itself and a further 40 NHS trusts in the West Midlands and elsewhere.

In Exel Europe Ltd v University Hospitals Coventry & Anor [2010] EWHC 3332 (TCC), the claimant owns the NHS logistics body known as the NHS Supply Chain. It also provides goods, services and consumables to NHS bodies and is a competitor of HPC in the West Midlands.

The circumstances of the case were that, in about 2009, UHCW decided to transfer and divest itself of the responsibility for managing and operating HPC. The principal reason for this was that it wanted to achieve Foundation Trust status and an evaluation of what its core services should be suggested that the focus should be on patient care and related core services. It was also felt that HPC needed additional investment in staff and IT going forwards.

High-level discussions were held with possible joint venture partners including Exel’s chief executive. Contact was also made no later than September 2009 between HPC, UHCW and HCA International (a subsidiary of an American group and, ultimately, the preferred bidder). These discussions continued for four months with a view to a commercial arrangement where HCA took on some of the consortium’s activities.

According to Mr Justice Akenhead, it seemed clear that HCA was interested or possibly very interested in reaching an agreement with HPC by early January 2010, and there were discussions about financial models and lists of assets as well some discussion about terms and agreements.

“Although it appears that no "deal" was actually achieved in legal terms, it is not possible to determine upon the information put before the Court precisely how far these discussions had gone,” the judge said. “There is no direct evidence that there was some sort of ‘done deal’ or that there was some agreement made whereby HCA was to have preferential treatment in the procurement which followed.”

A working group of chief executives from the NHS trusts that subscribed to HPC then resolved to hold a competitive procurement, with a view to UHCW’s divestment of the consortium happening by 30 September 2010. On 11 March a contract notice was published. Five tenderers including Exel and HCA pre-qualified and were invited to tender.

Exel believed from an early stage that the information provided in the ITT was insufficient for the restricted procedure that had been adopted. It withdrew from the tender process on 28 May 2010, expressing concern in a letter that the procurement – and the proposed commercial structure – was fundamentally flawed. Exel also raised concerns over the defendant’s response to its freedom of information application over the nature of the discussions with HCA.

The other tenderers also withdrew, with the exception of HCA. On 11 June, the chief executives’ working group recommended that the contract be awarded to HCA. UHCW then wrote to Exel saying that HCA was the preferred bidder and that it would not enter into a contract until 10 days had elapsed from the date of dispatch of the letter.

Exel wrote letters to UHCW around nine weeks later, complaining about a lack of contact, a lack of communication and a lack of response to its repeated requests in relation to issues such as allowing DHL (Exel’s parent) to engage directly with the working group and the wider network of chief executives.

Further correspondence ensued before Exel issued its claim – based on a breach of the Public Procurement Regulations – in the Technology and Construction Court on 28 September 2010. It alleged: a failure to establish the most economically advantageous tender; breach in continuing with the procurement; unauthorised negotiations; appointment of and/or award to a party which did not submit a tender; appointment of an unlawful central purchasing body; and failure to identify contracting parties.

UHCW applied on 29 October 2010 for orders that the claim be struck out or that summary judgement be entered in its favour. It also sought an interim order lifting the requirements imposed by Regulation 47G(1) of the Public Contracts Regulations.

It was the application seeking to lift the suspension on entry of the contract that was heard by the High Court.

Mr Justice Akenhead said the court should go about the exercise set out American Cyanamid Co v Ethicon [1975] AC 396 “in the way in which courts in this country have done for many years”.

The first question to be answered therefore was whether there was a serious issue to be tried, with the second step involving consideration of whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought. The judge said the governing principle in relation to the balance of convenience is whether or not the claimant would be adequately compensated by an award of damages.

He added: “In reality, however, whether one adopts a strict Cyanamid approach or not probably matters little in many procurement cases. If the claim made by the tenderer was so weak as not to amount to a serious claim, it would be inevitable in most cases that the balance of convenience and discretion of the Court would militate against granting or maintaining the relief.

“Ms Hannaford QC (counsel for Exel), rightly, at least accepted that the relative strength or weakness of the claim should be taken into account by the Court exercising its discretion and powers under Regulation 47H. It would be an extraordinary state of affairs if any English, let alone European, Court was bound to order the contracting authority not to enter into a contract if the claiming unsuccessful tenderer's case was very weak or groundless.”

Mr Justice Akenhead agreed with the comments of Mr Justice Vos said in the Alstom case that the public interest can be taken into account on a consideration of the balance of convenience. “One important feature of this is that there is a public interest in securing valid and properly executed public procurements. However, that aspect of the public interest does not have, necessarily, an overriding impact,” he added.

The judge said he accepted there was a serious issue to be tried in relation to the complaint about the pre-tender history as between UNCW and HCA and its associated companies. As regards the five other complaints made by Exel, he ruled that these did not give rise to serious issues and “are at best weak”.

Turning to the balance of convenience exercise, Mr Justice Akenhead said the public interest was “something which in appropriate cases, such as this, needs to be weighed by the court”.

He added: “That public interest includes the desirability of ensuring fair and transparent procurement processes by contracting authorities as well as other areas of public interest. In my judgement one important area of public interest is the efficient and economic running of the National Health Service.

“In these times of economic difficulties and constraints, there is massive pressure on the different arms and parts of the NHS to make savings. One main area is and must be the procurement of medical goods, drugs, equipment and services. It is not for the Court however to determine how the different parts of the NHS must achieve efficient and cost saving procurement.”

The judge ruled that the defendant trust had clearly established an urgency for the procurement exercise to go ahead. Grounds for this included that: HPC is only being kept alive on a temporary stopgap basis; there was likely to be significant feeling of insecurity among the consortium’s staff; there was a very real risk that subscribers would drop out and that this could lead to HPC’s demise or to unaffordable expense for subscribers.

“The continuing uncertainty engendered by a continuing suspension of the award of the Framework Agreement will necessarily impact upon the Defendant's plans and desire to become a Foundation Trust hospital; it seems to be accepted, rightly, that the achievement of Foundation status is regarded as good for the hospital in question as well as for the patients,” Mr Justice Ahenhead said.

The judge also pointed to the problems of timing should the suspension not be lifted, with the earliest realistic time for a full trial in the Spring of 2011 and a considered judgement unlikely to be produced much before May or June this year – timing which “may well be optimistic”.

He added: “If Exel fails ultimately at trial, 8-9 months of time or more would have been wasted. If it succeeds, they would have to be a new tender process which could well take another 6 to 8 months up to award of contract. Thus, well over a year of delay will have occurred.”

Mr Justice Akenhead said he was wholly satisfied that damages would be an adequate remedy, rejecting evidence put forward by Exel that included claims it would damage its relationship with other trusts.

The judge according ruled that the automatic suspension under Regulation 47G(1) should be lifted.

Further reading: Reversal of fortune