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Procurement breaches and remedies: the BT/NHS Scotland case

Hospital iStock 000010501389XSmall 146x219Richard Binns looks at the lessons to be learned from communications giant BT's challenge to the award by NHS Scotland of a £110m contract to Capita.

BT recently challenged the procurement process run by NHS National Services Scotland ("NSS"), also known as the Common Services Agency, for the Scottish Wide Area Network ("SWAN" [1]). As a result of BT issuing court proceedings, an automatic suspension on the procurement process prevented NSS from signing the contract with the winning bidder Capita Plc.

In February 2014, the Court of Session in Scotland lifted the suspension and NSS can therefore proceed with Capita. The contract is thought to be worth at least £110m.

The ruling of the court (Lord Malcolm) has recently been released and provides the detail on this significant procurement decision. In summary:

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  • NSS breached the Public Contracts (Scotland) Regulations 2012 ("the Regulations") in the procurement process by not disclosing properly a particular aspect of the scoring of the bids;
  • After finding there had been a breach of the Regulations, the court considered the appropriate remedy for BT including whether a re-run or damages was appropriate;
  • The court concluded that the breach of the Regulations was of a less serious nature and it was difficult to work out what BT would have done differently had the breach not occurred;
  • In contrast, a re-run of the procurement process would have significant adverse consequences for the SWAN project affecting its core credibility and viability;
  • Balancing the public interest with the private harm to BT, the court concluded that damages (BT claims c.£20m) would be an adequate remedy and may even be a relatively straightforward calculation exercise;
  • NSS was allowed to continue with Capita and BT was left to pursue a claim in damages against NSS if it so wishes.

Breach of the Regulations

The agreed "nub of the case" was about alleged non-disclosure of a particular aspect of the scoring of the bids relating to the sub-criteria.

The marking range for sub-criteria was 0 to 5 with the possible scores for bidders being 0, 1, 3, or 5. The sub-criteria contained a number of individual requirements.

If one of the individual requirements in the sub criteria was not met then this apparently limited the score to a maximum of 1 out of 5 no matter how strong the bidder was on the other individual requirements. If all the requirements were "just met" a bid could score a 3, and if all of the requirements were satisfied then it was possible to get a 5 if the bid merited such a score.

BT said that it was not aware of this methodology until it received a post award de-brief in November 2013. It thought that a poor or lack of response in one of the individual requirements could be compensated for by a strong performance in another. BT said that it would have prepared its bid differently if it had known that a basic non-response in one requirement would limit the score to a 1 no matter how strong it was in the other requirements. NSS argued that any reasonable bidder reading the relevant bid materials would have understood that the bids would be marked in the above way.

The court analysed the documents and came to the conclusion that the documents did not disclose the scoring methodology that was actually used. The Judge therefore held that the scoring methodology involved a departure from that set out in the relevant documents and there was a breach of the transparency requirements of the Regulations (regulation 4(3)).

What is the appropriate remedy for BT?

Having found a breach of the Regulations, BT asked the court for an order setting aside the decision to award the SWAN contract to Capita and allowing a re-run. NSS requested an order pursuant to Regulation 47(9)(b) which would allow the contract with Capita to be concluded and limit BT's remedy to damages for the breach.

BT submitted that due to the breach it was prevented from putting in its best bid (which it believed would have won) and that Capita's contract was now "poisoned fruits" meaning a re-run was the only fair outcome.

As with all applications for a re-run, the court has to do an imaginary balancing act, attempting to look into the future and predict the potential harm and other effects to the public interest a re-run might bring. Was a fair re-run even possible given there had been recent disclosure of commercially sensitive information of the bids? Alternatively, could damages be an appropriate remedy for BT?

A re-run of a procurement process in these circumstances is relatively rare and as part of his analysis, the Judge looked at two Northern Irish cases where a re-run had been ordered: McLauglin and Harvey Limited v The Department of Finance and Personnel (No. 3) [2008] NIQB 122 and Resource (NI) v The Northern Ireland Courts and Tribunal Service [2011] NIQB 121.

The court distinguished the Northern Irish cases noting in particular that the Resource case was at the very serious end of the spectrum with "manifest" and "serious" breaches of the rules. Lord Malcolm did not consider NSS's non-disclosure of part of the scoring methodology in this case in the same category.

The Judge said that at one end of the scale a breach of the Regulations may be so serious that the only remedy can be a re-run, but in other cases where the impact is less serious, then damages will be a wholly adequate remedy. It depends on the particular facts of the case as to which remedy is proportionate.

In this case, the court found that the breach by NSS fell into the less serious category. By contrast, the consequences of delay and uncertainty caused by a re-run for the SWAN project were potentially significant and would affect the whole viability and credibility of the project. The court heard evidence that "the point of no return" for SWAN was approaching.

The court therefore concluded that damages are an adequate, proportionate and effective remedy for BT in these circumstances. He therefore allowed NSS to complete the contract with Capita and limited BT's claim to damages for any loss caused by breach of Regulation 4(3).

What next?

This case is in line with the current judicial trend that courts are reluctant to interfere with a decision of a contracting authority unless something serious and significant has occurred in the procurement process.

There are limited examples of courts ordering re-runs and quashing decisions and, like BT, disgruntled bidders are often left pursuing good claims for damages only. This can be frustrating when there is a breach of the Regulations that may have affected how a bid is put together.

BT has indicated that it will not appeal the decision and therefore the SWAN contract is clear to proceed. BT now has to decide whether it wishes to continue with the case and pursue NSS for £20m in damages which will ultimately come from the tax payer. Given it has a ruling that there has been a breach of the Regulations and the court expressed a view that a damages calculation may be relatively straightforward, BT may choose to continue with this case for some time yet.

Richard Binns is a member of Burges Salmon's procurement team that advises on all aspects of contentious and non-contentious procurement law and is led by John Houlden. Both can be contacted on 0117 939 2000.

[1] SWAN is described as a "single, holistic telecommunications service available for use of any, and potentially, all public service organisations in Scotland".

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