In this LexisPSL Public Law analysis, Fiona Scolding considers a recent case in relation to damages to be awarded on a procurement claim if the breach would have made a difference to the outcome of the tender.
Energy Solutions EU Ltd v Nuclear Decommissioning Authority  EWHC 3326 (TCC)
What should public procurement lawyers take note of?
The court has very rarely had to deal with questions of causation and damage in the context of public procurement. While obviously this judgment may have to be re-visited in the light of the forthcoming decision in the Supreme Court, it provides welcome clarification as to what should be considered to be a sufficiently serious breach and makes it possible for bidders to bring claims for damages where there are no accusations of bad faith in the operation of the tender process.
What was this case about?
This is the third judgment (in the High Court, with a Court of Appeal, and in March 2017, a Supreme Court case as well) in a long running saga which will be familiar to most procurement lawyers. It involves a bid for the decommissioning of a number of nuclear power stations. The claimant was unsuccessful in its bid. The High Court has already found that the bid was marked in error, and that one of the bidders should have been (but was not disqualified) from the competition. The issue for this judgment is (subject to what the Supreme Court may have to say), whether or not the breaches found on liability were sufficiently serious to give rise to a liability in damages, given that the remedy under the Public Contracts Regulations 2006, SI 2006/5 (the applicable regime to the claim) is that a party 'may be awarded damages'. The parties had agreed that this matter should be determined in advance of the Supreme Court appeal - which will deal with whether or not, by not issuing proceedings within the 'standstill' period, the claimant had broken the chain of causation or damages its position so that it should not have the benefit of damages, or whether or not there was discretion to award damages if it had suffered loss.C-6/90: Frankovich v Italy  ECR 1-5357
The Nuclear Decommissioning Authority (NDA) argued that damages in these cases were a discretionary remedy and that the bidder did not meet the conditions for the award of damages set out by the Court of Justice of the European Union in Frankovich. These conditions are that:
- the rule of law infringed must be intended to confer rights on individuals
- the breach must be sufficiently serious, and
- there must be a direct causal link between the breach of the obligation and the damage sustained
As can be imagined, the judge was concerned that his findings and/or the route he had to take to make the findings would trespass on the decision of the Supreme Court. He declined to deal with certain issues raised by the parties which he believed should be reserved to the Supreme Court consideration of the matter and asked himself the following questions:
- whether a failure to award a contract to the tenderer whose bid ought to have been assessed as the most economically advantageous, is in itself a sufficiently serious breach of the contracting authority’s obligations to warrant a damages award
- if not, whether in all the circumstances, the breaches by the contracting authority in this case are sufficiently serious to warrant an award of damages
The NDA argued that none of the breaches were sufficiently serious, including the fact that the contract was awarded to the bidder who should not have won (the court having found in the trial on liability that had the tenders been correctly marked, another bidder would have won). They argued that in order to be awarded damages, there should be flagrant misconduct on the part of the NDA for damages to be awarded, and that it must be the NDA (rather than its employees) who acted with such flagrant misconduct.
Unsurprisingly, the claimant took the opposite view and argued that all of the breaches whether judged individually or cumulatively, was sufficiently serious to justify the award of damages.
What did the court decide?
The court rejected the arguments of NDA. It noted the observations of Lord Hope in Risk Management Partners Ltd v Brent London Borough Council  UKSC 7 that the whole purpose of the procurement directives and regulations was to provide for fair competition. Such fair competition only comes if the person awarded the contract has either offered the lowest price, or made the most economically advantageous offer. Given this, the public authority must hold a fair competition where it makes such a decision and then awards the contract to the winning bidder who best meets that criteria. There is 'little point' in holding a competition if the contract is not then awarded to the winner. In this case, the winner was not awarded the contract because of breaches by the NDA. These breaches were of fundamental importance to the Regulations, and the rules which had to be followed were both clear and precise, and that the breach was sufficiently serious to satisfy the conditions of 'sufficient seriousness'. Hence answering in the affirmative the first question he posed above. Delaney v Secretary of State of Transport  EWCA Civ 172
The court also found, following the Court of Appeal in Delaney, when determining that this test was met, that the contracting authority need not have acted in bad faith for it to be sufficiently serious. The judge also found that the failure to disqualify a bidder was also sufficiently serious to meet the second condition of Frankovich again because it infringes the basic requirement of the need to conduct a fair competition.
The judge also found that the other breaches found during the course of the evaluation process were all, individually, or cumulatively, sufficiently serious if the outcome of the competition would have been altered by them, hence also answering the second question he posed positively in the event he was wrong. The judge found that the important ingredient of the breach is the effect upon the scores and outcome of the competition, not a categorisation of 'fault' by comparison with other manifest errors or with more obvious breaches of equal treatment.
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