The High Court has just [1] made its first contract shortening order under the Public Contracts Regulations 2015 (PCR 2015). It also awarded damages and imposed civil penalties on three NHS bodies conducting a joint procurement who were found improperly to have used a framework agreement to award a contract to the supplier they wanted. The case provides some rare judicial analysis of the use of call-off procedures under framework agreements (the last major case being the Henry Bros case on the use of pricing mechanisms [2]).
Overview of facts
The case concerned a procurement challenge by Consultant Connect (CC) against three NHS bodies who were jointly procuring communications services to replace pagers that were being phased out.
CC and two other suppliers (including Cinapsis, who were ultimately awarded the contract) were invited by the NHS bodies to participate in a product demonstration day. However, they were not told this was being scored. On the previous day, the NHS bodies had held a private ‘workshop’ with Cinapsis. Unlike CC, Cinapsis was one of 24 suppliers on a communications services framework agreement. The NHS bodies also consulted three other suppliers on the framework but decided that only Cinapsis was capable of meeting their requirements.
Following the demonstration day and these consultations, the NHS bodies decided to hold a mini-competition under the framework. Only Cinapsis was invited to submit a tender though, as the specification had been drafted such that only Cinapsis could meet it. The NHS bodies then negotiated with and awarded the contract to Cinapsis.
Standing to bring a challenge
As CC was not a party to the framework, the first issue the court considered was whether they could challenge the call-off of a contract under it.
Usually, it is only suppliers on a framework that can demonstrate that they have been prejudiced by the improper use of that framework. In such cases, the correct use of the framework would usually result in the award of a contract to a framework supplier other than the one to whom the original call-off contract was awarded. However, here, the alternative to improper use of the framework was considered to be a procurement outside the framework, in which CC could have bid. On that basis, CC was allowed to challenge the procurement. This is the second time that a UK court has held that a supplier not on a framework has had sufficient standing to challenge an award of a call-off contract under that framework [3].
Findings on award procedure adopted
The court then considered whether the procedure adopted to award the contract breached the PCR 2015 and the principles of equal treatment and transparency. The court decided:
- The NHS bodies had adopted a procurement process that favoured Cinapsis over other framework suppliers and CC. The framework was not operated transparently and the mini-competition was ‘unreal’ because the NHS bodies’ specifications were tailored to those of Cinapsis, not the other way round. The court considered that a mini-competition could not be held with just one framework supplier, even if only one of the framework suppliers is considered capable of meeting the purchaser’s requirements. It was therefore not a genuine mini-competition and breached Regulations 33(8)(c) and 33(11)(a) PCR 2015;
- The pricing agreed with Cinapsis bore very little resemblance to the pricing in the framework price matrix completed by the framework suppliers when tendering for places on the framework. This ‘fell on the wrong side of the dividing line between forbidden ‘substantial modifications’ to framework terms (Regulation 33(6) PCR 2015) and permitted ‘more precisely formulated terms’ (Regulation 33(11) PCR 2015)’;
- The NHS bodies breached the obligations in Regulation 18 PCR 2015 to treat suppliers equally, to act in a transparent and proportionate manner and not to design a procurement with the intention of artificially narrowing competition (by unduly favouring or disadvantaging certain suppliers). The various engagements between the NHS bodies and the suppliers were viewed as part of the procurement and not a lawful pre-procurement market engagement exercise. The use of the framework was not ‘transparent and even-handed’;
- Two of the officers of the NHS bodies had developed conflicts of interest by assisting Cinapsis in the procurement. Whilst they believed that this was in the best interests of the NHS bodies (to ensure they got a ‘known product’), this behaviour triggered the obligation in Regulation 24 PCR 2015 to put in place ‘appropriate measures to prevent, identify and remedy conflicts of interest’.
Remedies
CC sought a declaration of ineffectiveness (to set aside the contract). The court decided that the grounds for this were made out (due to a breach of the mini-competition rules in Regulation 33(11) PCR 2015). However, the order was refused because of ‘overriding reasons relating to a general interest’, being the adverse effects on patient care. Instead, for the first time in the UK, the court made a contract shortening order, reducing the contract term by 14 months.
The court also imposed civil penalties on the NHS bodies and awarded damages based on a ‘loss of chance’ to be awarded the contract.
The court considered the main ‘wrong’ in the case was not the way in which the framework was used in the context of Regulation 33 (which contains the main provisions on frameworks) although there were clearly breaches here. Instead, it lay in the decision to use the framework, as an instrument for excluding CC. This ‘wrong’ engaged Regulations 18 and 24 PCR 2015, the breaches of which were considered to be very serious.
Concluding remarks
The court has sent a clear warning to contracting authorities that it will not look kindly on framework agreements being used as a ‘tool’ to circumvent the procedures in PCR 2015. In this case, the court picked up on the fact that the NHS bodies had decided which supplier they wanted to deliver the contract and used the framework agreement as a smokescreen to legitimise this. The case is also an important reminder to follow the rules on using frameworks, including those on how to run mini-competitions and the prohibition on making substantial changes to the terms, and in particular, the pricing laid down in the framework agreement.
Providers and users of framework agreements need to take note of this important case. Given that framework agreements tend to be used flexibly in practice, it may change the perception of legal risk when making call-offs under them.
It should be noted that the court also made some interesting comments about the consequences of exceeding the estimated value of a framework agreement – we will cover this important point in a separate ebriefing.
For more information
If you would like to find out more about any of the issues in this ebriefing, please contact Steven Brunning.
[1] In the case of Consultant Connect Ltd v NHS Bath and North East Somerset, Swindon and Wiltshire Integrated Care Board and Ors [2022] EWHC 2037 (TCC) (29 July 2022)
[2] Henry Brothers (Magherafelt) Ltd and Scott and Ewing (t/a Woodvale Construction Company Ltd) v Department of Education for Northern Ireland [2008] NIQB 153
[3] Lightways (Contractors) Ltd v Inverclyde Council [2015] CSOH 169