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You cannot be (sufficiently) serious

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Are damages still available following flawed public procurements after EnergySolutions EU Ltd v Nuclear Decommissioning Authority?

The UK Supreme Court, has potentially changed the game in favour of procurers in the case of EnergySolutions EU Ltd v Nuclear Decommissioning Authority by deciding that in order for damages to be available the breach of procurement rules must be “sufficiently serious”.

Successfully challenging a procurement process is no mean feat and is an area where obtaining prompt, accurate legal advice is key. The time limits are tight (unsuccessful tenderers have just 10 days to issue proceedings in order to benefit from automatic suspension provisions, or 30 days generally) and the evidence on which to base the decision to raise a challenge is limited.

The light at the end of the tunnel is the potential of damages (whilst the courts have the ability to set aside an awarded contract, declaring it ineffective, it is rare for them to do so). This has been the status quo since the genesis of the EU procurement regime. However, EnergySolutions EU Ltd v Nuclear Decommissioning Authority has changed this and has been the cause of much head scratching. What is “sufficiently serious”? Will this deter challenges? And what will the position be following Brexit?

Nuclear Decommissioning Authority made “many manifest errors”

The case resulted from the procurement process to award a contract for the decommissioning of 12 different nuclear facilities with the contract worth £4.2 billion. The contract was ultimately awarded by the Nuclear Decommissioning Authority (“NDA”) to a consortium known as “CFP”.  This prompted EnergySolutions EU Ltd (“EnergySolutions”), which had spent £10 million compiling its tender, to commence its claim.

NDA’s award appears to be the decision that launched a thousand cases. There have been numerous cases between Energy Solutions and NDA as a result of this procurement dealing with various aspects of the dispute, along with appeals.

It was the decision of Mr Justice Fraser in the High Court that CFP should have been disqualified for failing to meet two threshold requirements and in any event, had NDA not made “many manifest errors” in its assessment of tenders, EnergySolutions would have won the competition.

Typically, from this finding an award of damages to EnergySolutions Ltd would follow. However, NDA argued that damages were only available where the breach was “sufficiently serious”. NDA’s argument was the following:

1) That the decision in the 1990 European Court of Justice in Francovich v Italian Republic means damages for a breach of EU Law are generally only available where the breach is “sufficiently serious”; and

2) Whilst it was open to the UK to make this position on damages more favourable when implementing the procurement directives via the Public Procurement Regulations 2006, it hadn’t done so.

The Supreme Court agreed with this position. Ultimately, the case and the arguments are somewhat academic given that the parties had reached a settlement prior to the Supreme Court handing out its decision. What is important is the likely impact of the additional hurdle in procurement claims i.e. what is “sufficiently serious”, how hard will it be to demonstrate, and what is the likelihood of this remaining the legal position in the long term given Brexit?

What is ‘sufficiently serious’?

Anticipating the potential decision of the Supreme Court requiring a breach to be “sufficiently serious” before an entitlement to damages arises, Mr Justice Fraser in the High Court pre-emptively decided whether the breach was “sufficiently serious” or not.

Mr Justice Fraser outlined the following non-exhaustive list of factors as relevant in assessing whether the breach was sufficiently serious:

  • the importance of the principle breached;
  • the clarity of the rule breached;
  • the degree of excusability of an error of law;
  • the existence of any relevant judgment on the point;
  • whether there was a deliberate intention to infringe as opposed to an inadvertent breach;
  • the behaviour of the infringer after it has become evident that an infringement has occurred;
  • the persons affected by the breach, including whether there has been a complete failure to take account of the specific situation of a defined economic group; and
  • the position taken by one of the Community institutions in the matter.

Mr Fraser decided that the failure to award a contract to the most economically advantageous offer, is in itself a sufficiently serious breach. However, this only provides an answer to one circumstance where a disappointed tenderer might otherwise bring an action. Other situations will likely require further judgements.

Position after Brexit?

Given that the decision itself is one from the highest court in the land in the form of the Supreme Court the addition of a new hurdle was not one that might simply be overruled. Nor does it appear that the decision is under any threat as a result of Brexit. The White Paper on “Legislating for the United Kingdom’s Withdrawal from the European Union” and the Great Repeal Bill take the position of requiring the UK Courts to take account of European case law as it stands on the date of leaving the EU. The most likely removal of this hurdle is via amendment to the Public Contract Regulations 2015; however, this does not appear to be on the immediately legislative agenda.

Conclusion

The requirement for a breach to be sufficiently serious is a new hurdle placed in the way of disappointed tenderers wishing to challenge a procurement process. It remains to be seen what the practical effects of this might actually be as it will depend on what future court decisions deem to be “sufficiently serious”. The implication is that, given this is a more strenuous hurdle than previously applied, some actions that resulted in the award of damages will not now do so.

Currently it appears that a failure to award a contract to the most economically advantageous offer is sufficiently serious. However, we are likely to see a chilling on the bringing of actions given the uncertainty of whether damages will be awarded despite what previously might have been viewed as a strong and secure claim. It may also prompt potential claimants to bring claims within the timeline for seeking a court order overturning an awarded contract so that damages are only an aspect of the claim.

Stefan Berry is a Junior Associate at Quigg Golden

If you have comments or queries on this topic, contact Stefan.Berry@QuiggGolden.com

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