Publicly procured contract ‘shortened’ by court for breaches

NHS Clinical Commissioning Groups fined and Contract Shortening Order made after unlawful ‘manipulation’ of procurement process to ensure winner

05 September 2022

Civil penalties have been imposed on three NHS Clinical Commissioning Groups (CCGs) after they were found to have ‘manipulated’ and then attempted to “defend the indefensible” in their use of a framework agreement in order to ensure their favoured supplier was awarded a multi-million pound public services contract.

The case provides valuable insights on why contracting authorities must not be tempted to use existing procurement structures for inappropriate purposes. 

A court has ordered the CCGs to pay civil fines and that the contract they awarded to their preferred supplier should be substantially shortened, as a result of a number of serious breaches of fundamental procurement law principles. 

The Court found that the CCGs’ motives were well intentioned (“their intentions were good. There was no question of corruption or financial advantage”). They had nevertheless contrived, through a series of processes, to engineer a ‘procurement’ for which their preferred supplier could have been the only winner. 

This judgment also addresses a wide range of important issues in procurement law including, in particular:

  • Identifying and treating conflicts of interest;
  • (Mis-)using a framework agreement to appoint a preferred supplier; and
  • The principles governing the conduct of mini-competitions under framework agreements, and in particular whether you can ever have a mini-competition with only one supplier competing

Favouring a specific supplier

The judgment is highly critical of any attempt by contracting authorities to use a procurement process to favour a particular supplier. For example:

  • The [CCGs] have, in my view, sought to defend the indefensible…[They] persisted in defending the conduct I have criticised even though some of their colleagues trenchantly criticised it at the time”.
  • The broad character of what happened [was] a manipulation of the process to ensure that [the preferred supplier] won”.
  • The behaviour of the contracting authorities has been, in varying degrees, poor. The obligations of objectivity and fairness owed by the [CCGs] has, in varying degrees, been treated with disdain and cynicism.”

The outcome

The challenger – Consultant Connect (CC) – succeeded in its claim. The Court awarded damages based on ‘loss of chance’ principles, finding that CC would have had a 50% chance of winning the procurement, had it been undertaken in compliance with the procurement regulations. However, in what may be the first case of its kind in this country, the Court also ordered, reflecting the seriousness of the breaches of procurement law:

  • That each of the Defendant CCGs must pay civil penalties (ranging from £4,000 to £10,000) to the Minister for the Cabinet Office;
  • The shortening of the contact by over a year (the “Contract Shortening Order”). The contract will now expire on 31 January 2023, which the Court thought would be sufficient time for the CCGs to now run a compliant procurement.

The Contract Shortening Order (“CSO”) is an interesting feature of this case because, early in CC’s challenge, the automatic suspension preventing the CCGs contracting with their preferred supplier was lifted (allowing the contract to proceed) and the expedition for an expedited trial was refused. 

In most procurement cases, the lifting of the suspension would mean the challenger losing the (potentially desirable) possibility of having the contract re-awarded to them; converting the case into a damages-only action. The effect of the CSO is to now re-open the possibility of the challenger getting the opportunity to compete for the contract when it is re-procured shortly.

CSOs are rarely used. Where the grounds for declaring a contract ineffective are satisfied, the Court can choose not to do so and to use a CSO as an alternative. After this high-profile case, this option in the Court’s toolkit may be more in the forefront of judges’ minds as a potential remedy.

The Parties

The Defendant CCGs were contracting authorities and parties to a framework agreement. The scope of services which could be contracted under the framework was very broadly drafted (the Court referred to the breadth as “kitchen-sinky”), but was limited to £3M over 3 years.

The CCGs’ preferred supplier – to whom the CCGs awarded the contract under challenge – was successful in getting onto the framework agreement, as were several other suppliers of the relevant services.

CC was the incumbent provider of certain services within the framework which were later in issue in the litigation. It did not apply to enter onto the framework. This was said to be on the basis that the low value and three year duration made the opportunity uncommercial.

The “indefensible” conduct of the CCGs

The CCGs chose to use the framework agreement to award the contract (which was to provide “advice and guidance” services by which GPs use an app to seek advice from hospital consultants). Apparently considering that CC would be upset as the incumbent, the CCGs purported to run a procurement by inviting their preferred supplier and CC to give in-person presentations about services they could offer the CCGs. Unknown to CC, these presentations were being scored against undisclosed criteria (using a scoring sheet of “MUST Requirements” to be scored from zero to five). The CCGs’ preferred supplier was also given guidance to ensure it performed well in its presentation to the CCGs.

The CCGs tried to argue this was simply a ‘product demonstration event’ which was ‘pre-market engagement’ (permitted under PCR’15, Regulation 40) to determine what was available in the market. However, the Court found it was a procurement process conducted in a non-transparent and unfair way aimed at excluding CC and awarding the contract to the CCGs’ preferred supplier.

The CCGs then decided (in CC’s words) to use their framework agreement with the preferred supplier (to which CC was not a party) “… us[ing] up nearly all its value on one contract, in order to create a smokescreen for the unlawful direct award of a public contract”. The CCGs purported to conduct a “mini-competition” under the framework. But the CCGs designed the specifications so that the only possible viable candidate was their preferred supplier and, in fact, only invited that one supplier to tender for it. 

These procedural errors were compounded by then entering into non-framework-compliant pricing negotiations with the preferred supplier before awarding them the contract. As summarised by the Court: “the winner [was] picked, first by means of a covertly competitive process outside the framework, and then using the framework without genuine competition”.

Breaches of Relevant Law

The Court found numerous breaches of procurement law. Principally:

  • The ‘product demonstration event’ was part of an unlawful procurement exercise and breached the principles of equal treatment and transparency.
  • The CCGs’ decision to use the framework in order to effect the direct award of the contract to their preferred supplier was also a breach of the principles of equal treatment and transparency. Interestingly, the judgment appears to indicate that had they done things differently then the CCGs could have carried out a compliant mini-competition under the framework. They might then have been able to argue (as they attempted to) that CC could not challenge because it was not part of the framework.
  • The mini-competition within the framework was “unreal because the CCGs’ requirements were…tailored to those of the competitor, not the other way round. The scoring was unreal because the sole bidder’s performance was not being measured against anybody else’s performance. [One evaluator’s] comment was apt: “I haven’t bothered with scores as I think it means nothing”” and the pricing agreed with that bidder bore little resemblance to the pricing in the framework agreement.
  • There were findings of both individual and organisation bias. Two relevant staff members within the CCGs, who were involved in different aspects of procurement, had conflicts of interest. The CCGs failed to take any appropriate measures to identify or remedy those conflicts. In fact, the CCGs allowed one of those relevant staff members to make a presentation to some of the evaluators extolling the virtues of the preferred supplier.

Consultant Connect had a right to challenge even though it was not on the framework

Importantly, the Court rejected the CCGs’ key defence: that CC was not entitled to challenge the use of a framework agreement because it was not a member of the framework. The Court accepted that in many instances this will be correct because the non-member will not be able to show they suffered or risked suffering loss in consequence of the way the contract was awarded under the framework.

However, the Court found that a challenge to a call-off can be brought by a non-member of the relevant framework, if the facts show that the contract award breached a relevant duty owed to the non-member and that the non-member suffered or risked suffering loss in consequence. That was the case here because the Court found that CC had been denied the opportunity to bid as a result of improper use of the framework – i.e. there should have been a non-framework competition in which CC ought to have been able to compete – and therefore a relevant duty was owed to CC despite being a non-member:

“The main wrong in this case did not lie in the way in which the framework was operated …. The main wrong lay in the decision to use the framework at all, as an instrument for excluding CC. That wrong engaged regulations 18 and 24 [relating to general principles of equal treatment, transparency, and not acting in conflict of interest] rather than regulation 33 [relating to frameworks]. I therefore find that applying the second factor points in the direction of the breaches being very serious and sufficient to justify an award of damages.”

The Court noted that CC’s decision not to bid to get onto the framework was its own. Leaving aside the tactical reality of that situation, the Court suggested that had CC thought the framework value was uncommercially low then the correct course was to bring a challenge at that point. If the overall factual matrix had not pointed so strongly to the idea CCG were using “the framework … as an instrument for excluding CC”, it is possible CC’s non-member status would have been fatal to its claim. 

Case: Consultant Connect Ltd v NHS (judiciary.uk)

This article was written by Ian Tucker (Partner) and Laura Beardshall (Senior Associate). 

Key contact

Ian Tucker

Ian Tucker Partner

  • Dispute Resolution
  • Procurement Disputes
  • International Trade

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