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Public procurement law — American-Cyanamid reigns supreme, for now…

AuthorsMichael Winder

7 min read

Commercial & Contracts, Procurement

Public procurement law American Cyanamid reigns supreme for now

The procurement world has been dominated by the news that the Procurement Act 2023 has been granted Royal Assent and will come into force from October 2024.

With the new regime on the horizon, Partner and public procurement specialist Michael Winder provides an update on recent case law and highlights five key learnings for bidders and contracting authorities.


Calculating relevance of losses when objecting to the lifting of an automatic suspension

In the case of Teleperformance Contact Ltd v Secretary of State for the Home Department [2023], the High Court considered whether losses suffered by intra-group companies are relevant when lifting an automatic suspension.

The Home Secretary advertised a procurement for the provision of visa and citizenship application services that comprised of five Lots. Teleperformance Contact Ltd (TCL) — which is part of a global group — submitted bids for each of the Lots but was only awarded Lot 5. The other four lots were awarded to VF Worldwide Holdings Ltd (VFW).

In July 2023, TCL challenged the award of the first three Lots and the Home Secretary was put on an automatic suspension from entering into the contracts with VFW, pursuant to Regulation 95 of the Public Contracts Regulations 2015 (the Regulations). The Home Secretary made an application under Regulation 96(1)(a) to have the automatic suspension lifted.


The American-Cyanamid test

When determining whether the automatic suspension should be lifted, the High Court applied the well-established American-Cyanamid test (recently summarised in Camelot Global Lottery Solutions Ltd v Gambling Commission [2022]).

The test consists of four limbs:

  1. Is there a serious issue to be tried?
  2. If so — and if the suspension was lifted — would damages be an adequate remedy for the claimant? Additionally, is it just in all circumstances for the claimant to be confined to damages as a remedy?
  3. If not, would damages be an adequate remedy for the defendant if the suspension remained in place?
  4. Where there is doubt as to the adequacy of damages for either party, which option would likely carry the least injustice if it transpired to be wrong?

The court determined that while there was a serious issue to be tried, damages would be an adequate remedy for TCL whereas damages would be inadequate for the Home Secretary. Therefore, it was deemed that the balance of convenience fell in favour of lifting the automatic suspension.


Calculation of losses

The key consideration in this case was how TCL calculated its losses for determining whether damages were an adequate remedy. TCL argued that damages was not an adequate remedy, as its wider group would incur significant irremediable losses.

The High Court looked at existing case law and identified several key principles. These included that, generally, courts will only consider the losses suffered by the party entitled to the claim — but in exceptional circumstances, third party losses may be considered relevant (for example, where there is a connection between the losses suffered by the third party and the claiming party).

Further, the Court noted that the use of special purpose vehicles — as utilised by TCL’s wider group — carried disadvantages as well as advantages. One such disadvantage is that, by using SPVs, economic operators ran the risk of the wider group’s interests being considered irrelevant in respect of the remedies sought under public procurement law.

It was concluded that in the circumstances of this case, it was inappropriate to consider losses of the wider TCL group. Among other reasons, this was because no special nexus existed between the losses suffered by TCL and its wider group — and since TCL itself was under no particular existential threat from the losses sustained.

Furthermore, under the PCR, the Home Secretary only had duties towards TCL as the contracting entity — rather than the other entities in the Teleperformance group. This meant that the group had no standing to bring a challenge against the Home Secretary.

Finally, it was also considered that TCL didn’t adequately substantiate its claims of losses suffered by the wider TCL group. The court concluded that TCL’s evidence was "imprecise and vague".


Applying for an interim injunction when challenging dynamic purchasing system call-off

In River Ridge Recycling (Portadown) Ltd and ARC 21 (2023), a recent case from the High Court in Northern Ireland, the Court considered a novel point of law — namely, whether it had jurisdiction to grant interim injunctive relief in respect of an award under a dynamic purchasing system (DPS), given the presence of a statutory scheme of remedies under the Regulations.


Legal requirements under a DPS

The procurement for a waste contract was run through a DPS under the Regulations. When a contract is called off under a DPS, there is no requirement to publish an award notice, no requirement to observe a standstill period and no automatic suspension of an awarded contract (even where proceedings are issued).

By the time River Ridge had been notified that its bid was unsuccessful, Arc 21 had entered into a contract with the winning bidder. The contract was entered on 12 May 2023 and the notification was received by River Ridge four days later.

The contract was in an implementation phase ahead of full commencement in July 2023 and River Ridge asked for a voluntary standstill. This was refused on the basis that a delay to implementation would disrupt Arc 21 and the winning bidder. River Ridge therefore applied for an interim injunction to prevent the award and the continued implementation of the waste contract until the court determined a formal challenge seeking a declaration of ineffectiveness and damages (which was issued at the same time).

ARC 21 and the winning bidder resisted the application for the interim injunction. They stated that where a DPS is used there are no requirements under the Regulations to publish a standstill notice or observe a standstill period — and therefore no automatic suspension was available, even where proceedings are issued.


Can the Court grant injunctive relief in public procurement matters?

The Court noted that the effect of the statutory scheme in the Regulations is that — when an automatic suspension is in place — the contracting authority must apply to have it lifted (Regulations 95 and 96). In contrast, when no automatic suspension is in place, the unsuccessful bidder must apply for injunctive relief. In each case, however, injunctive relief will only be granted or continue if the court considers it appropriate in accordance with the long-established American-Cyanamid principles.

The Court considered that the wording of Regulation 96 stated that “this regulation does not prejudice any other powers of the court” and therefore specifically recognises and preserves the inherent power of the Court to grant injunctive relief, even in cases where there is no automatic statutory suspension pursuant to Regulation 95.

The Court further noted that, although the scheme under Regulation 98 restricts the remedies that the court can impose when the contract has been entered into, this regulation applies only to final orders (not interim ones).

While the Court had the power to grant the interim injunction, it didn’t consider that the circumstances of the case warranted the use of such power. When looking at the balance of convenience, the Court determined that if it were to grant the injunction, an irredeemable disadvantage would accrue to the successful bidder.


Five key learnings

  1. Until the Procurement Act 2023 comes into effect (with its own test), the American-Cyanamid test continues to be used to determine applications for remedies.
  2. In most cases, the courts will only consider losses suffered by the unsuccessful bidder when determining the adequacy of damages. Losses suffered by intra-group companies will only be considered in exceptional circumstances.
  3. Companies must be aware of the disadvantages of using special purpose vehicles to bid in public procurement tender processes (as well as the advantages).
  4. When seeking to substantiate for asserted losses for the adequacy of damages, claimants should provide robust and clear evidence.
  5. Even without the statutory right to automatic suspension, the courts may consider the granting of interim injunctive relief.

Our expert procurement team is on-hand to help with any queries or concerns.

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