UK Supreme Court to Contractors: Are You Serious?

brexitThe UK Supreme Court has ruled that the damages remedy available to aggrieved government contractors under the EU procurement regime is only available if an authority breach is sufficiently serious.  The decision will add an extra step for complaining tenderers in Europe: not only must they prove that a breach of the procurement rules occurred and that they suffered loss, but they will now be required to establish that the breach was severe enough to justify damages being awarded.

After a major overhaul in 2007, the remedies available to aggrieved government contractors in respect of the EU public procurements have been relatively stable.  Everyone tends to think they know what is available if something has gone wrong.

The ability to trigger an automatic suspension in a disputed procurement process by issuing proceedings? New in 2007, but the courts, bidders and authorities have got used to it.

The ability to have a court set aside an awarded contract and declare it ineffective?  Yes; it’s rare but it can be done.

The ability to get damages if the awarding authority has breached the contract?  Yes, obviously. That’s the longest-available remedy and goes right back to the early days of the EU procurement regime — or maybe not …

A recent UK Supreme Court decision (Nuclear Decommissioning Authority v EnergySolutions EU Limited [2017]) on a disputed contract relating to the decommissioning of nuclear reactors in the UK has caused many in the EU procurement sector to reconsider what they thought they knew about the availability of damages in the EU for procurement irregularities.

The claimant’s case against the UK Nuclear Decommissioning Authority was based on alleged errors in the evaluation process.  Given that the claimant had spent £10 million on the tender and stood to earn £100 million in fees if it had been successful, a gap of 1.06% in the final evaluation scoring caused it to investigate the evaluation issues.  The original High Court decision back in 2006 was that the winning bidder should have been disqualified but that the NDA found a way to avoid the disqualification.  Since, under the procurement rules, the claimant had not issued proceedings before the contract as awarded, it was left with a damages claim.  The question of the scale and threshold conditions for that claim found its way to the UK Supreme Court.

The Supreme Court went back to the source materials and highlighted that the applicable EU procurement directives referred only to the award of damages to aggrieved tenderers who prove that there has been a breach of the procurement regulations only in cases of serious breach.  How would this be squared with the UK implementing regulations that do not specifically refer to the issue of serious breach and merely say that a court may award damages to a bidder that has suffered loss or damage as a consequence of a breach of duty owed by the awarding authority?  The Supreme Court concluded that the UK legislation must have been designed not to go further than the “serious breach” standard available under the EU Directive.

So what does “serious breach” involve?  Well, unhelpfully, that’s not clear.  In the end in the Nuclear Decommissioning Authority case, the parties agreed a compromise so the Supreme Court didn’t have to go on to define what “serious” means.  A key European Court of Justice case in 1990, Francovich v Italian Republic, established the “sufficiently serious” requirement generically under EU law but further cases will be needed to pally this standard in the procurement law context.  Relevant factors will be the clarity and precision of the rule breached; the degree of discretion afforded to the authority; whether the infringement and the damage caused was intentional or involuntary; and whether any error of law was excusable or inexcusable.

In practice, this case may make the decision to commence legal proceedings harder for bidders who feel they have a grievance against an authority on an EU government contract.  In the past, there has always been the sense that, while it may be difficult to secure a court order to overturn an awarded contract and have it declared ineffective, there was always the back-up that damages would be available to compensate against loss suffered.  The Supreme Court has reminded the industry that damages will not always be available and that the complaining bidder also has to establish that there was a sufficiently serious breach to justify the award of damages.