Court orders damages and civil penalties for unlawful NHS procurement

Court orders damages and civil penalties for unlawful NHS procurement

This recent High Court judgement will be of interest to companies in the life sciences sector that supply products and services into the UK NHS. It highlights that the Courts will use the full range of remedies in the Public Contracts Regulations 2015 ("the Regulations") to penalise unlawful contract awards by public bodies and provide relief for suppliers who have lost out.

Rarely used remedies

The judgement is particularly interesting because the Courts in the UK have rarely used the "declaration of ineffectiveness" remedy. And it is even rarer to see the contract shortening powers and a large civil penalty being deployed, as they were here.

The case centred on the use by three NHS Care Boards (the "Boards") of a framework agreement to award a contract to supply communications services. What is interesting here is that the claimant, Consultant Connect ("CC"), did not have a place on that framework. Nonetheless, CC was able to successfully challenge the Boards' use of it to award a contract that CC would have had an opportunity to bid for had an advertised competitive process been run.

The case (Consultant Connect Limited v NHS Bath and North East Somerset, Swindon and Wiltshire Integrated Care Board & Ors) related to a joint procurement exercise run by the Boards for a contract to supply communications services via an app for GPs to obtain advice from hospital consultants. CC already had a contract to supply this type of service at three hospitals in the area.

The Boards invited CC and two other companies to make a product presentation which was marked against criteria set by the Boards but not disclosed to the companies. If fact, the presentations had been billed as pre-market testing and so the companies had not been told they would be evaluated at all.

CC achieved the second highest score with its competitor Cinapsis scoring the highest. The Boards then decided that rather than move from pre-market testing to the launch of an advertised procurement competition, they would use an existing framework on which Cinapsis was a named supplier but CC was not. After consulting with three other suppliers also on that framework, the Boards held a "mini-competition" but only invited Cinapsis to tender. They subsequently negotiated terms directly with Cinapsis and awarded it the contract. CC challenged this as an unlawful direct award under the Regulations.

Was there a duty?

The main issue for the Court was whether the Boards had a duty to CC under the Regulations at all, given it was not a framework supplier and so would not in any event have been eligible for any contract the Boards decided to award under it.

The court found that although generally a non-member would not be able to show that it risked suffering a loss, it depended on the circumstances and there was no legal bar. If, as here, the framework was used inappropriately to appoint a supplier in the full knowledge that a competitive process could be run outside the framework, then those outside the framework may have suffered loss as a result.

The court decided that the Boards' use of the framework was unlawful for a number of reasons:

  • the mini-competition rules had been modified to ensure that Cinapsis could meet them, rather than being based on an objective assessment of what the Boards needed
  • the pricing negotiated with Cinapsis did not follow the framework mechanism
  • only one bidder was invited to compete in the mini-competition.

Conflict of interest

If the Boards had not made unlawful use of the framework, a competitive process may have allowed for the award of the contract to CC and so a risk of loss or damage was found to have been caused by the breaches. The Court also found that there were conflicts of interest and bias in favour of Cinapsis which the Boards did not deal with appropriately.

The breaches meant that the "third ground of ineffectiveness" under the Regulations applied and the court had the power to set aside a contract that had already been entered into. Unless one of the three ineffectiveness grounds applies, damages are the only remedy once a contract is in place.

A court may decline to set the contract aside on the basis of overriding public interest grounds. But if it does so, it must impose an "effective, proportionate and dissuasive" penalty on the contracting authority, or make an order shortening the contract, or both.

In this case the court declined to declare the contracts ineffective because this would adversely affect patient care. But it did make a contract shortening order bringing forward the end of the contract (and therefore CC's next opportunity to bid for it) by 14 months. It also imposed civil penalties on each of the Boards, ranging from £4,000 to £10,000, depending on the seriousness of their conduct, and made an award of damages to CC.

An effective remedy

This landmark case shows how suppliers who miss out on important public opportunities due to unlawful contract awards can find redress through the remedies provided by the Regulations. In particular, where frameworks are used unlawfully, a supplier who is not on the framework may still be able to seek redress.