Exel Europe Ltd. v University Hospitals Coventry & Anor

This judgement involves public procurement and is concerned with an application made by the Defendant for an interim order under Regulation 47H of the Public Contracts Regulations 2006 as relatively recently amended by the Public Contracts (Amendment) Regulations 2009. It raises issues as to how courts should go about dealing with public procurements which are automatically suspended upon the issue of proceedings challenging the procurement exercise by a party which has not succeeded on the procurement in question.

These proceedings concern a tender process carried out by University Hospitals Coventry & Warwickshire NHS Trust, the Defendant, for the establishment of a framework agreement in order to transfer the responsibility of managing and operating the Healthcare Purchasing Consortium (“HPC”) which has been a collaborative procurement hub run by the Defendant on behalf of itself and some 40 NHS Trusts in West Midlands and elsewhere. HPC is not a separate legal entity but provides at the request of and for the benefit of the different subscribers a wide variety of medical services, equipment, medications and other medical related items. HPC is a trading arm of and hosted by the Defendant, albeit funded by all the supporting Trusts. It occupies two offices in Birmingham and Stafford.

The Claimant (“Exel”), a part of the DHL group, acquired, following an open procurement, the business of the National Health Service logistics body known as the "NHS Supply Chain". It provides a substantial amount of goods, services and consumables to NHS bodies and at least to some extent, and more particularly in the Midlands area, is a competitor of HPC.

The evidence and information provided in this part of the judgement is taken from the papers before me and is not intended to reflect findings of fact which will be ultimately binding at the final trial of liability. A number of documents were provided to the Court on an agreed confidential basis and I will, accordingly, be circumspect in my findings in relation to such confidential documents.

In about 2009, the Defendant decided to transfer and divest itself of the responsibility for managing and operating HPC. There were a number of reasons for this but the principal one was that the Defendant wanted to achieve Foundation Trust status and, as part of the process of achieving that, it has had to develop an integrated business plan which focussed on the essential or mandatory goods and services which it will be required to provide under the terms of its authorisation from the Independent Regulator of Foundation Trusts. A robust evaluation was required of what its core services should be and the focus had to be on patient care and related core services. Substantial savings had to be achieved in the financial year 2010/11; Mr Townshend, the Defendant’s Chairman identifies a savings target of £25 million. This led to the Defendant determining that HPC could no longer be supported within the current hosting arrangements. There was a genuine belief that HPC could only survive with a significant investment to maintain its current complement of staff (some 65 or 66 individuals) and to manage and administer the current services and business which it undertakes for and on behalf of the other health trusts; it was believed that it had reached a "plateau" in performance and that the level of savings achieved by HPC to date could only be maintained and improved upon with additional investment in staff and information technology. Thus, it was resolved in late 2009 and the programme involved HPC being divested and a new framework agreement for goods and services being established by no later than 30 September 2010. The evidence of Mr Wedgbury demonstrates that there came a time in 2009 when consideration was given to what was to happen to HPC, and the options, in descending order of preference were a limited company wholly owned by NHS Foundation Trusts, a Community Foundation Trust, a Public Interest Company, a limited company privately owned, a public/private Partnership or a special Health Authority. The first option was abandoned for reasons associated with pension costs.

Mr Wedgbury has provided evidence that he held high level discussions with a number of possible joint-venture partners including with the Claimant’s Chief Executive, Mr Aston. No later than early September 2009 contact was made between HPC and the Defendant and HCA International Ltd (“HCA”) a subsidiary of an American group, which had apparently substantial experience of medical and hospital procurements in the USA. There was contact and discussion which continued for the following four months with a view to there being some commercial arrangement between them whereby HCA took on HPC’s activities. The discussions covered pensions and VAT amongst other things. For instance, some information about staff costs was provided in December 2009 by HPC to HCA; other information was exchanged.

In November 2009 at a procurement conference attended by amongst others representatives from HPC and Exel, Mr Wedgbury announced that HPC was exploring a public/private partnership involving HCA and also possibly University College London Hospitals NHS Trusts. There is some difference on the evidence as to whether Mr Wedgbury also noted that this was merely one of a range of options being explored in relation to HPC.

It seems clear that HCA was interested or possibly very interested in reaching an agreement with HPC by early January 2010 and there were discussions about financial models and lists of assets and the like; there was some discussion about terms and agreements. Although it appears that no "deal" was actually achieved in legal terms, it is not possible to determine upon the information put before the Court precisely how far these discussions had gone. There is no direct evidence that there was some sort of "done deal" or that there was some agreement made whereby HCA was to have preferential treatment in the procurement which followed. However, Exel’s solicitors served a Freedom of Information Request on the Defendant on 5 February 2010 raising questions about the relationship between the Defendant or HPC and HCA.

A valuation of HPC was carried out and completed in February 2010; this revealed that any new owner of the business would need to invest over £3 million in information technology and systems and over £4 million per year on staff. On 23 February 2010, the Working Group of Chief Executives from various of the Trusts which subscribed to HPC resolved that a competitive procurement should be undertaken as soon as possible with a view to the Defendant divesting itself of HPC by no later than 30 September 2010. Deloitte MCS Ltd was appointed as an adviser to the Defendant in early March 2010 to run the procurement.

On 11 March 2010, a Contract Notice was published to initiate the procurement process. It was described as a procurement for the "NHS Healthcare Purchasing Consortium: business transfer and framework procurement" and it was to involve a framework agreement with a single operator. The “initial period of the framework agreement [was] expected to be five years, but renewable…for a period of a further five years”. It was estimated that the total value of purchases for the entire duration of the framework agreement was estimated at a cost of between £330 million and £1 billion, exclusive of VAT. The short description of the contracts was:

“II.1.5 This proposed framework agreement is viewed by the contracting authorities as the transfer of responsibility for managing and operating the business of the trading arm of [the Defendant] known as…[HPC]. It replaces existing purchasing arrangements operated by HPC, both of itself and on behalf of the established grouping referred to above; the aggregate turnover of the HPC business (over the 12 month period immediately preceding the date of this notice) is approximately GBP 10,000,000 net of VAT but the potential is considered to exist for considerable growth opportunity.

As part of the transfer, the successful candidate will be required to assume the various business liabilities and ongoing commitments alongside such business opportunities as they emerge from the framework agreement. A number of staff of the contracting authority had been dedicated to the work of HPC, and the successful candidate will be required to employed those staff following the transfer of their employment under the [TUPE] Regulations 2006, as well as to assume the accrued pension liabilities relating to the said staff...It is expected that the liabilities will be transferred via a Business Transfer Agreement, separate from the framework agreement…

The framework agreement itself is accordingly expected to cover key services ensuring the delivery of a solid and sustainable supply-chain solution to the contracting authorities over its entire lifetime…

The framework agreement is initially expected to be for the benefit of an established grouping of NHS contracting authorities including Primary Care Trusts, hospital Trusts, mental health Trusts, NHS Foundation Trusts (of which there are currently 12) and other NHS organisations. This initial grouping of contracting authorities is listed in section VI.3.

It is intended that the opportunity to use the framework agreement will not be restricted to this grouping, but will instead be open to any other NHS Trust or other NHS organisation or NHS institution, any local authority, any other central, regional or local government department, agency or other body within the UK… and any other non-departmental public body to specific procurement requirements might be met through a course to this framework agreement.”

Other relevant parts of the Notice were:

“II.1.9) Variants will be accepted

No

III.1.3) Legal form to be taken by the group of economic operators to whom the contract is to be awarded

If the successful candidate is a consortium, joint and several liability for contract performance or the creation of a distinct legal entity by the members of the consortium may be required for the purposes of the framework agreement.

III.1.4 Other particular conditions to which the performance of the contract is subject

Yes

The successful candidate will be required to do the following, as described in greater detail in section II.1.5 above:

(a)

Take a transfer of relevant staff from the lead contracting authority;

(b)

Assume the accrued pension liabilities relating to the said staff; and

(c)

Take assignments of:

-relevant property interests,

-relevant software licenses (to the extent assignable); and

-assignments of relevant third party contracts…

IV.1.1) Type of procedure

Accelerated restricted: The choice of an accelerated restricted procedure has been prompted by the fact that recourse to acceleration of the restricted procedure (and the timescales ordinarily applicable thereto) is permitted in respect of major public projects until 31.12.2010

IV.1.2) Limitations on the number of operators who will be invited to tender or participate

Envisaged minimum number 5 maximum 10

Objective criteria for choosing the limited number of candidates: The number of candidates proposed to be invited to tender for the framework agreement is considered sufficient to ensure genuine competition.

VI.3) …The contracting authority is procuring on the behalf of itself and, initially, the following grouping of contracting authorities, who are either confirmed as participants or, in a small number of cases, are potential participants. As described in section II.1.5, it will be open to other authorities and private sector businesses within the classes described in section II.1.5 to participate in the framework agreement at such times as they may chose during its lifetime. The initial grouping referred to above is as follows:

[There then is set out the names and addresses of the other health trusts etc together with their addresses]”

As at 31 March 2010 the agreements between all the current HPC subscribers and HPC had expired but 38 of the 39 had agreed to remain with HPC for the duration of the procurement and subsequent due diligence.

On 19 April 2010, five tenderers having pre-qualified including Exel and HCA, they were invited to tender. Relevant parts of the Invitation to Tender are as follows:

It is clear that from an early stage thereafter Exel believed that the information provided in or in connection with the ITT was insufficient. Mr Matthews of Exel’s solicitors talks in his first witness statement of the claimant feeling "that the level of information provided in the ITT was insufficient for the restricted procedure, under which no bidder was permitted to negotiate or vary contract terms and had to submit a detailed and fully priced tender response” (Paragraph 13). Exel raised a number of questions on what was called the Bravo system (online) in which these concerns were raised. Some 51 questions were raised. Exel raised its concerns in a letter dated 12 May 2010 to the Chief Executive of the Defendant:

“…DHL…has serious concerns about the lack of information being provided to us, and we assume all bidders, as to the actual business opportunity being offered and how the contract will operate and with regard to the proposed operating mechanism as to how the appointed supplier will purchase products for use by NHS customers in terms of compliance with the Public Contracts Regulations 2006…

Timescales

…The unreasonableness of the timescales is being compounded by the fact that essential information on structure, contact information, personnel to be transferred, historical data and other necessary due diligence information has still not been disclosed even though we are four weeks into the tender period…

Next Steps

We do not wish you to consider our concerns as any attempt to derail the current process and we are committed to being an active participant in a procurement that we consider as a core and developing business area for DHL. Our concern is that the process is such that we do not feel able to actively participate due to the approach and lack of proper information being provided. This leads us to the [belief] that none of the other bidders can be in a different position and therefore this will result in any adequate or inappropriate outcome for the NHS Trusts involved, or alternatively that another bidder is in a position of having had more detailed negotiations and/or provided with substantially more information in relation to this process (either prior to or during the course of the formal OJEU tender process). You will recall that this was one of our original concerns following comments, including those made by certain HPC executives in a public forum, about a deal having already been done with HCA.

We urge you to take the above concerns seriously and to reconsider the manner in which you are procuring this overall opportunity and the consequent Framework Agreement…”

The Defendant replied on 13 May 2010 indicating that further information was to be made available relating to employment and salary details and that a fuller response would be provided the following week. The tender period was extended by one week to 21 May 2010. Exel replied on 14 May 2010 inviting the Defendant to reconsider the tender period. No further information apparently having been provided, Exel wrote again on 21 May 2010 reminding the Defendant that they were awaiting the more detailed response. On 21 May 2010 the Defendant did reply in detail and extended the tender period to 28 May 2010. The Defendant justified the use of the accelerated restricted procedure tendering and explained that increased levels of information about the staff, the management team, redundancy liabilities and other matters would be made available. In relation to HCA, the Defendant wrote:

“The other main point you make, which again is made in the context of your general observations about lack of information, refers to "a deal having already been done with HCA”. As your letter is offered in "open correspondence" with you requesting that your concerns be made known to the stakeholders of HPC, we are somewhat concerned as to the inference that you have made and the slight that this casts on our working as a Group both in relation to the process and the options appraisal that pre-dated it.

Accordingly, let me disabuse you of this: no deal, of any kind, has ever been done with HCA. Discussions were held with HCA at the behest of the member Trusts and various NHS Foundation Trusts with the intent of the public/private joint-venture might be an option for the business of HPC which is now the subject of this procurement. Jonathan Wedgbury in his capacity as the CEO of HPC made public the fact that HPC was exploring a public/private partnership at a procurement conference in November of last year. The level of information now provided in the context of this procurement (even in the absence of the additional information being made available in response to your various requests) is far greater than ever provided to HCA. We consider that HCA is incapable of deriving any competitive advantage from any prior discussion with HPC if it were minded to participate in the bidding process."

On 28 May 2010, Exel wrote to withdraw from the tender process and it is an important letter because it identifies what its thought process and knowledge was at the time:

“Having reviewed your letter of 21 May, we do not feel that it has improved our understanding of the procurement process, and, indeed, it has instead increased our concern that the procurement itself, and the proposed commercial structure, is fundamentally flawed…

We read with interest the details of the deliberations which took place as to possible future commercial solutions open to [the Defendant] with respect to HPC in the months prior to the procurement process being launched and in particular the discussions with HCA as to possible joint-venture.

As you will be aware your response (and that of most of the HPC member trusts in an identical format) to Freedom of Information requests on our behalf in February and March of this year was that no such discussions were taking place. This raises for us two serious issues.

Firstly, it is apparent that there has been a clearly concerted effort through the FOI process to withhold relevant information about the process being undertaken with regard to HPC and the options appraisal taking place…

Secondly, we would query why, in carrying out a review of options [the Defendant] did not consider it appropriate to involve NHS Supply Chain…

In terms of the accelerated timetable, we stand by our view that HPC has not allowed a long enough tender period. We would like to point out that the 40 days tender period for a restricted procedure is a minimum is counted from the date of issue of tender documents and has to be reasonable in all the circumstances….

You will by now be aware that DHL have not submitted a tender in response to your ITT. We have not taken this decision lightly, but have found that we are unable to do so due to the lack of clarity of requirements, uncertainty in terms of the proposed structure and whether in fact they are legally compliant, as well as the lack of time to resolve these uncertainties prior to the tender close date which you have stated to be immovable.

We will continue to follow the process with interest, particularly the identity of any appointed partner in the terms of the framework agreement, which we believe will be readily available through the FOI process… in order to satisfy ourselves that the opportunity has been procured in a fair manner with the equal treatment being given to all potential bidders, as well as to ensure that the arrangements are ones that are able to be used by the NHS in a legally compliant manner…

…In the meantime, we confirm that we reserve all rights.

In fact, the other tenderers, bar one (HCA) did not submit tenders. There is some correspondence from another tenderer, Buying Solutions, who dropped out on 11 May 2010, had concerns that the requirements of the Business Transfer Agreement were not negotiable. HCA submitted its tender before the extended response deadline. There is clear evidence that this tender was the subject of a detailed assessment undertaken with the assistance of Deloitte and with some legal advice being provided by solicitors, Browne Jacobson. On 11 June 2010 the Chief Executive Officers’ Working Group met and recommended that the contract that should be awarded to HCA, subject to the Defendant Board’s approval. On 15 July 2010, the Defendant wrote to Exel saying that HCA was its “preferred bidder to carry out the Project”; HCA had been awarded a score of 77.2% against the Evaluation Criteria. The Defendant indicated that it would not be entering into a contract with HCA until a period of 10 days from the date of dispatch of this letter had elapsed.

There was no further contact between Exel and the Defendant for about 9 weeks. On 23 August 2010, Exel wrote to the Defendant complaining about the lack of contact, although there had been no hint or undertaking that there would be further contact. That was followed by another letter from Exel on 26 August 2010 asking for information about, amongst other things "the latest state of play". It asked about what was meant by the expression "preferred bidder" in the Defendant’s letter of 15 July 2010 and raised a concern that the Defendant might have embarked upon negotiations with HCA in circumstances in which it was asserted that there should be no negotiations. Complaint was made about the “lack of communication”, “the lack of response to repeated requests to enable DHL to engage directly and transparently with the CEO Working sub-group and wider regional CEO network in the West Midlands region to discuss options as to how NHS Supply Chain… can be utilised within the region and the manner in which the procurement and related matters are being conducted overall.” Five specific items of information were required such as the details of the proposed structure of the "preferred" or actual provider and a full copy of the framework agreement to be or as completed.

The Defendant replied on 3 September 2010 and, purportedly in compliance with the Freedom of Information Act indicated that it needed the "statutory" period of 20 working days from the release of the information, to run from 27 August 2010. Exel replied on 6 September 2010 complaining that 20 days was excessive and asking for the information in a much shorter time period. On 13 September 2010 the Defendant wrote to Exel as follows:

“I am now able to respond to the five points raised by you in your letter to me of [26] August 2010. But first, I make no hesitation in putting on record the fact that this information has not hitherto been provided in no way represents "stalling tactics" on the part of this Trust or anyone else.

That said, I respond to each of the five numbered points as follows:

On 22 September 2010, Exel’s solicitors wrote to the Defendant raising some nine questions, some of which had been raised before. They asked when it was intended that the proposed framework agreement be entered into. They asked about who the agreement was to be with and in particular as to HealthTrust Purchasing Group’s involvement and relationship with HCA. This was not effectively responded to before Exel commenced proceedings. However on 6 October 2010, thereafter, the Defendant’s solicitors wrote to Exel’s solicitors saying amongst other things that the proposed framework agreement was to be with Health Trust-Europe LLP (“HTE”) “a newly-created entity within the same group as HCA International Ltd.”

Since the institution of proceedings, HPC has underachieved both on its cost improvement target and in its trading activities. The Defendant has said that in simple financial terms it can not sustain the level of trading loss reported to it each month by reference to the trading activities of HPC and that without resolution of the current dispute it faces a difficult choice between winding down HPC which would cost, it says, £3 million, and keeping the loss-making HPC going. If it does not make its target of £25 million costs savings, it will not achieve Foundation Hospital status.

Exel issued its Claim in the Technology and Construction Court on 28 September 2010. The Particulars of Claim were not served until 14 October 2010. The claim is based on breach of the Public Procurement Regulations. Six breaches of duty were pleaded in Paragraph 18:

“(1)

Failure to establish the most economically advantageous tender”: this complaint related to the fact that there was only one tender received and evaluated; this was said to be a breach of Regulation 30.

“(2)

Breach in continuing with the procurement”: this is a complaint that having chosen to use an accelerated restricted procedure, in the light of complaints about the lack of information and certainty in its tender documentation, the Defendant should have abandoned the procurement and re-procured.

“(3)

Unauthorised negotiations”: the complaint here is that the Defendant has or must have entered into discussions and negotiations with the successful tenderer after 15 July 2010 “in breach of requirements imposed by the restricted procedure and/or of the principles of transparency, equal treatment and non-discrimination.” This was based at least partly on some of the documents provided to Exel after 15 July 2010. Part of this complaint relates to the fact that the Defendant "held discussions and/or negotiations with HCA and/or HP G prior to commencement of the procurement procedure as is clear from the announcement in November 2009”.

“(4)

Appointment of and/or award to party which did not submit a tender": this relates to the proposal that the contract be placed with THE rather than HCA.

“(5)

Appointment of unlawful central purchasing body”; this complaint stems from a reading of the successful tender and the proposed Framework and Business Transfer Agreements to the effect that the company selected to enter into the framework agreement would act as a “central purchasing body” which is said to be "in breach of the fundamental requirements of public procurement law".

“(6)

Failure to identify contracting parties”: this relates to what is said to be “the Defendant’s attempt to extend the use of the framework agreement to any other NHS Trust, organisation, institution, local authority, central, regional or local government department, agency or other body within the UK”; this is said to be insufficiently clear and in breach of the Regulations because, it is said, that party is entitled to call off under framework agreements should be clearly identified at the outset by name.

Exel sought orders that the Defendant’s decisions to appoint HCA as its preferred bidder and to award the framework agreement to HCA, HPG or HTE be set aside and that the Defendant be prevented from awarding the contract to any one of these three organisations.

The Defendant issued on 29 October 2010 an application for orders that the claim against it be struck out or that summary judgement be entered in its favour. It also sought an interim order bringing to an end the requirements imposed by Regulation 47G (1) of the Public Contracts Regulations 1996 as amended in December 2009. It is this latter application which has been heard before this Court. A substantial amount of witness evidence has been exchanged, including a very substantial amount of documentation.

The 2006 Public Contracts Regulations 2006 have been significantly amended by the Public Contracts (Amendment) Regulations 2009. The relevant provisions of the amended regulations are as follows:

For many years, the Courts of England and Wales have, with regard to interlocutory or interim injunctions, applied the principles and practice laid down in the well-known case of American Cyanamid Co v Ethicon [1975] AC 396. The first question which must be answered is whether there is a serious question to be tried and the second step involves considering “whether the balance of convenience lies in favour of granting or refusing interlocutory relief that is sought” (page 408B). The "governing principle" in relation to the balance of convenience is whether or not the claimant “would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant’s continuing to do what was thought to be enjoined between the time of the application and the time of the trial.”

It is quite clear that, prior to the amendments to Regulation 47 made by the 2009 Regulations (see above), Cyanamid principles were applied in considering whether or not an injunction should be granted to an unsuccessful or discontented tenderer preventing the placing of the relevant contract or agreement by the contracting authority. A good example is the recent case of Alstom Transport v Eurostar International Ltd and another [2010] EWHC 2747 (Ch), a decision of Mr Justice Vos. The Court of Appeal had upheld this approach in Letting International v London Borough of Newham [2007] EWCA Civ 1522.

The issue arises whether these principles apply following the imposition of the amendments to the Regulations. Regulation 47H addresses interim orders which the Court may make in circumstances, where, pursuant to Regulation 47G, the commencement of proceedings, as in this case, has meant that the contracting authority (the Defendant in this case) is statutorily required to refrain from entering into the framework agreement (in this case). In my judgement this is primarily simply a question of interpretation of Regulation 47H. Regulation 47H(1) gives the Court the widest powers in terms of what it may do with regard to entering into contracts. It is in Regulation 47H(2) that one finds what exercise the Court "must" do: it must consider whether, if regulation 47G(1) was not applicable, “it would be appropriate to make an interim order requiring the contracting authority to refrain from entering into the contract”; it then goes on to say that it is "only if the Court considers that it would not be appropriate to make such an interim order may it make an order under paragraph (1)(a)”. This is saying in the clearest terms that the Court approaches the exercise of interim relief as if the statutory suspension in Regulation 47 G(1) was not applicable. That means that one does not as such weight the exercise in some way in favour of maintaining the prohibition on the contracting authority against entering into the contract in question. What in practice it means is that the Court should go about the Cyanamid exercise in the way in which courts in this country have done for many years.

It is said that the Court should interpret national legislation, including Regulation 47, in the light of the wording and purpose of the Remedies Directive, 2007/66/EC, which in part at least, led to the 2009 Regulations. This Directive amended earlier Council Directives and was much concerned with establishing an effective standstill period between the submission of tenders and the entering into the relevant contract. That is not the problem here. The 2009 regulations extend the standstill period simply by the claiming tenderer issuing and serving proceedings; that has the advantage of involving the court which can then review what has happened to determine whether there is an actionable complaint and, if so, what to do about it. The revised Article 1 requires measures to be taken "to ensure that…decisions taken by contracting authorities may be reviewed effectively and, in particular, as rapidly as possible…” Article 2(1) says that measures should be taken in connection with the review procedures to provide powers to

In reality, however, whether one adopts a strict Cyanamid approach or not probably matters little in many procurement cases. If the claim made by the tenderer was so weak as not to amount to a serious claim, it would be inevitable in most cases that the balance of convenience and discretion of the Court would militate against granting or maintaining the relief. Ms Hannaford QC, rightly, at least accepted that the relative strength or weakness of the claim should be taken into account by the Court exercising its discretion and powers under Regulation 47H. It would be an extraordinary state of affairs if any English, let alone European, Court was bound to order the contracting authority not to enter into a contract if the claiming unsuccessful tenderer’s case was very weak or groundless. As Mr Justice Vos said in the Alstom case (at Paragraph 80), the public interest can be taken into account on a consideration of the balance of convenience. One important feature of this is that there is a public interest in securing valid and properly executed public procurements. However, that aspect of the public interest does not have, necessarily, an overriding impact.

Regulation 47C provides that a breach of the duty owed by the contracting authority to comply with (virtually every one of) the Regulations is actionable by any economic operator which "in consequence, suffers, all risks suffering, loss or damage.” Regulation 47D lays down time limits for proceedings to be started in respect of any such breach of duty, namely that "proceedings must be started promptly and in any event within three months beginning with the date when grounds for starting the proceedings first arose." However, in interpreting that Regulation, regard must be had to Case 406/08 Uniplex (UK) Ltd v NHS Business Services Authority [2010] PTSR 1377, a European Court of Justice case, which decided the time should not begin to run until the date on which the claimant knew or ought to have known of the relevant infringement of the regulations. This was considered and applied in the case of Sita UK Ltd v Greater Manchester Waste Disposal Authority [2010] EWHC 680 (Ch) which involved an application by the defendant to strike out a procurement case on the ground that it was time-barred. Mr Justice Mann in that case considered that the "promptness" test was contrary to the provisions of Directive 89/665 (Paragraph 27). In effect, he held that the time period was three months from the time when the claimant knew or ought to have known of the alleged infringements of the regulations, subject to there being good reason for extending the period further. As a matter of logic, if and to the extent that there was a strong case that a claim was statute barred, that would go to undermine the proposition that there was in Cyanamid terms a serious issue to be tried; this is a view supported by Mr Justice Vos at Paragraph 91 of his Alstom judgement.

Finally, Lord Justice Moore-Bick, with whom the other members of the Court of Appeal agreed, said in Regina (Risk Management Partners Ltd) v Brent London Borough Council [2010] PTSR 349 at Paragraph 250:

“…a failure to comply with the procedure at any stage inevitably undermines the integrity of all that follows. Accordingly, the right of action is complete immediately and cannot be improved upon by allowing the procedure to continue to a conclusion. Where there has been a failure to comply with the proper procedure, the later award of the contract does not constitute a separate breach of duty; it is merely the final step in what has already become a flawed process."

I bear in mind that the appropriate test therefore is the Cyanamid test and that the “serious issue to be tried” step of the test is different from the summary judgement or striking out requirement. I do not therefore need to decide as such that there is or is not any realistic prospect of success.

I must first observe that from the time when Exel dropped out of the tender process, which was no later than 28 May 2010 until the time when it started proceedings a period of some four months had elapsed. It must therefore follow that any cause of action under the Regulations for any matters about which Exel actually had knowledge or ought to have known prior to 28 June 2010 is and will be time-barred. Thus, Exel’s complaints that there was a breach in continuing with the procurement by reason of a lack of information and certainty in the tender documentation and that there was a failure to identify the contracting parties may well be time-barred. The given reason for Exel’s dropping out was the lack of information and certainty in the tender documents; it obviously knew about that, to the extent that it is a valid complaint at all. With regard to the complaint about the identity of the contracting parties, it was clear from the express terms of the Contract Notice that the opportunity to use the framework agreement would not be restricted to the established grouping of NHS contracting authorities. Exel had known about that since March 2010.

I raised with Counsel the apparently logical difficulty of whether it was open to Exel to raise causes of action or breaches of duty which arose after it had dropped out of the tendering process, with a distinction to be drawn between such breaches as had occurred before the dropping out (albeit no or inadequate information about them was available to Exel) and breaches of the Regulations which actually occurred thereafter. Exel is under the Regulations a "services provider" type economic operator within the meaning of Regulation 4. As far as the definition of "services provider” is concerned, Exel is a person which offers on the market services and who arguably "would have wished…to be the person to whom a public services contract is awarded". It is difficult to see that Exel was a person who after May 2010 sought or seeks to be such a person, having dropped out; it has put itself in the position, by dropping out, where it can never be the person to whom that contract in those terms was awarded. The definition however of “services provider” meaning a person "who would have wished" to be the person to whom the contract was awarded can not refer to any one who might simply theoretically have wanted to secure the contract; from the standpoint of a purposive interpretation, the definition must envisage a party which goes a significant way down the road of putting itself in a position in which it can tender or at least pre-qualify to tender. After and because it dropped out, I can not easily see that Exel would thereafter have wished to be the person to whom this contract in this form was awarded; it expressly did not wish to be considered. I can see however that, until it dropped out, Exel in this case could be considered as a "services provider”. However, I see some difficulty in Exel establishing that it continued to be a "services provider" thereafter. The duty referred to in Regulation 47A, at least generally, must relate to an economic operator at the time that it is an economic operator rather than five years before or three years after it was an economic operator. This is supported by Regulation 47C which envisages that the breach of duty is actionable by an economic operator which in consequence of the breach of duty suffers, or risk suffering, loss or damage. If an economic operator drops out of the tendering process for good or bad reason, it is difficult to see that it suffers or risks suffering loss or damage as a result of any breach of duty occurring after it dropped out. It may of course have a perfectly good cause of action if breaches of duty occurred before it dropped out, whether it knew about them or not. The knowledge of the economic operator in relation to the breaches is something which goes to the limitation period and not to the underlying actionability of the breaches.

This does not of course mean that information which comes to light after the dropping out can not be deployed to support the case for any breach of duty which in truth occurred before. An example might be that, if it was the case that there was before the tender invitation a mutual understanding or agreement between the Defendant and HCA that HCA would secure the framework agreement, and if the information about that emerged some months after Exel dropped out, then there would presumably have been a breach of the Regulations before Exel dropped out which could be pursued by Exel against the Defendant.

In respect of the complaint that there was a failure to establish the most economically advantageous tender because there was only one tender, I doubt whether this could or would give rise to a serious issue. Provided that all the relevant rules have been followed in setting up the tender process, I can not see that, merely because one tenderer alone is prepared to submit a tender and the contracting authority decides legitimately that it is a compliant and acceptable tender, this gives rise to a legitimate complaint under the Regulations. There is nothing specifically in the Regulations which legislates or even recommends against it. It is argued that, if only one tenderer submits a tender, it can not be accepted because it is not "the most economically advantageous” (assuming that is the basis, as here, for the tendering process). Regulation 30 sets out criteria to be taken into account for the award of public contracts and there is nothing which hints or suggests that, in the relatively unusual circumstances of only one compliant tender being submitted, the procurement exercise must be repeated. The criteria include by Regulation 30(2) “quality, price, technical merit, aesthetic and functional characteristics, environmental characteristics, running costs, cost effectiveness, after sales service, technical assistance, delivery date and delivery period and period of completion.” There is no obvious reason why a single tender which is compliant with the Invitation to Tender documentation can not fulfill these criteria. The argument from Ms Hannaford QC is that it simply cannot be economically advantageous for a contracting authority to accept the only compliant tender. There is no logic in that. It might of course be the case that the single tenderer puts in such ridiculously high prices or running costs that the contracting authority may well think that it is not advantageous to it economically for it to enter into a contract on the basis of that tender. It may, however, conversely be the case that the single compliant tenderer may have a legitimate cause for complaint if its tender is not properly evaluated and considered and, if otherwise acceptable, accepted.

The complaint about "unauthorised negotiations” breaks down into two parts, the first in time being a complaint that the Defendant’s discussions and/or negotiations with HCA or its associated companies gave them an unfair advantage, distorted competition or breached the principles of equal treatment and transparency. Given the terms, scope and timing of those discussions or negotiations over the five months period prior to the Defendant’s decision to go down the open procurement route, and bearing in mind some of the confidential information with which I have been provided, I have formed the view that there is a serious issue to be tried in this context. The Defendant unsurprisingly emphatically denies that any of these discussions or negotiations in any way impacted on or have affected the fairness or transparency of the procurement process but the Court at this stage simply can not determine the issue and, indeed, it would be inappropriate to do so, particularly in circumstances in which there has not yet been full disclosure of documents in the continuing litigation.

The second sub-complaint is that post-tender there were material negotiations with the successful tenderer. I can see that there can be no root and branch objection to there being some negotiation and discussion in finalising and formalising the terms of the agreements to be entered into. For instance, if a compliant tender is being accepted and is to be incorporated by one means or another in the Agreements, there might legitimately be what might be termed "negotiations" as to the wording. In those circumstances, no real complaint could be made. Ms Hannaford QC refers to and relies on the Statement of the Council and Commission dated 14 June 1993 which is, however, not in any way binding; it suggests that all negotiations with tenderers should be limited to "clarifying or supplementing the content of the tenders or requirements of the contracting authority”. One needs however to determine what the Statement means by "negotiations". However, negotiations which go beyond incorporating the terms of a compliant tender so as to introduce substantial and significant new terms into the Framework and Business Transfer Agreements (in this case) could well offend against the Regulations at least for the reason that it could be said there will have been no public procurement exercise in respect of the substantially different contract which is ultimately entered into. What are "substantial" and "significant" terms would vary from case to case but terms which materially alter the basis or the type of contract envisaged by the tender documentation and which would or could well have had a significant impact on the actual tendering process may well fall into that category. I have not been able to form a view from the information before this Court as to whether the proposed or possible amendments to the Agreements are in truth substantial and significant or go beyond incorporating the terms of an acceptable compliant tender. However, I can see that both sides’ diametrically opposed positions on this issue are reasonably arguable.

That said, it may well be that the complaint about "unauthorised negotiations” in so far as it is said to give rise to a post May 2010 breach of duty will fall foul of my misgivings as to whether Exel has an effective cause of action in respect of that period. Certainly, on my analysis, the "negotiations" can legitimately be deployed to support the assertion that the pre-tender discussions and negotiations between the Defendant and HCA or its associates gave rise to a procurement process which breached the Regulations.

The complaint that the Agreements are to be entered into with an associated company of HCA as opposed to the company which actually tendered is, in my judgement, not a strong one. It is not uncommon in the corporate world for a special purpose vehicle to be deployed to perform a given contract. It is not (yet) suggested that HTE will not be adequately financially supported by its parent or associated companies.

The next complaint is that the Defendant intends to appoint an unlawful "central purchasing body”. If that was the case, it would or could offend against the Regulations. Given the definition of "central purchasing body" (see Regulation 2 above), it does not appear that the party to whom the Agreements will be awarded will be a "contracting authority". It is unnecessary to analyse the proposed terms of the tender. I do not see however that, even on the latest versions of these draft Agreements, that party will perform this function. I do not see that specific products or services will be purchased in the absence of further individual procurements. At least part of the argument before the Court has related to the fact that the tenderer made proposals for incentives to be given to subscribers to the Framework Agreement to use the tenderer’s services exclusively. However that was identified in the Invitation to Tender as something to be taken into account by tenderers and the information made available to tenderers. It is also questionable whether one should take into account a snapshot of the draft contract during negotiations or discussions between the Claimant and the successful tenderer because it may or may not be in the final form.

There is a separate cause of action pleaded that there was an implied or tender contract between the parties pursuant to which the Defendant was obliged to treat the Claimant fairly, equally and in a non-discriminatory way and to act transparently. I find it difficult to see that there was an implied contract particularly in circumstances in which there is a statutory framework, via the Regulations, which sets out a statutory relationship in effect between contracting authorities and economic operators. In any event, I do not see this alternative plea adds anything.

In summary, I can see and accept that there is a serious issue to be tried in relation to the complaint about the pre-tender history as between the Defendant and HCA and its associated companies. As for the rest of the complaints and based upon the information put before the Court, I have formed the view that they do not give rise to serious issues and are at best weak.

I have already indicated that the public interest is something which in appropriate cases, such as this, needs to be weighed by the court in the balance of convenience exercise. That public interest includes the desirability of ensuring fair and transparent procurement processes by contracting authorities as well as other areas of public interest. In my judgement, one important area of the public interest is the efficient and economic running of the National Health Service. In these times of economic difficulties and constraints, there is massive pressure on the different arms and parts of the NHS to make savings. One main area is and must be the procurement of medical goods, drugs, equipment and services. It is not for the Court however to determine how the different parts of the NHS must achieve efficient and cost saving procurement.

In my judgement, the Defendant has clearly established an urgency for this procurement exercise to go ahead. The agreements between the subscribing bodies and HPC expired in March of this year and it is only being kept alive on a temporary stopgap basis. There is clearly likely to be a significant feeling of insecurity amongst the staff of HPC at the continuing uncertainty of what is to happen to HPC. There must be a very real risk that subscribers will drop out and that will either lead to the demise of HPC or to the intolerance of unaffordable expense by the remaining subscribers, expense which they may well not be able to afford given the current round of financial cuts. The continuing uncertainty engendered by a continuing suspension of the award of the Framework Agreement will necessarily impact upon the Defendant’s plans and desire to become a Foundation Trust hospital; it seems to be accepted, rightly, that the achievement of Foundation status is regarded as good for the hospital in question as well as for the patients.

If the suspension is not lifted, the earliest realistic time at which a full trial can take place following an exchange of disclosure, witness statements and possibly expert evidence would be in the Spring of next year with a considered judgement not being produced much before May or June 2011. This timing may well be optimistic. If Exel fails ultimately at trial, 8-9 months of time or more would have been wasted. If it succeeds, they would have to be a new tender process which could well take another 6 to 8 months up to award of contract. Thus, well over a year of delay will have occurred.

I am wholly satisfied that the damages would be an adequate remedy in this case. It is now fairly well established that a claimant who successfully challenges a procurement exercise will be entitled to damages, usually calculable on a lost opportunity or chance basis, not dissimilar to that referred to in Alllied Maples v Simmons & Simmons [1995] 1 WLR 1602, albeit that case is related to solicitor’s negligence. It is immaterial in considering whether damages would be an adequate remedy that the damages may not be in a substantial amount. The damages will be whatever they will be. On the matter which gives rise to the serious issue to be tried, what Exel will have to do is to demonstrate on the evidence that it would have behaved or would at least have had the opportunity to behave differently. Thus, if HCA was excluded from the tender process, one needs to determine whether Exel would have done any differently to what it did do, namely drop out. The answer might be in the affirmative in which case the Court will have to determine the percentage chance which it would have had in securing the contract. That may be anything between, say, 10% and 90%. One then applies the percentage to whatever would have been earned by way of profit over either the 5 or 10 year period which this agreement would or may have run for. There may have to be some credits to be given, for instance to reflect, the additional work Exel has taken on or is likely to take on because it has not succeeded in securing this particular contract and a financing credit to reflect the receipt of damages for loss of profit earlier than the profit would have been earned. However, this is all readily assessable by forensic accounting experts. If the position is found to be that Exel would still have dropped out even if HCA was excluded from the tender, then Exel would probably be entitled at least to its wasted costs of tendering on the allegedly unequal playing field.

Ms Hall who has given evidence for Exel raises some points to seek to demonstrate that damages are an inadequate or ineffective remedy. I will deal with each of these in turn other than the difficulty of quantifying the losses, dealt with above:

There has been a substantial amount of evidence, primarily generated by the Defendant, to the effect that Exel is incompetent, its business is anachronistic and it does not deliver value for money in its current contracts. This is unsupported by independent evidence of any value and is, unsurprisingly challenged by Exel’s witnesses. I am not in a position to decide on this contested evidence. In any event, I am not convinced by any means that it goes to any meaningful issue on this application. Similarly, it is suggested that the Department of Health expressed concerns about the procurement exercise. While some of the correspondence has been disclosed on this topic, albeit not all, I do not see that this adds to the strength or weakness of the complaints made by Exel. There has been other evidence or assertion about each party's motives; for instance, it is suggested by the Defendant that Exel’s motives are not altruistic or are based on anything other than keeping or increasing its market share. Again, this evidence is disputed and I can not decide on these differences of evidence.

I also take into account that, in my judgement, at least five of the six complaints are weak if not wholly unsustainable.

In my judgement, this is a case where pursuant to Regulation 47H(1) where the requirement imposed by Regulation 47G(1), namely that the Defendant refrain from entering into the Framework and Business Transfer Agreements, should be brought to an end.