Procurement in a nutshell – Supreme Court limits CAs’ exposure to damages claims

Prior to the settlement agreement, the Supreme Court heard the NDA’s appeal against two separate decisions of the High Court in Nuclear Decommissioning Authority v EnergySolutions EU Ltd [2017] UKSC 34.

This update looks at the ruling of the Supreme Court regarding two matters which will be of interest to contracting authorities:

• the application of the Francovich test of “sufficiently serious” to damages claims under the Public Contracts Regulations (PCR) 2015; and
• whether filing a claim outside of the standstill period, after the public contract in question has been entered into, affects a claimant’s entitlement to damages.

The Francovich condition – “sufficiently serious”

The Supreme Court considered where a breach of the PCR 2015 has been established, if the court has discretion as to whether or not to award damages.

The NDA contended that any award of damages was at the discretion of the court. The argument was based on the decision of the Court of Justice of the European Union in Francovich v Italy (Case C-6/90), which established as a condition for an award of damages in the EU that the breach must be “sufficiently serious”.

In the view of the Supreme Court, the Francovich condition is a minimum standard at EU level, providing domestic legislators with the ability to take a less restrictive approach to awarding compensation.

The Supreme Court ruled that there was a clear intention on the part of the UK legislator not to “gold plate” the provisions of the EU procurement Directive.

Therefore, a breach of the UK procurement regulations must be “sufficiently serious” to merit an award of damages. This is a matter for the court to determine, taking into account the following:

• the clarity and precision of the rule breached;
• the measure of discretion left by that rule to the CA;
• whether the infringement and the damage caused was intentional or involuntary;
• whether any error of law was excusable or inexcusable;
• the fact that an EU institution may have contributed towards the omission; and
• the adoption or retention of national measures or practices contrary to EU law.

Making a claim after the public contract has been made

The NDA also argued that ATK had failed to mitigate its loss by deciding not to issue a claim form until after the NDA had entered into the contract and it therefore should be prevented from making a claim for damages.

The Supreme Court disagreed with this view, stating that an economic operator cannot be said to have acted unreasonably in failing to stop the CA from perpetrating a breach of duty which the authority could itself stop perpetrating.

A bidder will therefore not be prevented from making a claim for damages where they have not invoked the relevant provisions on automatic suspension.

Why is this important?

The Supreme Court’s judgment has provided a definitive position on the availability of damages where a claim has been brought outside of the standstill period.

The confirmation is better news for procurement challengers than CAs. It affords challengers the opportunity to seek redress while avoiding exposure to the risks associated with the possibility of their challenge to the contract award failing.

On the other hand, the decision of the Supreme Court is significant as it effectively limits the exposure of CAs to damages claims for procurement rule breaches.

The award of damages as of right would have presented the likelihood of CAs facing damages pay-outs for minor or trivial breaches of the procurement rules.

The requirement that a breach be “sufficiently serious” will help to filter out such claims by imposing a minimum threshold which a challenger must establish.

Of course, the best safeguarding for a CA is compliance which seeks to avoid any possible breaches of the procurement regulations.

How can I find out more?

If you have any queries on the issues raised or on any aspect of procurement, please contact us via our procurement hotline on 0191 204 4464.