A Warning to Contracting Authorities: Beware of the Consequences of Being Unfair to Incumbents

Civil penalties, a reduction of the contract length and an award of damages to the claimant. These remedies send a clear message; all contracting authorities should abide by the laws and principles set out in the Public Contracts Regulations 2015 (PCRs), otherwise they run the risk of sizeable financial consequences. In this blog, we delve into the facts and ruling of a High Court judgment and provide our thoughts on the important warning it conveys.

If readers would like to read the judgment in full, please use the following hyperlink: Consultant Connect Limited v NHS Bath and North East Somerset, Swindon and Wiltshire Integrated Care Board, NHS Gloucestershire Integrated Care Board, NHS Bristol, North Somerset and South Gloucestershire Integrated Care Board v Monmedical Limited (t/a Cinapsis) [2022] EWHC 2037.

Brief background

The claimant (Consultant Connect Limited) had existing contracts to supply communication services to the NHS. It had three contracts with NHS Trusts in the Bath area, which were due to end on 31 March 2021. Cinapsis, an interested party in this case, had an existing contract with NHS Gloucestershire, which was due to expire in April 2021.

Due to the ban of pagers within the NHS in 2019, there was a need for updated communications systems. In November 2020, the three defendants (NHS Gloucestershire, NHS Bath and NHS Bristol) decided to pursue a joint procurement for these services. It was noted that NHS Bath had an incumbent supplier (the claimant), which was not on the framework they intended to use. Therefore, a virtual product demonstration was arranged for 20 November 2020, inviting Cinapsis, the claimant, and another supplier from the framework. Following the demonstration, negotiations took place between the defendants and Cinapsis, which ultimately resulted in the contract being awarded to Cinapsis in March 2021.

Main takeaways

There are numerous noteworthy points from this judgment, and we recommend reading the judgment in full. However, we have summarised three key points below:

1. Importance of equality and transparency principles

Judge Kerr concluded that the ‘framework was not operated transparently and even-handedly’ as was necessary under the PCRs. Early November 2020 was the tipping point in this case. From that date onwards, the defendants had acted in a way which favoured Cinapsis. Some examples of behaviour stipulated in the judgment as being preferential to Cinapsis include:

• on 9 November 2020, an employee of NHS Bath was told that Cinapsis was the “preferred supplier”;
• a few days before the product demonstration, Dr Gerald (an employee at NHS Gloucestershire) appeared at a Cinapsis sponsored event;
• on 20 November 2020, at the product demonstration, the claimant did not know that its performance was being scored, nor what the scoring criteria were;
• following the product demonstration, Dr Gerald provided Cinapsis with information relating to the long-term vision and goals of the three defendants, which was beneficial to its future negotiations with the Trusts;
• the defendants chose to award the contract using a framework which the claimant was not on; and
• the specification was drafted to effectively guarantee that Cinapsis would win.

As such, the court held that the framework was used as a ‘shield to justify the exclusion of [the claimant] and others’. This is a breach of the PCRs, and a clear example of contracting authorities artificially narrowing competition. All contracting authorities need to be mindful of how they treat incumbent suppliers, ensuring that the procurement process remains, in so far as possible, fair and transparent for all parties, neither favouring nor disfavouring any of them.

Further to this, the defendants asserted that there was a valid mini-competition with only one competitor. Judge Kerr noted even though this proposition was ‘valiantly’ defended, he did not accept this argument. It is not acceptable to only invite one bid. Furthermore, the competition itself was fake as the defendants tailored the requirements to favour Cinapsis. Thus, contracting authorities need to create genuine transparent competition, by producing generic non-discriminatory requirements, as attempting to mask a direct award with a mini-competition is likely to be challenged.

2. Prevent conflicts of interest

Concerns were raised by the claimant relating to the bias of members of NHS Gloucestershire, and the potential for a conflict of interest. At the outset, there was no conflict of interest, and members of the team recommended that Dr Gerald should not be included in the procurement process to maintain this; however, this sensible approach was not continued after November 2020. As mentioned above, Dr Gerald had a clear desire for Cinapsis to win the contract, and the court found this amounted to ‘considerable organisational bias’. Therefore, contracting authorities should be aware of these risks and actively guard against this, through implementing and obeying internal conflict policies and instituting ethical walls.

3. Significant financial repercussions in the case of breach

As alluded to in the introduction, the various remedies awarded in this case must be considered, in particular given this is believed to be the first case where the High Court has awarded civil penalties. NHS Gloucestershire was handed a GBP10,000 civil penalty, as it exhibited the worst breach of duty. NHS Bath and NHS Bristol received civil penalties of GBP8,000 and GBP4,000 respectively. This is a clear deterrent to contracting authorities who are considering side-stepping the law. In addition to the civil penalties, the contract with Cinapsis was shortened by 14 months, meaning it will expire at the end of January 2023. Finally, the court was satisfied the breaches were sufficiently serious to warrant an award of damages to the claimant. At a time of financial hardship, with public bodies having limited budgets, it is crucial to be alert to the issues raised in this case and refrain from such behaviours.

Conclusion

In conclusion, this judgment is important and highlights the extent to which the courts will go to uphold a non-discriminatory and fair procurement. It does not matter that the contracting authorities were acting honourably and were seeking the best outcome for the NHS; their actions upset the level playing field they were required to create for all potential suppliers by discriminating against an incumbent supplier. Where their actions are at the expense of other parties and adherence to the law, the court will seek to remedy this through financial penalties and other remedies it deems appropriate.