Procurement – challenging a below-threshold procurement post-Brexit

Adferiad Recovery Limited v Aneurin Bevan University Health Board

In the case of Adferiad Recovery Limited v Aneurin Bevan University Health Board [2021] EWHC 3049 (TCC) the High Court considered whether an unsuccessful bidder was able to bring a procurement challenge against a contracting authority where the contract was stated to be below threshold and the service was unlikely to be of cross-border interest. The judgment confirms that the widely recognised general principles of EU law (e.g. transparency and equal treatment) do not apply to the conduct of below threshold procurements in the UK but leaves some doubt as to whether that will be the case if it can be shown that the contract is likely to be of interest to providers in EU member states.

Case overview

The Defendant, a local health board in Wales, ran a procurement for the award of a contract for a “pilot scheme” for the provision of Sanctuary Services (“the Procurement”). The aim of the service was to provide a non-accommodation safe space for people experiencing a personal, emotional or early stage mental health crisis in the community.

The Claimant, a registered charity that provides services for people in England and Wales with mental health problems, substance mis-use problems and co-occurring complex needs, was unsuccessful in the Procurement. The Claimant subsequently brought a claim against the Defendant. Its claim relied on (1) a right of action pursuant to regulations 89 and 91 of the Public Contracts Regulations 2015 (“the PCR 2015”) (2) principles of retained EU law and (3) breach of the terms of an implied tender contract. The Defendant sought summary judgment on the basis that none of these obligations were binding on it in relation to the Procurement.

1. Application of the Public Contracts Regulations 2015

The first issue was whether the value of the Procurement was at least equal to the applicable thresholds set out in regulation 5 of the PCR 2015. If the value was equal to or above the applicable threshold, the Claimant would have a right of action for breach of duty under the PCR 2015 because the Procurement would fall within Part 2 of the PCR 2015. Therefore, the issues to be determined were (1) what was the value of the Procurement and (2) what was the applicable threshold?

The figure specified for the budget in the Procurement documents was £122,000. However, the Claimant argued that on a true construction of the Procurement documents, no total price was indicated and no fixed term was provided for the contract. Therefore, the Claimant submitted that the case fell within regulation 6(19)(b) of the PCR 2015[1] and the value of the Procurement was in fact £488,000 ((£122,000 ÷ 12) x 48).

The Court held that the Procurement Portal used by the Health Board would be considered a “procurement document” under the definition set out in regulation 2(1) of the PCR 2015. This was significant as the Portal home page showed the contract duration as 12 (which was held could only mean 12 months) and it also plainly stated that the estimated value of the contract was £122,000. The Contract Notice also stated the “Total quantity or scope of tender” to be £122,000. The Claimant’s argument that it was in their view common market practice for pilot schemes to be extended beyond the pilot phase if they were proven to be successful was found to have no weight where the Court’s role is to assess what a “reasonably well informed and normally diligent tenderer” would have understood from the procurement documents rather than to consider what any individual bidder understood or expected would happen. As such, the Court held that £122,000 was the value of the Procurement for the purposes of determining if it was above or below the relevant threshold.

For completeness, the judge went on to consider the applicable threshold which applied to this tender in case he was incorrect about his conclusion that the correct value of the Procurement was £122,000. The Court undertook a detailed analysis of the relevant CPV Codes and concluded that the main subject matter of the Procurement fell within the scope of the social and other specific services listed in Schedule 3 to the PCR 2015. The judge recognised that there was not a specific CPV Code for the exact service in question, namely “support to individuals experiencing crisis with the aim of preventing the onset of mental health illness requiring clinical intervention” but confirmed that in that case, the contracting authority should find the CPV Code(s) most appropriate to what was to be within the scope of the contract. He found that the appropriate code was that which covered “social work services without accommodation” and that this was a code that fell within Schedule 3 of the PCR 2015 (the “light touch regime”). Therefore, the relevant threshold to be applied was £663,540. As such, even if the value of the Procurement was £488,000, it would still have been below threshold and therefore a procurement that was not governed by Part 2 of the PCR 2015.

Contracting authorities should make it clear in the procurement documentation (1) what the estimated value of the contract is and (2) the term of the contract. Clarity as to the length of the contract term in tender documents will avoid the argument that a stated monthly or annual value should be extrapolated across 48 months, as per regulation 6(19) of the PCR 2015.

2. General principles of EU retained law

As the Procurement fell outside Part 2 of the PCR 2015, the Claimant could also not bring a claim for breach of retained EU law obligations. In this respect, regulations 89 and 91 provide that claims can be brought for breach of retained EU law obligations but only in relation to any procurement that falls within the scope of Part 2.

Nevertheless, the Claimant submitted that the Defendant was still subject to the general principles of retained EU law in the conduct of the procurement, namely equal treatment, transparency, non-discrimination, non-arbitrariness, proportionality, good administration, procedural fairness, and the protection of legitimate expectations (“the General Principles”).

The Court considered the relevant legislation in detail and concluded that it expressly precluded General Principles from grounding a challenge in UK domestic law. This was on the basis of the wording of paragraph 3 of Schedule 1 of the European Union (Withdrawal) Act 2018 and on the provisions of the Freedom of Establishment and Free Movement of Services (EU Exit) Regulations 2019. It held that the General Principles can serve as a form of interpretative rule as regards any question concerning the validity, meaning or effect of any retained EU law, but are not enforceable under domestic law of themselves.

The Court therefore held that the Claimant’s claim which was based squarely on General Principles was untenable.

What is not entirely clear from the judgment is what the Court is likely to do in situations where a contract is below threshold, but is still of potential cross-border interest. The Court in the Aneurin Bevan case concludes that the General Principles will never be enforceable in domestic law. However, it then goes on to consider whether, if that conclusion were wrong, the fact that in this case the contract was not viewed as of potential cross-border interest (i.e. of interest to providers in EU member states) would be another reason to find General Principles not to be applicable. It concludes that the General Principles could only ever regulate domestic procurements where there is at least a realistic prospect of cross-border interest, that there was no such realistic prospect in relation to this procurement (although the reasons for this conclusion, beyond the “nature of the services and the value of the contract” are not given) and that this provides a further reason why the General Principles would not apply.

The message we take from the judgment is that it is at least possible that a below threshold procurement run in the UK might be subject to General Principles if the contract is of potential cross-border interest. Contracting authorities would be safest to consider this question and document the conclusions prior to taking steps to award a below threshold contract. In practice, however, most public bodies’ internal contract rules will require some form of advertisement for all but the lowest value below-threshold contracts. If these rules are complied with, and they enable compliance with the established position in relation to below threshold, cross-border interest contracts before Brexit which was that they should be subject to “a degree of advertising sufficient to enable the services market to be opened up to competition and the impartiality of the procedures to be reviewed”[2], then the risk of a successful challenge will be significantly reduced.

3. Express or implied contract governing the conduct of the Procurement

The Claimant submitted that the Defendant’s Invitation to Tender and the Claimant’s submission of a tender gave rise to an implied contract that included terms that the tenders submitted would be evaluated fairly, in good faith, in accordance with the tender procedure set out in the tender documentation, and that the assessment would be free from any manifest error.

Continuing the long-running trend of the courts not wanting to find the existence of onerous contractual terms between the parties running and bidding in a procurement, the Court in this case found no contract to exist at all. The Court considered the key case on implied tender contracts, Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council[3], and noted that contracts are not lightly to be implied and that a contract will not be implied unless the facts show that both parties intended to create contractual relations.  In this case, the tender documents expressly excluded any intention to create contractual relations (which is a key requirement of any contract formation) and so no contract was found to exist.

Contracting authorities would be well placed to consider including wording such as that used by the Health Board in this case to seek to limit the risk of a claim for breach of an implied tender contract being pursued.

If you would like to discuss this topic in more detail, please contact Fran Mussellwhite, Partner or Victoria Croshaw, Solicitor.

[1] Regulation 6(19)(b) of the PCR 2015 provides that in the case of contracts without a fixed term or with a term greater than 48 months, the monthly value is multiplied by 48 to calculate the total value of the contract.

[2] Telaustria Verlags GmbH v Telekom Austria AG (Case C-324/98)

[3] [1990] 1 WLR 1195