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Monday, December 20, 2010

Pressing "play" after hitting the "pause button"

Among the material I subscribe to for procurement law developments is the excellent "Law-Now" series available by registration from CMS Cameron McKenna LLP, a UK-registered law firm.

A recent CMS Cameron McKenna Law-Now article deals with the "pause button" mentioned in this prior post: Hitting the pause button on procurerment. This concerns the mechanisms by which various procurement regimes try to maintain an interim status quo to allow a review of a procurement controversy.

As with other posts in this blawg, I quote from the article in excerpts, often re-arranging and editing the content; you should always click the link and read the source article in full for a complete and authentic understanding.

The procurement in issue in this case discussion involved the provision of cleaning services to a large vocational educational institution.

High Court lifts automatic suspension in procurement case

In the first case of its kind under the new public procurement remedies rules, the Public Contracts Regulations 2006, as amended by the Public Contracts (Amendment) Regulations 2009, the High Court has lifted an automatic suspension of entry into a contract. Under the new rules when a disgruntled bidder issues and serves a claim form prior to contract signature, the contracting authority is automatically prevented from entering into the contract. It is then incumbent on the contracting authority to apply to court to lift the automatic suspension.

The Court treated the application as though it were an application for an injunction and applied the American Cyanamid test. The Court looked at whether: (i) there was a serious issue to be tried; (ii) damages would be an adequate remedy; and (iii) the balance of convenience lay in keeping the suspension in place.

Based on the balance of convenience (or the balance of “irremediable prejudice”), the suspension was lifted. The judgment is interesting in a number of respects.

The Court concluded that it would “substantially emasculate” the effect of the new regulations if they required the claimant challenging the award to establish that it would have been awarded the contract, but for the defects in the procurement process. The Court therefore concluded that the proper test was whether, by reason of the defects in the process, the claimant has lost a “more than fanciful” chance of obtaining the contract.

The Court accepted that there were defects in the process and that there was a serious issue to be tried. However, whilst conceding that Indigo had a “more than fanciful chance” of obtaining the contract if it were re-run according to the rules, the Court concluded that the College’s case on causation would be more likely to be accepted at full trial, and that, in any event, there was only a low likelihood that the Court at trial would assess that chance of a loss as much more than the minimum threshold level of non-fanciful.

The Court found that quantification of the profits that could be earned by Indigo would be difficult (although the Court could, if required, carry out a quantification) and that damages would not be intrinsically an adequate remedy.

The Court then considered the balance of convenience, by assessing which course seemed likely to cause the least irremediable prejudice, taking into account, not only each of the parties, but also irremediable prejudice to third parties and the wider general public, as is important in the context of public procurement. In this respect, the Court found that the continuation of the suspension would result in the forced closure of the Colchester site, if only because of the impact of the health and safety regulations. The current cleaning contract was due to expire on 31 December 2010 and the suspension would mean that no contract could be put in place on expiry. Closure would affect both students and staff at the site. The Court rejected Indigo’s argument that the present contract could be simply extended for three months. As far as the Court was concerned this was not a solution because it ignored the possibility of appeal and further delay while the tender process was re-run. Moreover, although the contract provided for a possible extension, the Court concluded that this was for only one extension, which had already been granted, and did not provide for any further extension.

In conclusion, the Court found that the prejudicial impact on the College and the wider public of leaving the suspension in place far outweighed any prejudice which may be caused to Indigo by lifting it.

COMMENT: In terms of comparing this to Guam law (which, as often mentioned, is based on the American Bar Association Model Procurement Code), the first fact of importance is that this case involved a pre-contract protest. Under Guam law, the legislative automatic stay is only available pre-award/contract (although injunctive relief in a court is not foreclosed). It is not clear from this discussion if the automatic suspension is also likewise limited to pre-contract situations.

Under US federal law, as pointed out in my prior post mentioned above, an injunction would also be available (not automatically) in a post-award situation.

The second aspect of this case which is similar to Guam law, is that the court "lifted" the automatic suspension . Under Guam law, the automatic stay can be lifted upon application and adequate showing of necessity and public interest.

A factual item I think may have been critical to the balancing outcome in this case is that the protestor "came third, a considerable way behind the winner", a characterization which suggests there was little likelihood of it prevailing on the merits of its claim. Likelihood of prevailing on the merits is a significant requirement of injunctive/stay relief in the usual Guam situation.

Finally, I was particularly interested to read that the applicable regulations there apply a "standstill period" after the announcement of the preferred tenderer and before the contract was made.

I have been critical of the "gap" that exists between the rendition of a protest decision and the institution of a administrative appeal, and the lack of any "gap" that exists between the time the best offeror is chosen in an RFP and the announcement of the contract: in both cases there is insufficient coverage of the automatic stay effect to allow an aggrieved bidder or offeror to perfect a protest or appeal, which is quite prejudicial considering the significant damages available under a pre-award protest to those available post-award.

I believe Guam law would benefit from a similar "standstill period".

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