Automatic Suspensions – good news for contracting authorities?

We look at recent case law around automatic suspensions of contract award during the standstill. We look at the recent case of Openview Security Solutions Ltd v The London Borough of Merton Council in which the judge appears to disapprove of recent judicial trends to gloss the standard American Cyanamid test in a way that is potentially more favourable to bidders.
 

This was a contract for CCTV and traffic monitoring services, being let by the London Borough of Merton. Openview was an unsuccessful bidder and brought a claim that Merton had used undisclosed criteria to evaluate the contract and had breached the duty to act transparently. The award of the contract was suspended and the court was required to decide whether the suspension should be lifted and the contract entered into, or whether the suspension should remain in place until the claim had been heard at full trial.

The American Cyanamid test

It is well-established that the test for deciding this question is set out in the American Cyanamid case, as follows:

• Is there a serious issue to be tried?
• If so, would the payment of damages be an adequate remedy for the party injured by the continuation/lifting of the suspension?
• If the payment of damages would not be an adequate remedy, where does the so called "balance of convenience" lie? An assessment of the "balance of convenience" will take into account factors such as the public interest, which the judge noted can have particular relevance in a public procurement dispute, particularly where the contract involves services being provided to the public directly.

American Cyanamid contrasted with procurement disputes

The judge in the case made some interesting observations about the ways in which procurement disputes can be distinguished from the original American Cyanamid case (which was a simple private dispute between two commercial parties). A procurement automatic suspension hearing is different, not only as it will almost certainly have a public interest element, but also because there are some procurement-specific remedies available to the court in addition to the usual civil remedies (i.e. the ability set aside a contract award decision and to order the amendment of any document, and, if the contract has already been entered into, the ineffectiveness remedy (in certain circumstances) and the imposition of a civil financial penalty). Procurement disputes are also set apart from the American Cyanamid case in the sense that a third party will usually be involved and have an interest in the outcome of the hearing too (ie, the successful bidder, who is waiting to enter into the contract and start delivering under it).

Remedy of Review?

The Openview v Merton case is an interesting one as the judge appears to trim the sails of recent judicial applications of the American Cyanamid test. Since the automatic suspension regime came into force, the general trend has been for the suspension to be lifted, largely due to the relative weight of the “public interest” in the balance. However there have been a couple of recent cases (Edenred and Bristol Missing Link) where the court decided to maintain the suspension of the award of the contract all the way to full trial (there was a prospect of an expedited trial and therefore a quick decision on the substantive issues). The court in those cases was persuaded that the opportunity to have the “remedy of review” prior to the contract being signed swung the balance of convenience in favour of the claimant bidder.

In this case, however, the judge commented that this amounted to a mistaken elevation of the “remedy of review” into a separate step of, or gloss on, the American Cyanamid test, and was unwilling to follow suit. If it were established that damages would be an adequate remedy, then it was unnecessary to look at the “balance of convenience” and weigh up the claimant’s desire to maintain the suspension until trial against the contracting authority’s need to award the contract and/or the public interest. If damages would be an adequate remedy then the length of the period to trial should not be decisive.
 

Adequacy of damages

The court then looked at the question of whether damages would be an adequate remedy for Openview and decided that it would. It handed down a few points to take into account when arriving at this view:

• The mere fact that it may be difficult to assess damages does not of itself mean that damages will ultimately be inadequate for the purposes of the American Cyanamid test; nor does the fact that damages may be for a loss of a chance only.
• If the contract is for a place on a framework, it is still possible to assess damages (this would be based on the contracting authority’s least onerous obligation under the terms of the framework).
• Potential claims for loss of reputation are unlikely to be relevant when considering adequacy of damages for these purposes (unless a failure to maintain the suspension will lead to financial losses that would be significant and unrecoverable as damages).

Judgment

The court decided to lift the suspension; the desirability of the remedy of review before the contract was entered into did not tilt the balance in Openview’s favour. If the suspension were maintained and the contract remained unsigned, it is possible that, at full trial Openview might be successful and that the court might order Merton to set its decision to award the contract to the winning bidder aside. However, even in these circumstances, the court could not positively order Merton to give the contract to Openview, and therefore the most Openview could ever get out of the remedy of review pre-contract signature would be the existence of another chance to win.

Conclusion

The case is good news for contracting authorities who may have viewed the recent Edenred and Bristol Missing Link decisions with some degree of nervousness. It remains very difficult for bidders to use the “automatic suspension” process to prevent the award of the contract. However, it is worth noting that a review of procurement law remedies is currently under way in Europe, and it may ultimately be that tweaks are made to the remedies regime that ultimately will favour a claimant. Watch this space!