Damages under PCR

April 11th, 2017

It is not a failure to mitigate damages not to take advantage of the opportunity to stop the award of a contract in breach of procurement law. However, damages are recoverable only if the breach is “sufficiently serious”. These were the main holdings of the Supreme Court in NDA v ATK [2017] UKSC 34.

ATK brought a public procurement claim against NDA in connection with ATK’s unsuccessful bid for a contract. NDA failed wrongly to award the contract to the consortium to which ATK belonged, in breach of its obligations under the Public Procurement Regulations 2006 (“the 2006 Regulations”), which give effect in the UK to the Public Procurement Directive No 2004/18/EC (“the PP Directive”).

Directive No 89/665/EEC, as amended (“the Remedies Directive”), requires effective remedies for economic operators to be made in such cases, including compensation and the setting aside of awards. It was given domestic effect by amendment of the 2006 Regulations. Regulation 47G of the 2006 Regulations thus requires a contracting authority, on becoming aware of the issue of a claim form relating to its procurement decision, to refrain from entering into the contract with the successful tenderer, if not already entered into, until court order or disposal of the proceedings. Although the NDA observed an extended standstill period during which, pursuant to regs. 32(1) and 32A(5), it could not enter into a contract with the successful tenderer, it refused ATK’s request for a further extension and proceeded to enter into the contract. ATK subsequently issued the present proceedings, within the 30-day time limit provided by reg.47D.

The following preliminary issues regarding the circumstances in which damages may be recoverable for breaches of the 2006 Regulations arose for consideration: (i) whether the Remedies Directive only requires a damages award to be made when any breach of the PP Directive is “sufficiently serious”; (ii) whether reg.47J(2)(c) of the 2006 Regulations confers a power to award damages in respect of any loss or damage suffered by an economic operator in the case of any breach (not merely a “sufficiently serious” breach) of the Regulations; and (iii) whether (and, if so, when) a damages award under reg.47J(2)(c) of the 2006 Regulations may be refused on the basis that an economic operator issued proceedings within the 30-day period provided by reg.47D, but not before the contracting authority entered into the contract.

The Supreme Court held first that the Remedies Directive requires a damages award to be made only when any breach of the PP Directive is “sufficiently serious”. The decision of the Court of Justice in Spijker (Case C-568/98) provides clear authority that the liability of a contracting authority under the Remedies Directive for breach of the PP Directive is assimilated to that of the state or of a public body for which the state is responsible. Such liability is only required to exist where the minimum “Francovich” conditions are met, the second of which is that the breach must be sufficiently serious.  Articles 1 to 3 of the Remedies Directive do not evince an intention to provide a remedy in damages for harm caused by infringements generally.

The Supreme Court held, second, that the UK legislator has not, by the 2006 Regulations, gone further than EU law requires by conferring a power to award damages in respect of loss or damage suffered by an economic operator in the case of any breach, as opposed to only a “sufficiently serious” breach, of the Regulations. The legislator’s intention was to do only what was necessary to implement the Remedies Directive without any ‘gold plating’.  The scheme of the Remedies Directive is a balanced one, with the Francovich conditions representing the Court of Justice’s conclusion as to the appropriate level of minimum protection by way of damages which an economic operator can expect. The UK legislator would not have gone further than required by EU law when implementing this scheme without considering this and making it clear. This conclusion is also consistent with the use of the word “may” in regs.47I(2) and 47J(2)(c) which would otherwise have no real significance.

On the third issue, the Supreme Court said that ATK cannot be said to have failed to mitigate (or avoid) its loss by not having taken steps to prevent the NDA from carrying its breach of duty into effect. The remedies scheme aims specifically at giving an economic operator the opportunity to stop the wrongful award of a procurement contract to a competitor. But an operator will not act unreasonably in not taking advantage of that opportunity. The scheme gives both parties choices as to how to proceed and how to protect themselves. The NDA could have delayed entry into the contract under after the 30-day period which ATK had to commence proceedings. ATK may not have issued its claim form at a time when this would have put an automatic stop on the NDA entering into the contract because it appreciated that this would lead to the NDA seeking to lift the stop, and ATK in turn having to put up security for any loss the NDA would suffer through the continuation of the stop.  An economic operator cannot be said to have acted unreasonably in deciding not to pursue a course which exposes it to the risks associated with the possibility of its challenge to the contract award decision failing.

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