Court rules operation of “VIP” procurement lane unlawful but refuses declaratory relief

The most recent judicial review challenge to be brought and heard against the Secretary of State for Health and Social Care (the “SoS”), this time in the Technology and Construction Court, confirms again that despite the public health crisis and pressurised situations engendered by the COVID-19 pandemic, abridged government procurement exercises must still respect the principles of transparency and equal treatment and that the use of a ‘High-Priority Lane’ (“HPL”) was unlawful.

Nevertheless, the Court considered that the contracts in question would have been awarded on their merits, irrespective of them having been awarded via the HPL. In judicial review proceedings, the Court must refuse to grant relief to the applicant if it considers that the outcome for the applicant would not have been substantially different. The only exception to this is where it considers there to be reasons of exceptional public interest for granting relief. In this case, the contracts had already been performed or had expired and the Court considered it sufficient that the illegality of the way in which the HPL had operated was marked by the judgment without granting the declaratory relief sought.

Overview

In the early stages of the COVID-19 pandemic, the SoS awarded contracts to PestFix and Ayanda Capital Limited (“Ayanda”) for the supply of personal protective equipment and medical devices (“PPE”). These contracts were awarded without a full tender process in accordance with Regulation 32(2)(c) of the Public Contracts Regulations 2015 (“the PCR”) which provides an exception to Regulation 26 of the same to abridge the procurement exercise, as well as having been expedited via the HPL.

In R (On the Application Of Good Law Project Ltd & Anor) v The Secretary of State for Health and Social Care [2022] EWHC 46 (TCC), the Claimants, Good Law Project Limited and EveryDoctor Limited, sought declarations that the SoS had acted unlawfully in awarding the contracts (we focus on the PestFix and Ayanda contracts here given their connection with the HPL). There were five original grounds on which the Claimants sought to challenge the contracts but further to the permission stage, the challenge proceeded on grounds 2, 3 and 5 which were:

1. The awarded contracts were unlawful in that they were unfair having breached principles of transparency and equal treatment (Ground 2);
2. The SoS failed to comply with its duty to give clear and sufficient reasons for its decision to award the contracts (Ground 3); and
3. The SoS’s decisions to award contracts to Ayanda and PestFix were irrational in that no, or no sufficient financial or technical verification was carried out in respect of the interested parties or their suppliers by operation of the HPL (Ground 5).

Background

In early 2020 the SoS established a dedicated supply chain unit (the “PPE Cell”) to support and facilitate the procurement of PPE. The PPE Cell was comprised of various teams including the Opportunities Team (to procure offers), the Technical Assurance Team (to assess technical quality of products), and the Closing Team (to negotiate, carry out financial and due diligence checks). The Closing Team then made recommendations about contract awards to the Accounting Officers. The Accounting Officers made the final decisions on contracts.

The PPE Cell used an ‘open source’ approach to procurement meaning that it sought offers of PPE from businesses through a portal (“the Portal”) but without a contract notice for specific products (as would be the case in a normal public procurement exercise). The PCR empowers the SoS to award contracts without first advertising them publicly due to unforeseen events which require decision-making in extreme urgency. In the earlier hearing of this matter ((R) Good Law Project v SSHSC [2021] EWHC 3609), it was held that the COVID-19 pandemic was within the definition of “extreme urgency” and that the SoS was entitled to rely on Regulation 32(2)(c) to award contracts without prior publication.

In parallel, there was a HPL process to suppliers referred by Ministers, MPs and senior officials (the “referrers”) which offered those suppliers more favourable, and expedited treatment. It was used between March 2020 and the end of June 2020. Evidence before the Court explained that the HPL offered a dedicated email address to which the referrers could direct opportunities from suppliers who had contacted them and essentially worked like an opportunities team. Any promising offers from the HPL would then be passed to the Technical Assurance Team and for the Accounting Officers to make a decision on the offer. The Accounting Officers were unaware whether an offer was from the HPL or the Portal.

Complaints Against the SoS

Ground 2 – breach of EU principles of equal treatment and transparency

The first issue the Court had to consider was whether the SoS was obliged to comply with EU principles of equal treatment and transparency (as set out in Regulation 18 of the PCR and the Treaty on the Functioning of the European Union (“TFEU”)) even if the process under Regulation 32(2)(c) of the PCR is engaged. The second, linked, issue was whether the SoS’s ‘open procurement’ approach, as opposed to publishing a specified contract notice, also complied with the equal treatment and transparency obligations. The Court held that the SoS was obliged to comply with equal treatment and transparency principles in both scenarios. Regulation 18 requires the SoS to “treat economic operators equally and without discrimination and shall act in a transparent and proportionate manner”. Case law has interpreted these obligations to mean treating parties in the same way and being sufficiently transparent in order to enable compliance with the obligation to be verified.

The Court’s view was that, in the absence of express exclusion and disapplication, the general principles under Regulation 18, would be applicable and would continue even if a procurement proceeded under the exception in Regulation 32. The Court further held that dispensing with the normal procurement procedure did not justify arbitrary or unfair selection criteria and hence, the SoS’s submission that once Regulation 32(2)(c) is engaged equal treatment and transparency have no further role to play, failed. The SoS sought to rely on Article 52 of the TFEU to derogate from the principles of equal treatment and transparency where essential for “public policy, public security or public health”. The Court held that this would be a valid derogation if there was only one business that could fulfil the requirements of the procurement exercise. However, given the SoS had received many viable offers, Article 52 TFEU did not apply and the principle of equal treatment and transparency could not be derogated from here.

On the ‘open source’ procurement approach, the Court emphasised that since Regulation 32(2)(c) was engaged, the call for competition was dispensed with and there was no competition between bidders. Given that the shortage of PPE was constantly and quickly evolving, the purpose of ‘open source’ procurement was to find new sources of PPE without suppliers making offers to fixed tender conditions. The Court found that at no point was there a single competition for a fixed number of contracts between comparable offers. Rather, the procurement exercise was a rolling exercise for many awards at different times, each assessed against an internal benchmark. Therefore, the Court concluded that the SoS’s ‘open procurement’ approach was not a breach of the equal treatment and transparency principles.

The third point questioned whether the SoS had put in place appropriate selection criteria and guidance for evaluating offers so that offers were properly evaluated. The over-arching theme of the case law before the Court suggested that there is a wide margin of discretion in designing and setting award criteria. The SoS had established technical specifications, although not necessarily fixed as COVID-19 guidance was changing with increasing knowledge. Overall, the Court found that there were sufficient procedures that identified the selection criteria.

Finally, the operation of the HPL was challenged. The Court accepted that on a closer analysis the HPL indicated priority given to offers for the particular pieces of PPE that were in demand, rather than because they came from the connections of referrers. However, the Court also considered that some opportunities that came on the HPL were marked as high priority without objectively justifiable grounds. The deciding factor on this point was that whilst offers which came from the HPL were not treated differently from those that came from the Portal from the Technical Assurance stage of the process onwards, the criteria to allocate offers to the HPL did not treat comparable offers in the same way. Being on the HPL meant that offers would be passed to the Technical Assurance Team more quickly than those from the Portal. This was because the HPL Team was better resourced and was able to respond to offers on the same day and this may have made a material difference to the chance of being offered a contract. The fast-moving nature of the rolling procurement could mean that newer offers were given priority and older submissions discarded. This preferential treatment to HPL offers amounted to a breach of the equal treatment and transparency obligations on the SoS.

However, the Court was of the view that despite the preferential treatment, the outcomes would not have been significantly different in that PestFix and Ayanda would still have been awarded contracts on their merits. In accordance with section 31(2A) of the Senior Courts Act 1981, the Court must refuse to grant relief on an application for judicial review if it appears to the court to be highly likely that the outcome for the applicant would not have been substantially different if the conduct complained of had not occurred, unless, as set out in section 31(2B), the court considers that it is appropriate to grant relief for reasons of exceptional public interest. The Court held that although there was public interest in the outcome of this challenge, the contracts in question had been performed (or expired) and it is sufficient that the illegality is marked by this judgment. As such, the test in section 31(2B) was not met and so no relief would be granted.

Ground 3 – Disclosure of sufficient and clear reasons for the decision to award

Ground 3 was based on the SoS having failed to provide proper and sufficiently clear reasons for his decision, preventing the Court from assessing the lawfulness of that decision-making process. The Court held that the SoS did not have to go further than providing details of the reasons for the decisions that had been made. The SoS had discharged its obligations in this respect and the test (sufficient reasons must be given for decisions to allow a realistic prospect of challenge) was met. Information on the procurement process and the reasons for the awards were exchanged during pre-action correspondence, satisfying these duties.

The Court highlighted that whilst there is a duty to provide information to unsuccessful tenderers (for them to challenge any decisions and appeal), the Claimants in this case were not (unsuccessful) tenderers, rather bringing the challenges on public interest grounds, therefore the obligation did not arise here in any event.

Ground 5 – Irrationality of the decision to award

Ground 5 sought to argue that the decisions to award contracts to PestFix and Ayanda, Interested Parties 1 and 3 respectively in the matter, were irrational on the basis that there had been insufficient verification (by way of financial due diligence and/or technical verification) of the suppliers and the products to be supplied and the operation and reliance on the HPL.

For both financial due diligence and technical verification, the SoS provided evidence that due diligence was carried out on both companies and in relation to the PPE. Although this was not as full, detailed or formal as in a standard procurement, the Court recognised the limited resources and time pressures. The SoS was held to be entitled to assume a greater degree of risk in the circumstances as securing PPE was paramount. Therefore, the SoS’s decisions to enter into contracts without full due diligence were within the range of reasonable decisions open to him.

The Court emphasised that it is not to substitute its own decision for that of the decision-maker because of the high threshold for irrationality in addition to the margin of appreciation afforded to decision-makers where a complex evaluation is required to be made as part of the decision making process. Weight was placed on the time of the contracts (the first wave of COVID-19) and that there was little time to carry out the usual checks in a planned and cautious public procurement exercise. Furthermore, there were two overriding questions when considering offers: (i) did the supplier have a credible and reliable offer to supply substantial amounts of PPE; and (ii) how pressing was the need for that PPE?

Whilst the Court already discussed the unlawfulness of the HPL and its selection criteria, it did not play a material part in the award of contracts to PestFix and Ayanda. The Court was satisfied that on the merits of their offers, there was objective justification for treating PestFix and Ayanda as high priority offers even if they had come through the Portal rather than the HPL. The Court was satisfied that no reliance was placed on whether an offer had come from the Portal or the HPL.

For these reasons, Ground 5 was unsuccessful.

Commentary

This judgment confirms that the obligations on public bodies, such as the principles of equal treatment and transparency, do not entirely fall away when the abridged process under the Regulation 32(2)(c) exception is engaged. The fact that there had been unlawfulness in this regard, did not necessarily mean that declaratory relief would follow. Given that the contracts awarded would have objectively been awarded on their merits in any event, section 31(2A) and (2B) of the Senior Courts Act 1981 fell to be considered in terms of whether the outcome of the decision in question would have been substantially different had the HPL not been used.

Given that the Court held that the outcome would not have been any different, declaratory relief was not granted but the finding of unlawfulness of the HPL approach stood and the Court commented that it would suffice that the “illegality is marked by this judgment”. This is unlikely to deter similar potential claimants from similar challenges in future given that a challenge like this is being brought in the public interest rather than because of an economic interest in the result.

Finally and importantly, the SoS had challenged the standing of the Claimants to bring the judicial review claim. The Court held that they both did have standing. The Court’s comments in this part of the judgment suggest that it would be even more inclined to decide in favour of standing where economic operators are unlikely to challenge the award of contracts because of the lack of information on which to base a challenge (no standard procurement process, for example). The subject matter of the challenge was also deemed sufficiently serious such that it was in the public interest to find in favour of standing. No doubt a lack of economic operators with the means to bring a challenge themselves would also assist with regards to standing in similar cases. We can therefore likely expect similar types of claimants to those in this case to continue bringing challenges in the public interest or in the absence of an economic operator, to continue to challenge government decision-making in this way.

Please find the full judgment here: R (On the Application Of Good Law Project Ltd & Anor) v The Secretary of State for Health and Social Care [2022] EWHC 46 (TCC)

Please find our previous Law-Now on an earlier challenge in relation to the Government’s PPE procurement here: Government's lack of transparency around PPE contract awards declared unlawful (cms-lawnow.com)

This article is co-authored by Amelia Mah, Trainee Solicitor at CMS Edinburgh.