Another wrong decision on what is subjected to (EU) public procurement rules (QSRC v NHSE, [2015] EWHC 3752)

I was at the South West Administrative Lawyers Association (SWALA) meeeting yesterday and this gave me an opportunity to catch up with colleagues practising procurement before English courts, who are always an excellent source for updates regarding a body of (growing) national case law that is not always easy to find, despite the excellent BAILII.

Talking to Emily Heard about the Falk Pharma case (see here), she mentioned that there was a recent English case that could be of interest from the perspective of 'what is prourement' or 'what should be subjected to the (EU) procurement rules'. She was right, and the case of QSRC Ltd ("Qsrc"), R (on the application of) v National Health Service Commissioning Board ("NHS England") & Anor [2015] EWHC 3752 (Admin) (21 December 2015) deserves some comments. Of course, the opinion below is solely my own.

In QSRC v NHSE, the procurement dispute arose from the decision by the relevant contracting authority not to enter into a contract for the provision of specialised medical services (gamma knife treatment, a particular type of radiosurgical treatment) with QSRC while extending previous contracts for the provision of those services with existing suppliers.

The factual background of the case is very complex due to the fact that the initial decision not to enter into such contract took place towards the end of 2012, at the time when NHS procurement was being reformed in preparation for the entry into force of the National Health Service (Procurement, Patient Choice and Competition) (No 2) Regulations 2013.

However, as I read the facts and for analytical purposes, the relevant issues were that the relevant contracting authority, by deciding to extend the contracts with pre-existing suppliers and not tendering more fully (on the justification that such fuller procurement would take place in the near future once the new system was operational) incurred in the direct award of (implicit) public contracts to the pre-existing providers. Moreover, that by rejecting to enter into a contract with QSRC as well, it treated potential providers unequally.

Then, the main dispute for the purposes of our discussion was to determine whether, by not running a tender for the provision of the interim services, the relevant contracting authority had breached the then applicable Public Contracts Regulations 2006 (which transposed Directive 2004/18, and have since been replaced by the Public Contracts Regulations 2015 in transposition of Directive 2014/24). Linked to that, it was also contentious whether by not entering into a direct award with QSRC as well, the contracting authority breached its obligations under reg.3(2) NHS Procurement (No 2) 2013 Regs to act transparently and proportionately, and not to discriminate between providers.

Again, the claim is complicated due to the overlap betwen the NHS Procurement (No 2) 2013 Regs and the PCR2006 (and currently the PCR2015), but the relevant issue is that compliance with PCR2006 (and now PCR2015) is mandatory to the extent that they are applicable to the procurement of goods and services for the purposes of the NHS, which is otherwise (or additionally) regulated by the NHS Procurement (No 2) 2013 Regs.

The further complication is that the position of the parties is slightly odd. The Claimant was not interested in relying on the PCR2006 because it would imply that its claim was out of time and should thus be rejected without substantive analysis. Conversely, the Defendant wanted to insist on its (alleged) breach under PCR2006, so as to time bar the action.

Thus, in short, the High Court (Foskett J) had to determine whether there had been a breach of the PCR2006 in the decision not to run a tender for the provision of interim services, which would oddly have resulted in an end of the analysis due to time limitation rules (which could explain the outcome of the analysis...).

The relevant paragraph is [115], where it is established that:

The issue, therefore, is whether, as the Defendant contends, the decision made not to contract with the Claimant was "governed by the Public Contracts Regulations 2006" or whether, as the Claimant contends, it was not. [The Defendant] submitted that the essence of the claim is that the Defendant should have procured ... services from the Claimant instead of merely from Barts and the Cromwell ... and contends that "the refusal to do so is a decision the legality of which may be affected by duties owed to [the Claimant] under" the 2006 Regulations. It seems to me that the issue is not whether the decision "may be affected" by the Regulations, but whether they are governed by them. [The Claimant] submits that they are not so governed, but they are governed by the 2013 Regulations. He accepts that in some respects there may be a degree of overlap, but argues this was not a situation where the "contracting authority" was seeking offers in relation to a proposed public supply contract (see Regulation 5) and, accordingly, the Regulations did not apply. Indeed he emphasises that no offers have yet been sought. He submits that no decision was taken under the 2006 Regulations which is or was capable of challenge pursuant to its terms (first emphasis in the original, second emphasis added).

Foskett J concluded that the Claimant's 'submissions [were] correct in the circumstances of this case'. It would then seem that the decision to consider the PCR2006 as not applicable is heavily influenced by the willingness of the Court to engage in a substantive assessment of the situation and to circumvent the time bar that would derive from the opposite conclusion. However, the argument simply does not hold even a mild degree of scrutiny.

In simple terms, the argument is that procurement rules apply when contracting authorities actually seek offers from potential providers, but not when they 'merely' (or potentially) ought to seek those offers. This would immediately exclude all cases of direct award of contracts that should have been tendered from review due to a breach of the applicable procurement rules. This is simply flagrantly in conflict with the purposes not only of the substantive EU Directives (2004/18 and 2014/24) as transposed byt he PCR2006 and now the PCR2015, but in radical opposition to the aims and mandates of the Remedies Directive (Dir 89/665/EEC, as amended by Dir 2007/66)--seeing that it goes at great lengths to stress that the direct award of contracts is the most egregious violation of (EU) public procurement rules and therefore triggers the strictness of sanctions: ineffectiveness [Art 2d(1)(a)].

Consequently, regardless of the outcome of the QSRC v NHSE case, which is not relevant now, the reasons for the decision to consider the direct award of the interim services contract not within the scope of the PCR2006 (and probably exempted but from minimum formal requirements due to the nature of the services as Annex II B services), must be criticised as plainly incorrect. It is wrong to enter into a logical argument that results in a circular test whereby compliance with the (EU) public procurement rules is only required if the contracting authority actually decides to engage in a procurement exercise, without assessing whether it had such an obligation to do so precisely under those rules. Or, even in simpler terms, it is wrong to accept that a decision not to comply with the applicable (EU) procurement rules shields the contracting authority from challenges on the basis of the infringed rules.

More generally, then and going back to the link with Falk Pharma, it seems that the proper understanding of what procurement is and when the (EU) public procurement rules should apply to market interactions by the public buyer is not yet satisfactorily settled, which is odd in a discipline that has been around for almost 45 years at EU level and for centuries in some of its Member States (acknowledgedly, not in the UK). More work should be done in this area, and I will try to rope in some of the colleagues participating in Procurement Week 2016 in such a project. Watch this space.