Teal blue header image

Procurement damages: Supreme Court issues landmark judgment

The Supreme Court has unanimously held that damages should only be awarded where the breach of the procurement rules is “sufficiently serious”. It further ruled that a damages award is not precluded on the ground that a claim is not issued before the contract is entered into.

The latest ruling adds to the significant judicial analysis that has emerged from this long-running dispute.

Nuclear Decommissioning Authority v Energy Solutions EU Ltd [2017] UKSC 34: Facts and background

On 11 April 2017, on an appeal from the Court of Appeal, the Supreme Court issued its judgment on certain preliminary issues in dispute between ATK Energy EU Ltd (formerly Energysolutions EU Limited) and the Nuclear Decommissioning Authority (NDA). The dispute concerned the award of a 14 year contract for the decommissioning of 12 Magnox power stations (the Magnox Contract).

In the underlying litigation between the parties, two judgments, handed down in July 2016 and December 2016, respectively held that the NDA had breached The Public Contracts Regulations 2006 (PCR2006) in failing to award the contract to the most economically advantageous tender and that the NDA’s breach was “sufficiently serious” to merit damages within the Francovich principles. Prior to the Court of Appeal hearing of the NDA’s application to appeal these two judgments, the NDA settled the underlying litigation and announced that the Magnox Contract was to terminate early. The parties requested that this Supreme Court judgment on the preliminary matters was issued, despite the settlement on liability.

Supreme Court Decision

On the preliminary issues before it, the Supreme Court held that:

  • the Remedies Directive (Council Directive 89/665/EEC as amended) only requires damages to be awarded where a breach of the Public Procurement Directive (2004/18/EC) is “sufficiently serious” within the meaning of the Francovich conditions for state liability under EU law;
  • the PCR2006 had not gone further than EU law required, there was no “gold-plating” and that damages for a breach of PCR2006 should only be awarded where the breach is “sufficiently serious”; and
  • an award of damages cannot be refused or reduced due to a claim not being brought during the standstill period before the contract is entered into, where proceedings are otherwise well founded and brought within the limitation period.

Analysis

The latest ruling in this case has important implications for public procurement litigation. Although the relevant legislation has been repealed, it has been replaced and the remedies provisions have been retained in the Public Contract Regulations 2015. In relation to the award of damages, the ruling overturns two decades of settled UK case law that has proceeded on the basis that any breach of the procurement rules that causes (or risks causing) loss, merits an award of damages.

Contracting Authorities may welcome the new, more restrictive, approach to damages confined only to serious breaches, though the Supreme Court did not give guidance on how that test is to be applied to breaches of the procurement rules.  On the other hand, it is in the interest of unsuccessful challengers to be able to allow the authority to take the risk of wrongfully making a contract award before issuing proceedings. 

By way of a recap, the July 2016 High Court judgment is a cautionary read for any procurement professional. It covers a wide range of issues grappled with every day: from evaluating tenders; to maintaining a proper audit trail; to applying equal treatment when seeking the clarification of bids. Ultimately, the NDA made manifest errors during the evaluation process and failed to comply with its duties of transparency and equal treatment. It was held that the successful bidder should have been disqualified from the competition and that the NDA fudged the process by “choosing an outcome and manipulating the evaluation to reach that outcome” rather than by properly applying the scoring criteria.

Should you require any advice relating to the wide-ranging issues touched upon in the dispute, please do not hesitate to contact a member of our procurement team. 

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at June 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions.

Insights & events View all