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Automatic suspension of contract lifted in public interest

Out-Law News | 21 Jan 2020 | 10:14 am | 3 min. read

Network Rail has been given the go-ahead to enter into a contract with Siemens Mobility for the delivery of a new digital train control system on the UK's main railway line between London and Edinburgh even though the award of the contract is subject to an ongoing legal challenge.

In a ruling, the High Court decided to lift the automatic suspension of the contract after determining that there is "a strong public interest" in proceeding with the works to install the new system "as soon as possible".

"Maintaining the suspension is likely to cause the abortive costs of urgent replacements, years of delay and risks putting in peril funding for the project," said Mrs Justice O'Farrell in her judgment.

Fletcher Michael_November 2019

Michael Fletcher

Partner

This case shows the difficulty that claimants can have in showing that, in order to lift the automatic suspension, an award of damages will not be an adequate remedy for them

The public interest factor was considered as part of a broader assessment the judge carried out on the balance of convenience in lifting the suspension.

The balance of convenience test forms an important part of public procurement law cases where there has been an automatic suspension of contracts awarded by public bodies in the UK.

Under public procurement law – in this case the Utilities Contracts Regulations 2016 – when there is a legal challenge brought against a procurement run by a contracting authority, the signature of that contract is suspended pending the outcome of the claim. The regulations provide contracting authorities with some scope to ask the courts to issue an interim order lifting the automatic suspension before a case moves to trial.

In such cases, the court must consider four criteria to determine whether the suspension should be lifted.

Firstly, the court must determine if there is a serious issue to be tried in the main dispute. If so, the court must go on to consider whether an award of damages would be an adequate remedy to the business that has brought the case if the suspension of the contract was lifted but the business went on to succeed with their case at trial. If not, given that the business bringing the procurement challenge is likely to be required to give a cross-undertaking in damages to the contracting authority if the suspension remains in place, the court must determine if damages would be an adequate remedy for the contracting authority if the suspension of the contract is not lifted but the authority subsequently wins the case at trial.

If there is doubt over the adequacy of damages as a remedy for either party, the court must determine which course of action is likely to carry the least risk of injustice if it transpires that it was wrong. In this respect it must determine where the balance of convenience lies.

In this case, rail transport company Alstom has challenged Network Rail's decision to enter into a framework agreement with Siemens Mobility for the delivery of digital train control systems on the east coast main line.

In considering whether the suspension should be lifted, Mrs Justice O'Farrell noted that network Rail has conceded that there is a serious issue to be tried in the case. The judge said, though, that the disadvantages Alstom would face through the lifting of the suspension of the framework agreement could be adequately remedied through an award of damages. In contrast, she held that an award of damages would not be an adequate remedy for Network Rail.

The judge acknowledged that her findings "would generally be conclusive in favour of lifting the suspension", but she proceeded to conduct a balance of convenience exercise "for completeness" where the public interest arguments Network Rail had put forward for lifting the suspension were considered.

"This case firstly shows the difficulty that claimants can have in showing that, in order to lift the automatic suspension, an award of damages will not be an adequate remedy for them," said Michael Fletcher, an expert in public procurement litigation at Pinsent Masons, the law firm behind Out-Law.

"Here, Alstom argued that winning the project would give them long term advantages through its collaboration with Network Rail, as well as in future procurements given the experience it would gain.  It also argued there would need to be job losses. However, the court held that Alstom, as a global company with extensive experience, would not be disadvantaged in other procurements and that its job losses were remediable in damages. It would be interesting to see, however, whether the court might have more sympathy with such arguments if they are run on behalf of a smaller company in similar circumstances in the future," Fletcher said.

"In accepting that the automatic suspension should be lifted, the court's sympathy with Network Rail's argument that degraded signalling needed urgent replacement shows the importance of public interest," he said.

Alstom had also argued that it would not be in the public interest for Network Rail to potentially pay twice, through a payment of damages to itand the costs due to the preferred bidder under the awarded contract. However, in dismissing this argument, the court showed that "it will consider the balance of convenience test for granting a lifting of the automatic suspension at the time that the application is made, without prejudging the potential outcome of the litigation", Fletcher said.