By Paul Emanuelli

This article is an excerpt from the 2021 edition of The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.

In its October 2014 decision in Nationwide Gritting Services Ltd v. The Scottish Ministers, the Scottish Court of Session – Outer House struck down the second year of emergency sole-sourcing for road salt after ruling that the government should have dealt with its supply shortages between winters. An excluded supplier challenged the government’s emergency direct awards and sought lost profit damages after being denied an opportunity to bid. As the Court summarized, the Scottish government sole-sourced the supply of road salt in the face of two unusually severe winters and argued that the supplier failed to prove any damages:

Scotland experienced severe winters in 2009/2010 and 2010/2011. Each year the cold weather arrived early. There were prolonged periods of ice and snow. As a result, the roads required extensive gritting. Between January 2010 and March 2011, the defenders bought de-icing salt for that purpose at a total cost of about £10 million. They made their purchases direct from several sources. They did not, however, buy any salt from Nationwide Gritting Services Limited (“NGS”), a supplier of de-icing salt based in Southampton.
In the present action NGS claims that the defenders breached public procurement law by failing to hold a competitive tendering procedure. The defenders deny infringement. The liability question turns on the “extreme urgency” exception contained in the Public Contracts (Scotland) Regulations 2006 (“the 2006 Regulations”). The defenders contend that the situation was critical. Without sufficient supplies of salt, the Scottish economy would be seriously affected. The icy roads presented a risk to the safety of the population.
With regard to damages, NGS maintains that it would have been successful in any tender exercise held by the defenders. It seeks to recover £3.2 million, being its estimate of its lost profits. In the alternative, it claims for the loss of the chance to bid for the contracts in question. The defenders submit that even if they were in breach, the court should not award damages. They argue that NGS has failed to prove any loss.

As the Court summarized, the “extreme urgency” exception to open tendering recognized under the procurement regulations needs to be strictly interpreted, does not apply to self-created situations, and is informed by risks to human health and safety:

Regulation 14
The “extreme urgency” provision is contained in regulation 14(1)(a)(iv) of the 2006 Regulations. It provides that a contracting authority may use the negotiated procedure without the prior publication of a contract notice:
when (but only if it is strictly necessary) for reasons of extreme urgency brought about by events unforeseeable by, and not attributable to, the contracting authority, the time limits specified [for the other procedures] cannot be met.
Three principles govern the application of that provision: (a) it is strictly construed, (b) it does not apply to ‘self-created’ situations, and (c) any risk to human health and safety may be relevant: see Commission v Italy (re flood safety works in the River Po) [2004] ECR I-8121; Commission v Spain (Madrid University) [1992] ECR I-1989; Commission v France (Rennes Railway) [2000] ECR I-8377; Commission v Germany (Ems) [1996] ECR I-1949; Commission v Italy (Case 194/88R) [1990] 1 CMLR 813; Commission v Spain C-24/91; Trepte, Public Procurement Law in the EU (2007) para 7.56.

Turning to the weather conditions that were at play during the relevant period, the Court noted that the first winter saw some of the most severe weather in decades, which resulted in dwindling road salt supplies:

Weather and road conditions
Winter 1 was the second coldest in Scotland since 1914. The north of the country had the coldest winter on record. There was widespread frost from October onwards. Significant snowfalls took place from the middle of December until the end of February. In many areas the daytime temperature rarely rose above freezing between 17 December and 15 January. As a result there was little thawing. Overnight temperatures were low and in certain areas regularly fell to -15°C or below. By Christmas, much of the Highlands had 30cm or more of snow. Further snowfalls occurred during March and April 2010, with only a few mild intervals, mostly in the west and south of the country. The bad weather led to significant disruption to the local and the trunk road network. There were lengthy closures. Some roads were only passable with extreme care. The severity of the winter affected the whole of the UK and mainland Europe.
The availability of salt
Following the early onset of winter, salt stocks in Scotland rapidly dwindled. The principal suppliers exhausted their surface stocks and their combined production of salt was insufficient to meet demand, which was high across the United Kingdom. The problem was compounded because the road authorities began the season with lower stocks than usual due to the heavy usage in the previous winter. The stocks that were available were unevenly spread.
By January 2010 stocks of de-icing salt across Scotland were dangerously low. On 3 January Cleveland Potash referred to the situation as being “desperate and demanding”. On 4 January twelve local authorities reported that they had, at most, only two days of supplies. On 6 January, Dumfries & Galloway Council was “nearly out of salt”. Matters began to improve at the end of the month as further supplies became available. Salt was delivered from abroad in February. At the end of February, however, the defenders again feared that salt supplies might run out. The severe conditions abated in March and salt that arrived from Egypt on 25 March was stored at Perth harbour.

With the objectives of keeping the economy going and protecting public safety, the government co-ordinated efforts to deal with the situation and assessed the current salt supplies:

The Scottish Ministers’ response
The defenders’ twin aims were to keep the economy going and to protect public safety. In the words of Mr McNulty, it was “almost unthinkable that you would place the public in jeopardy”. The defenders activated a number of bodies to deal with the crisis: the Scottish Cabinet sub-committee on resilience, the Scottish Government resilience room, the Transport Scotland resilience room, and the Scottish Salt Group. They liaised closely with one another, the local authorities, the operating companies and the UK Salt Cell. They determined what salt stocks were available, when future supplies were expected, what purchases to make, and which areas deserved priority.

However, while the government made emergency purchases for the first winter, it sought recommendations and ultimately decided against stockpiling for the future winters after being advised against oversupplying based on a single season:

The Quarmby recommendations were discussed within Transport Scotland and the Scottish Salt Group. In the event, Mr Edmond recommended to the defenders that they should establish a strategic salt stockpile of 30,000 tonnes and review the situation at the end of December. He did so on the basis (i) that it was appropriate to take into account the weather conditions over a period of years, and (ii) it was inappropriate to create a stockpile based upon the most extreme situation. While Mr Edmond accepted that 30,000 tonnes was a rough estimate, he felt that it was about right having regard to the amount of salt purchased the previous year, its usage, and the responses from the salt suppliers, and the local authorities. The defenders accepted that recommendation and began to procure supplies to hold as a strategic reserve.

Unfortunately, the next winter also proved problematic, seeing the road salt reserves depleted almost immediately from high usage as the worst winter in decades caused unprecedented road closures and multiple emergency situations:

Weather and road conditions
Winter 2 also began early. There was frost and snow from October onwards. Heavy snowfalls began in late November. On 2 December, the Scotsman newspaper reported that “Scotland is in the grip of the worst winter in 45 years, as snowstorms and icy conditions continue to batter the country, causing widespread disruption”. Many major routes were affected. The Forth Road Bridge was closed for the first time since it opened in 1964. The M8 motorway between Edinburgh and Glasgow was closed on 6 December and did not fully reopen until 11 December. Motorists found themselves trapped for long periods, some overnight. The emergency services and roads authorities rescued some of those who were stranded. Many schools were closed and non-essential hospital operations were postponed. Conditions improved in mid-February, but there was another short severe period around mid-March. The Meteorological Office has stated that it was “the coldest December in over 100 years”.
Government response
As a result of the heavy early usage of salt, the stocks held at the beginning of winter 2 were distributed almost immediately. Fortunately, a shipload of salt from Peru arrived at Leith docks on 28 November, just in time for the onset of the worst conditions. The defenders again activated the various resilience bodies that had operated in winter 1. Mr Edmond explained that the real problem in both winters 1 and 2 arose because of the heavy early usage. He pointed out that in the winter of 2012/13 more salt was used than in either winters 1 or 2, but there was no emergency situation.

The government therefore moved to directly buy more road salt on an emergency basis for the second winter in a row. The Court determined that the first year’s direct purchase of the road salt fell within the emergency exception, finding that it constituted a situation of extreme urgency caused by unexpected and unforeseeable events, rather than being self-created by the government, and that the urgency precluded the use of open tendering procedures:

Were the criteria met in winter 1?
I conclude that the criteria for the application of Regulation 14 were satisfied in winter 1 for the following reasons.
  1. Was there a situation of extreme urgency? If the stocks of de-icing salt were exhausted, the Scottish roads would become unsafe and might be impassable. That would give rise to risks to life and limb and have a profound impact on the Scottish economy.
  2. Was it brought about by events? Yes, the unexpected climate conditions caused the situation.
  3. Were those events unforeseeable by the defenders? The long-range forecasts did not predict that the winter would arrive early, be exceptionally cold and last longer than normal. In previous years the salt had been procured through the operating companies. They had not experienced a problem with salt supplies in the previous winter
  4. Were those events attributable to the defenders? The lack of salt cannot be attributed to the defenders. The UK Roads Liaison Group recommendations did not relate to Scotland.
  5. Was it impossible for the defenders to comply with the time limits for an open, restricted, or accelerated procurement procedure? Once the winter began, any supplies obtained by way of a compliant procurement procedure would come too late.
  6. Was it strictly necessary for the authority to use the negotiated procedure? As the stocks of de-icing salt rapidly depleted, the defenders had to obtain new supplies to protect public safety and ensure that the economy did not stall. Even in February 2010 the defenders were entitled to procure supplies in this manner. No one knew when the bad weather would end.
Commission v Italy C-525/03 provides assistance on the question of foreseeability. The background circumstances were that the Italian government had declared a state of emergency following an outbreak of forest fires. It subsequently purchased two helicopters to deal with such situations, but without holding a tender exercise. The Advocate General (Jacobs) concluded that the Italian government had made out a prima facie case of extreme urgency. Despite forest fires being a regular occurrence throughout southern Europe in summer, he observed that in some years they may be of “such exceptional intensity or extent as to be legitimately regarded as unforeseeable” (at para 64). The same observation can be made in the present case.

However, the Court found that the direct award was not justified in the second winter. The Court agreed that the weather in both winters gave rise to an unforeseeable emergency situation. However, in the second winter, the Court found that the short salt supply was self-created since the government was aware that the salt supply arrangements in Scotland were fragile given its experience in the prior winter. The Court concluded that the government should have acted sooner to establish contracts that allowed for more salt supply, which could have been accomplished by initiating an open tendering process after the first winter. The failure to do so resulted in a self-created crisis in the second winter:

Were the criteria met in winter 2?
 I conclude that the criteria for the application of Regulation 14 were, however, not satisfied in winter 2 for the following reasons.
  1. Was there a situation of extreme urgency? I answer this question in the affirmative for the same reasons as winter 1. Unless the roads and pavements were treated, there was the risk of serious accidents. Elderly and vulnerable people could be placed in peril. Schools would be closed. Interruption to the flow of traffic would cause major economic disruption.
  2. Was it brought about by events? Yes, for the same reasons as winter 1.
  3. Were those events unforeseeable by the defenders? I also answer this question in the affirmative. Looking at the long-term pattern, I accept Mr Hamilton’s statement that “nobody expected another harsh winter, the third in a row.”
  4. Were those events attributable to the defenders? I answer this question and the two succeeding ones on the basis that the situation was a ‘self-created’ one. The defenders knew from winter 1 that the salt supply arrangements in Scotland were fragile in conditions of severe weather. It was incumbent upon them to act sooner. They knew that more salt might be required for winter 2. Accordingly, they had to arrange matters so that they could hold a tender exercise in advance, if necessary.
  5. Was it impossible for the defenders to comply with the time limits for an open, restricted, or accelerated procurement procedure? In commissioning the Scottish Salt Group to produce a report, the defenders either were aware, or ought to have been aware, of the time constraints. They should have had the 2006 Regulations in mind.
  6. Was it strictly necessary for the authority to use the negotiated procedure? I conclude that the defenders do not satisfy this test for the reasons just given. It only became strictly necessary for them to procure salt using the negotiated procedure without a notice because of the delay in the review procedure.

However, while the Court found that the direct awards in the second year were contrary to the open tendering rules, it did not award lost profits to the complainant since the Court was not convinced that the supplier would have bid and won had the road salt requirements been put to tender. As a relatively new company that had never bid on the supply of salt in Scotland before, the Court gave little weight to the supplier’s assertion that it would have submitted a long-shot bid. Further, the Court found that even if the complainant had bid, it was not likely that it would have won since the white salt it supplied was higher priced and it was unlikely to win against the lower-cost brown salt provided to the government by local suppliers. As the Court concluded, in the absence of any evidence showing how much the complainant would have bid and how much its competitors would have bid, “I cannot determine that the defenders would have awarded a contract to NGS” since “that would be a matter of conjecture.” The claim was therefore dismissed. This decision was subsequently upheld in a December 2015 ruling in Salt International Ltd (Formerly Nationwide Gritting Services Ltd) v. The Scottish Ministers, where the Scottish Court of Session Second Division Inner House agreed with the commercial judge’s ruling on both the improper reliance on the emergency exception in the second winter and on that judge’s rejection of the complainant’s lost profit claim.

As this case illustrates, direct awards remain controversial and subject to legal challenge. The onus lies with government institutions to defend those awards as validly falling within recognized exceptions to open tendering. While in this instance the government was able to avoid liability for lost profits since the complainant was unable to prove its financial loss, the public interest would be better served if the time and effort expended in defending an improper direct award was directed towards engaging in proper open tendering procedures.