This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
While they may be implemented with the best of intentions, statutory standstill periods that give losing bidders an automatic right to an injunction to stop government contract awards can create significant bottlenecks in government contracting processes. While typically the party that seeks an injunction must make its case in court and prove that it will suffer irreparable harm if the requested injunction is not granted, under standstill protocols, this protection against procedural abuse is removed so that injunctions are granted on request so long as that request is made within the standstill period.
While in theory the purpose of standstill protocols is to preserve the rights of prejudiced bidders, in practice these reverse onus regimes call on a public institution to convince a court that the automatic “temporary” injunction should be lifted because a freeze on the contract award will cause irreparable harm to the public. Win or lose, this places a significant burden on already strained government resources and places the public services that rely on external contractors under high risks of delay.
Jurisdictions that institute standstill periods should therefore first ensure that they create deterrents against procedural abuses by requiring protest bonds that will be forfeited if a losing bidder obtains a standstill injunction and then subsequently loses its protest. Those jurisdictions should also ensure that they establish prompt dispute processes so that: (i) temporary standstill injunctions can be quickly lifted in situations where the public institution can show that irreparable harm will be caused if the contract award is delayed; and (ii) bid protests can be adjudicated expeditiously to avoid undue delay to government operations when standstill injunctions are not lifted. The following cases provide recent examples of disputes involving standstill periods.
In its April 2015 judgment in Bristol Missing Link Limited v. Bristol City Council, the High Court of Justice of England and Wales maintained a stop-award order on a domestic violence and abuse support services tender. The losing incumbent obtained an automatic interim injunction after claiming that the municipality had applied unfair group scoring procedures. The municipality moved to lift the injunction, arguing that the incumbent could be compensated with lost profit damages if it won at trial. However, the Court disagreed since lost profits would be an inadequate remedy for the non-profit incumbent, who stood to lose a third of its operations if the potentially unfair award was permitted to proceed.
Similarly, in its December 2015 decision in Counted4 Community Interest Company v. Sunderland City Council, the High Court of Justice of England and Wales maintained a stop-award order on a substance abuse services tender. The losing non-profit incumbent claimed conflict of interest due to its troubled relationship with the municipal contract manager who had served on the evaluation committee. The municipality argued against the injunction since the incumbent could be compensated with lost profits if it proved its case at trial. The Court disagreed since the incumbent would lose its entire business and its specialized staff by the time of trial if the municipality was permitted to award the contract to a competitor.
In its April 2016 judgment in Scott & Co (Scotland) LLP v. Aberdeenshire Council, the Scottish Court of Session maintained a stop-award order on a sheriff services tender. The Court found that there was a significant issue to be tried regarding an evaluation site visit and that it was in the public interest to prevent a potentially improper award. It also determined that the complainant would suffer an adverse impact on its operations if the contract was unfairly awarded since it would have no other opportunity to bid for six years. On balance, the Court found that the potentially adverse impact on the bidder was greater than the inconvenience of delaying the award for a few weeks until trial.
In its February 2018 decision in Lancashire Care NHS Foundation Trust v. Lancashire County Council, the England and Wales High Court of Justice – Technology and Construction Court rejected an application to lift a contract award injunction. The dispute dealt with a tendering process for the provision of youth nursing services in the county of Lancashire, England. The complainant was a losing proponent who obtained an automatic standstill under the United Kingdom procurement rules. The municipality moved to lift the injunction so that it could proceed with awarding a contract for the required services. However, the Court rejected the application, finding that the damages that would be available if the complainant won at trial would be inadequate to compensate its loss of contract, since that loss could impede its ability to maintain other youth health services under other contracts.
Conversely, in its September 2015 judgment in OpenView Security Solutions Limited v. London Borough of Merton Council, the High Court of Justice of England and Wales lifted an interim injunction obtained by a losing bidder on a municipal CCTV traffic system tender. The losing bidder had obtained an automatic injunction under the UK procurement regulations during the statutorily mandated pre-award standstill period. The municipality applied to have the injunction lifted so that it could proceed with the contract award. The Court granted the application and lifted the injunction after concluding that the ultimate recovery of damages would be an adequate remedy if the losing bidder could prove its case at trial.
Similarly, in its February 2016 judgment in Powerteam Electrical Services Limited v. The Electricity Supply Board, the High Court of Ireland lifted a stop-award order on a transmission line services tender after finding that further contract award delays would result in significant operational risks to the agency and the public. While the Court recognized that the complainant’s claim may not be compensable with damages since it risked losing highly trained staff if it lost the award, on balance, the Court found that an ongoing stop-award would have a greater negative impact on the public who relied on the services to provide emergency repairs after winter storm power interruptions.
Another automatic statutory suspension was lifted in the October 2016 judgment in Perinatal Institute v. Healthcare Quality Improvement Partnership by the High Court of Justice of England and Wales, which dealt with a health research services contract award. The losing non-profit bidder relied on the prior Bristol Missing Link Limited v. Bristol City Council decision to support the argument that a non-profit cannot be adequately compensated with damages and is entitled to a permanent injunction until trial. However, the Court disagreed since, unlike the prior case, the complainant was not an incumbent and would not suffer a loss of current business, but rather could be adequately compensated with damages for the loss of new business if it won at trial.
In a United States example, the New Jersey Superior Court, Appellate Division lifted the suspension of a contract award in its March 2017 decision in Agate Construction v. New Jersey after finding that the selected bid was compliant. The case dealt with a multimillion-dollar contract award for the repair of a seawall. A losing bidder challenged the process, arguing that the selected bid failed to comply with the proof of prior experience requirements. However, the Court of Appeal rejected this argument after finding that the prior experience information provided in the winning bid was “field verified” by the purchasing institution to confirm that the winning bidder had the required experience.
A further UK example can be found in the June 2017 decision in Alstom Transport UK Ltd v. London Underground Ltd of the High Court of Justice of England and Wales, where the Court lifted a temporary injunction against the award of a contract for subway train motors. While the losing bidder had obtained an automatic temporary injunction against the contract award during the statutory standstill period, the Court lifted the injunction after finding that the bidder failed to establish that it would suffer irreparable harm if it lost the contract award. The Court also found that lost profit damages would be adequate compensation if the bidder was ultimately able to prove its case at trial.
Similarly, in its July 2017 decision in Sysmex (UK) Ltd v Imperial College Healthcare NHS Trust, the High Court of Justice of England and Wales lifted a temporary injunction against the award of a pathology services contract. The Court lifted the injunction after finding that the bidder failed to show that it would suffer irreparable harm if it lost the bidding process. As in Alstom Transport, the Court found that lost profit damages would be an adequate compensation if the bidder ultimately proved its case in court, and further found that the balance of convenience favoured the government, since “patients may suffer, even die, if the suspension is not lifted.”
In its March 2018 decision in Eircom UK Ltd v. Department of Finance, the High Court of Justice in Northern Ireland set aside the automatic interim suspension of a contract award decision. The dispute dealt with the award by the Northern Ireland Public Shared Network to British Telecommunications Plc. A losing incumbent bidder wanted to prohibit the award of the contract until the conclusion of the legal proceedings that it brought against the government challenging the contract award. The complainant alleged that awarding the contract would be “facilitating predatory pricing and/or a margin squeeze to force the plaintiff out of the Northern Ireland market completely in contravention of competition law.” The Court rejected this argument and decided to lift the injunction, finding that the incumbent failed to show that it would suffer irreparable harm that could not be compensated in damages if it lost the contract award. The Court also rejected the assertion that the incumbent would be wiped out of the market if it lost the contract opportunity, noting that “the plaintiff is part of a group of companies with a turnover of well in excess of €1bn” and that “if those in control of the group want to compete with BT they have adequate resources at their disposal to do so either now or in the future.” Furthermore, the Court noted that “if a large, successful commercial organisation was able to claim successfully that because one of its off shoots might go out of business if it failed to win a tender, and that therefore the award of that contract should be suspended, it would allow such an organisation to game the system”. The Court warned that “all such organisations would place their bids through small companies, which they could then claim would be ‘wiped out’ if it was proposed at the next procurement exercise to award the tender to another competitor and thus sabotage the prompt award of these types of contracts.” The temporary standstill injunction was therefore lifted.
In its August 2018 decision in DHL Supply Chain Limited v. Secretary of State for Health and Social Care, the England and Wales High Court of Justice – Technology and Construction Court lifted an interim injunction obtained by a losing bidder. The dispute dealt with a government tendering process for the provision of health sector supply chain services. While the Court noted that the losing incumbent would suffer reputational harm and loss of employees if it lost the contract, the Court further discerned that there would be greater adverse impact on government operations and public interest if the contract suspension was maintained, as this would prevent the government from introducing health sector reforms that depended on the new contract.
In its June 2019 decision in Circle Nottingham Ltd v. NHS Rushcliffe Clinical Commissioning Group, the England and Wales High Court – Technology and Construction Court lifted a temporary standstill injunction. The case dealt with a procurement for the provision of medical services at the Nottingham Treatment Centre (NTC) in which the incumbent service provider lost the bidding process and challenged the result, thereby triggering an automatic standstill injunction. As the Court noted, after losing the bidding competition, the incumbent notified the health agency that “it intended to remove all moveable equipment and furniture from the NTC when it moved out, effectively leaving the building as an empty shell.” The Court rejected the claimant’s argument that it would suffer reputational harm by losing the bidding competition, stating that “what is missing from the Claimant’s evidence on this application is any link between damage to the reputation of the Claimant itself (to the extent that the evidence establishes that there is any) and its effect on the Claimant’s future commercial operations.” As the Court further elaborated, “there is no evidence that, had the Contract been renewed, the Claimant would – on the back of it – have sought additional opportunities to provide medical facilities at sites other than the NTC – for example, by establishing additional similar treatment centres in other parts of the country”. Having failed to see how the losing incumbent would suffer irreparable harm that could not be compensated with damages, the Court lifted the injunction, noting that allowing the injunction to stand could result in delays of 18 months, or more if there was an appeal from a trial judgment, before the winning bidder could start providing the healthcare services under the newly awarded contract.
By contrast, in other jurisdictions, complainants must first prove irreparable harm before an injunction is granted, whether temporary or permanent, against a government contract award. For example, in 2016, the High Court of South Africa granted two injunctions against public tendering processes after finding serious bid evaluation irregularities. In April 2016 in Down Touch Investments (Pty) Ltd v. Matjhabeng Local Municipality, the Court granted an injunction against a construction tender, and in May 2016, in Dimension Data (Pty) Ltd v. State Information Technology Agency (SOC) Ltd, it granted an injunction against an IT services tender. In both cases, the Court found that the complaining bidders could suffer irreparable harm if the awards proceeded and that the government would not be unduly inconvenienced by the resulting delays. In other words, the complainants had to first prove they faced irreparable harm if the contracts proceeded and were not automatically granted an injunction on request.
Similarly, in its April 2016 decision in Radiology Associates of Regina Medical Pc Inc. v. Sun Country Regional Health Authority, the Saskatchewan Court of Appeal upheld a lower court’s decision that rejected the injunction request of an incumbent supplier over allegations of breach of contract. The case dealt with a radiology services contract in southern Saskatchewan. The applicant claimed that the health authority’s tender call for computed tomography services was a breach of its existing contract that already covered those services. The lower court had rejected the application after finding that the incumbent could be compensated monetarily for any breach it proved at trial, and the appeal court agreed. The complainant was unable to prove in either court that it faced irreparable harm that could not be compensated with damages if its claim was successful, something that must be proven before an injunction is granted in jurisdictions where there are no standstill protocols in effect.
Furthermore, in its May 2019 decision in Northern Air Charter (P.R.) Inc v. Alberta Health Services, the Court of Queen’s Bench of Alberta awarded court costs against a complainant after rejecting its injunction application. The dispute dealt with a Request for Proposals (RFP) for air ambulance services. A losing incumbent bidder challenged the contract award through a judicial review application and sought an interim injunction in its failed attempt to stop the contract award from proceeding. In denying the injunction, the Court found that the incumbent failed to make a strong prima facie case that it was likely to succeed at trial and therefore declined to grant the injunction.
As this decision illustrates, unlike jurisdictions where losing bidders have an automatic right to an injunction when they lose a government bidding process, in jurisdictions where automatic standstills are not recognized, a losing bidder must convince a court that it is entitled to injunctive relief by meeting the high bar established by the governing common law standards. In this case, in addition to denying the injunction, the Court also awarded over $130,000 in legal costs against the losing bidder for its failed injunction attempt.
Regardless of the jurisdiction, as these cases illustrate, injunctions granted to losing bidders run the risk of creating contracting gridlock as public institutions scramble into court to argue for the lifting of the injunction or are locked into long-term litigation and operational disruptions when those injunctions are not lifted.
