The risk of misclassification

There have been a number of cases where procurements have been challenged on the basis that the procurement regulations should apply to the purchase, but have not been followed. David Hansom looks at the issues if organisations get the assessment wrong.

In the recent case of NATS (Services) Limited v Gatwick Airport Limited [2014] EWHC 3133 (TCC), the High Court prevented Gatwick Airport from awarding a new contract for air traffic control services. NATS, a company that specialised in air traffic management services, was an unsuccessful tenderer in a procurement carried out by Gatwick Airport for the services.

NATS argued that the procurement was subject to the Utilities Contracts Regulations 2006 (the Regulations) and therefore that, by commencing these proceedings in relation to the procurement, Gatwick Airport was prevented by the operation of the automatic suspension provision in Regulation 45G of the Regulations from entering into contracts with the successful bidder. Gatwick Airport contended that the Regulations did not apply to the procurement, and so the automatic suspension provisions could not apply.

In seeking to enforce the automatic suspension, and following the established principles in the American Cynamid and, more recently, Covanta cases, the Court adopted the legal test for whether an injunction should be granted. It considered whether there was a serious issue to be tried and, secondly, whether the balance of convenience lay in favour of granting or refusing the relief that was sought.

The Court concluded that there was serious issue to be tried as to whether the Regulations applied to the procurement. In looking at the second question, the Court had to consider whether damages would have been an adequate remedy for NATS. On this point, the Court found that damages would not be an adequate remedy because "…the loss of this contract in the procurement would have a substantial effect on the good will and trade reputation of NATS which it would be impossible properly to calculate in terms of damages..".

Ultimately, the judge concluded that the balance of convenience lay in favour of the contract not being entered into until the applicability of the Regulations had been determined at a later trial. On that basis, the judge did not lift the suspension in so far as the Regulations applied. Alternatively, if the Regulations did not apply, the judge considered that this was a case where there should be an interlocutory injunction preventing Gatwick Airport from entering into the contract with the successful tenderer.

Comment

This is an interesting case which perhaps shows a changing of the tide in the context of automatic suspension claims where the court is more willing to maintain the suspension. Contracting authorities need to be alive to the risk of misclassification of their status under the procurement rules - as a self-assessment system on risk, often it is too late to undo a decision by the time a challenger complains.

David Hansom is a partner and head of the public sector group at Veale Wasbrough Vizards. He can be contacted on 020 7665 0808 or This email address is being protected from spambots. You need JavaScript enabled to view it..