The Halloween “horror story” of how a procurement can go horribly wrong if the fundamental principles are ignored

Catherine Bogoje explores how a procurement can go horribly wrong if fundamental principles are ignored.

On the 29th of July 2022, the High Court issued its judgement in Consultant Connect Limited v (1) NHS Bath ICB (2) NHS Gloucestershire ICB and (3) NHS Bristol ICB.

The judge considered the breaches of the Public Contracts Regulations 2015 and the deliberate conduct that led to those breaches were so serious as to warrant the contract to be shortened, to award damages to the claimant and impose financial penalties on the ICB’s.

The case concerned 3 Clinical Commissioning Groups (“CCG’s”) (Integrated Care Boards (“ICB’s) from July 2022) who wished to jointly procure a contract for the provision of “advice and guidance” services, by which GPs use an app to seek advice from hospital consultants about their patients. The claimant, Consultant Connect Ltd (“CC”), was an incumbent provider to NHS Bath. Monmedical Limited, t/a as “Cinapis” was the incumbent to NHS Gloucestershire and was awarded the new contract following a flawed procurement process undertaken by the CCG’s.

We take a look at a few of the key issues that arose which led to the “murder” of the procurement rules.

Once upon a time, during the depths of the dark pandemic times, 3 CCGs embarked on a fateful journey……

1. Market Engagement – the beginning of the end

The CCG’s invited CC, Cinapsis and another supplier to each deliver a presentation. Unknown to any of the suppliers, the CCGs had a list of 6 Q&A and c.28 “must requirements” along with a scoring sheet to use for the presentations. Cinapsis came out on top from this “scoring” exercise.

CC successfully claimed that it was excluded from bidding following a secret, undisclosed evaluation process at the product demonstration day. The demonstration day was “a material part of the process”, conducted without any attempt to observe the most basic requirements of equal treatment and transparency.

The demonstration and scoring exercise carried out by the CCG’s was not a permitted market testing exercise within regulation 40 of PCR 2015. It was deemed the first stage in what was, objectively viewed, a procurement process. Alternatively, if the exercise was a market testing exercise at all, it was one that had the effect of distorting competition and resulted in a breach of the principles of non-discrimination and transparency, contrary to regulation 40(3). The effect was to promote the cause of Cinapsis in preference to that of CC or any other potential competitor. The questions, scoring sheet and list of “must” requirements used to evaluate the relative qualities of the candidates’ products went beyond market testing.

The judge commented, “The label put on it by the organisers is not conclusive…. calling it a market testing exercise will not absolve the contracting authorities from their obligations of transparency and equal treatment.”

2. Specification – the good, the bad….….

The good news is, the judge found that the CCG’s specification for the call-off contract could lawfully provide for functionality going beyond the terms of the framework, it did not enter the forbidden territory of “substantial modifications” to the framework, rather it comprised “more precisely formulated terms”. As the services described in the framework were broad the specification was sufficiently within the scope of the PIN, Contract Notice and ITT.

The CCGs draft specification was written on the basis of Cinapsis’ existing provision to NHS G which the judge considered to be legitimate – “the natural advantage of incumbency is not the same thing as unfair bias in favour of the incumbent”.

Unfortunately, however, the CCGs then went too far in designing their final specification to ensure Cinapsis could meet it. The CCG’s had tailored their specification to a particular supplier rather than from an objective assessment of the CCGs needs irrespective of who would be the supplier.

3. Conflicts of Interest and bias…and the ugly

The issue of conflict of interests and bias centred around the actions of two employees, Mr T of the CSU and Dr G of NHS Gloucestershire.

A couple of days before the supplier presentations, Dr G appeared at an event sponsored by Cinapsis. As a result, Dr G was not to be present at CC’s presentation. Dr G however made a presentation to the CCGs (who would be attending the supplier presentations the next day) about Cinapsis and he attended the other supplier presentations. Mr T sent screenshots of CC’s presentation to Dr G. Following the presentations, Dr G contacted Cinapsis, coaching them on the CCGs’ requirements and providing draft text for Cinapsis’ “vision”. During negotiations between the CCG’s and Cinapsis, Dr G intervened, engaging with Cinapsis directly and urging the CCGs to accept their offer.

The judge found the CCGs took no “appropriate measures” under regulation 24(1) to “prevent, identify and remedy” these conflicts of interest. The duties of equal treatment and transparency were breached in the course of the procurement. Both employees were found to have had “conflicts of interest arising in the conduct of the procurement procedure and they colluded to breach CC’s confidence”.

Mr T crossed the line when he started planning the appointment of Cinapsis without any competition and thereafter he lobbied tirelessly in favour of a joint procurement of Cinapsis.

Dr G was partisan in advocating the appointment of Cinapsis and not assessing its performance in a balanced and objective way. It appeared Dr G later influenced the financial negotiation in Cinapsis’ favour and whilst Dr G may have been well intentioned, he is a clinician; it was wrong for him to intervene in financial negotiations, especially in favour of a company with which he had close ties.

There was organisational bias in that those present at the demonstration had also been present at Dr G’s presentation the previous day and were likely to have been predisposed in favour of Cinapsis. The judge didn’t find their motivations dishonourable, he considered they believed they were doing what was best for the NHS in their area but “Mr T regarded a fair and lawful procurement process as a bureaucratic nuisance.….Dr G too considered that he knew best. It does not appear to have occurred to the other participants that they could have got a better deal if they had followed the letter and spirit of the Regulations.”

Looking for a shining light in all of this, the judge did not consider a conflict of interest arose merely because they had experience of Cinapsis’ service provision and admired it; that’s normal where there is an incumbent provider performing satisfactorily.

4. Utilising a framework agreement to award a contract to a preferred supplier….. look away now if you’re squeamish

Cinapsis was appointed to a previously tendered NHSE framework agreement CC was not. Following the “market testing exercise” and the CCG’s determining Cinapsis as their preferred supplier, the CCGs proceeded to call off from the framework but all was not as it should be.

The judge considered that as the mini-competition featured only one supplier, Cinapsis, it was not genuine. Other framework members were not given an adequate opportunity to compete. Mr T’s quest to exclude the other framework members was unequal compared with the treatment of Cinapsis.

The judge found in favour of CC in that the CCGs decided to use the framework to affect the direct award of the contract to Cinapsis in breach of regulations 18(2) and (3) of the PCR 2015. In this case, the winner has been picked, first by means of a covertly competitive process outside the framework, and then using the framework without genuine competition. “The framework was used as a shield to justify the exclusion of CC and others.” The competition here was unreal because the CCGs’ requirements were tailored to those of the competitor and the scoring was unreal because the sole bidder’s performance was not being measured against anybody else’s performance.

The judge found that even though CC was not appointed to the framework, given the conduct of the CCGs, CC was sufficiently affected by the decisions of the CCGs to have a basis for challenge.

The judge helpfully clarified the following:

• If it is established after sending out the tender documents to at least 2 framework members that there is only 1 bid, then there has been sufficient competition, but the sole bidder wins it by default.
• If there is only 1 member of the framework considered suitable the contracting authority must either enter into a call-off contract with the only framework member in the running (under regulation 33(8)(a) – a direct award) or conduct an open procurement process outside the framework.

5. Varying the terms of the framework…it gets worse

Following receipt of Cinapsis’ response to the mini-competition, the CCGs engaged in price negotiations. CC claimed that the pricing agreed upon bore very little resemblance to the method of pricing provided for in the blank price matrix filled in by the framework bidders which was for the cost to be measured by bands of numbers of users of devices. The pricing agreed with Cinapsis was for an “enterprise licence” per NHS service.

The judge found the change in pricing fell on the wrong side of the dividing line between forbidden “substantial modifications” to framework terms. The agreed pricing terms substantially departed from the framework pricing terms, in breach of regulation 33(6). The charging basis was altered completely. The “competition” was therefore not “based on the same terms as applied for the award of the framework agreement”; nor were the differences merely “more precisely formulated terms” or “other terms referred to in the procurement documents for the framework agreement”.

Court Order…the painful end

CC sought an order for the contract to be declared ineffective (as it had effectively been awarded directly to Cinapsis, without advertisement). The Court considered there were overriding reasons relating to a general interest not to do so as this would cause disruption to staff and patients and decided instead to make a contract shortening order, shortening the contract awarded to Cinapsis to 14 months to allow the CCGs to carry out a lawful procurement exercise.

The judge ordered civil penalties of: £10,000 payable by NHS Gloucestershire, £8,000 for NHS Bath and £4,000 in the case of NHS Bristol.

The judge found the conduct of the CCGs amounting to the breaches was deliberate and they sought to defend the indefensible which justified an award of damages.

Key takeaways – top tips to avoid your own horror story.

• Procurement/legal teams should consider carrying out training with Authority attendees prior to any early market engagement event (“EME”).
• Ensure all potential suppliers, whether they have attended EME or not, are given the same information to maintain a level playing field.
• Obtain and record declarations of CoI prior to starting any EME and if there is a CoI deal with it appropriately. Review CoI at appropriate intervals
• during the process and record decisions made.
• Have an independent person or legal advisor review the proposed specification and procurement strategy to ensure it is objective and not geared towards a particular supplier or solution.
• Check the proposed call-off contract is within scope of the original framework and the Authority is not proposing any substantial modifications.
• Ensure the Authority properly follows the stated process for mini-competitions or direct awards under a framework.

We advise contracting authorities on all manner of issues relating to public procurement and procurement challenges. We are on hand to guide contracting authorities through the intricacies of running complex procurements and responding to procurement challenges.

Catherine Bogoje is a Senior Associate at Sharpe Pritchard LLP.

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