London Underground procurement challenge hits the buffers

A High Court judge has granted London Underground permission to enter into “distinctively prestigious” contracts with Siemens for the introduction of new London Underground trains despite an on-going challenge by some of the unsuccessful bidders (Bombardier Transport UK Limited & Ors –v- London Underground Ltd & Ors [2018] EWHC 2926 (TCC)).

The judge decided that there was a strong public interest in introducing the new trains as soon as possible and that to do otherwise was likely to cause years of further delays to a project which had already faced several delays.

The judgment also provides further guidance and comments as to the principles to be applied when considering whether the automatic suspension imposed by procurement challenges should be lifted or not.

The facts

The trains used on the Piccadilly Line underground line were manufactured in 1973 and introduced into service in 1975 with a design life of 40 years (i.e. up to 2015). London Underground had planned to replace the trains by 2014 under the Public Private Partnership (PPP) but that planned upgrade was cancelled due to the collapse of PPP.

In March 2014 London Underground commenced a procurement process for the contracts relating to the Deep Tube Upgrade Programme which included the manufacture and supply of 94 new trains for the Piccadilly Line, together with options for a further 150 additional trains for the Bakerloo, Central and Waterloo and City Lines.  The judge described the contract as “distinctively prestigious because of its size, location and value” with an estimated duration of 40 years and a potential value of up to £2.5 billion.

Five bidders were shortlisted in October 2014 and were invited to negotiate. The original procurement programme provided for a tender submission deadline of 18 July 2016, an award decision on 13 October 2017 and execution of the contracts on 23 October 2017. However, delays were experienced and the dates were postponed to September 2017, June 2018 and 8 November 2018 respectively.

In June 2018, London Underground informed all bidders that Siemens were the successful bidder and that they anticipated that the contracts would be entered into on 8 November 2018.

Court Proceedings and the hearing before O’Farrell J

In July 2018, two of the unsuccessful bidders – a joint venture between Bombardier and Hitachi (the Joint Venture) and Alstom – issued court proceedings seeking to challenge the procurement as having been unlawful and contrary to the Utilities Contracts Regulations 2006 (the Regulations).

The claimants alleged that there had been:

• manifest error and/or unlawful procedure in evaluating the claimants’ bids;
• manifest error and flawed methodology in the assessment of Siemens’ bid;
• failure to provide to or seek from the claimants adequate information during the procurement exercise;
• unlawful post-bid negotiations and amendments to the Siemens tender;
• application of unlawful and undisclosed award criteria;
• discrimination;
• apparent bias;
• failure to provide adequate reasons for the award decision, including the characteristics and relative advantages of the successful tender.

The claimants sought to set aside the decision to award the contracts to Siemens or damages. Alstom also sought a declaration that the contracts should be awarded to them.

The issuing of proceedings resulted in an automatic suspension preventing London Underground from entering into contracts with Siemens.

The claimants sought an expedited trial and wished for the suspension to continue through to a determination of the issues at a full trial; London Underground sought to lift that suspension to allow it to now enter into the contracts with Siemens.

The primary issue that the judge was required to determine at this preliminary hearing was whether the suspension ought to be lifted or whether it should continue awaiting a full trial of the issues.

The test to be applied – America Cyanamid

The court applied the well-established American Cyanamid principles in determining the issue as follows:

(i) Is there a serious issue to be tried?

London Underground conceded that there was a serious issue to be tried, albeit perceived that the claims were weak and that the claimants had failed to identify any cogent basis to indicate that the outcome of the procurement was incorrect or flawed.

(ii) If so, would damages be an adequate remedy for the claimants if the suspension were lifted and they succeeded at trial?

The judge decided that it was likely that damages would not be an adequate remedy for the claimants if they were to succeed at trial. The loss of the contracts as a result of unlawful procurement would likely have a substantial adverse effect on the reputation of the claimants which would cause losses that would be very difficult properly to quantify in damages.

(iii) If not, would damages be an adequate remedy for London Underground if the suspension remained in place and it succeeded at trial?

Similarly, the judge decided that it was likely that damages would not be an adequate remedy for London Underground if they were to succeed at trial. The project has taken years to plan, the manufacturing and supply lines had been integrated to meet the timetable and there were limited facilities to accept delivery of trains out of sequence and as such the delay in the implementation of the project would cause non-financial losses for London Underground if the suspension continued.

(iv) Where there is doubt as to the adequacy of damages for any or all of the parties, which course of action is likely to carry the least risk of injustice if it transpires that it was wrong, that is, where does the balance of convenience lie?

Therefore, the judge was required to decide which course of action was likely to carry the least risk of injustice and where the balance of convenience lay; did it lie in allowing for the automatic suspension to continue or in lifting the automatic suspension and allowing London Underground to enter into the contract with Siemens?

The balance of convenience

The claimants argued that the automatic suspension should continue on the basis that there had already been delays in the project, there was no urgency as the stock would already be well past its design life even if the procurement proceeded with the envisaged timetable, there would be substantial savings and benefits to the public – especially if London Underground were required to pay twice (the contract price and damages) – and that there was a public interest in London Underground complying with procurement law. Additionally, lifting the automatic suspensions would deprive the claimants of an effective remedy and potentially of any remedy at all.

London Underground argued to the contrary and that prejudice would be suffered if there were further delays in signing the contracts with Siemens, including the limited size of the fleet which restricted the level of service, insufficient capacity to meet current and future demand, the condition of the rolling stock deteriorating, age-related failures had begun to occur and reliability performance had declined, even if contracts were signed in November 2018 some of the Piccadilly line trains will continue in service until Autumn 2026 and a delay in singing contract would mean they would continue in service further than 2026. The introduction of new trains would enable London Underground to offer a significantly improved service in terms of capacity, frequency, comfort and accessibility and deliver substantial benefits to its daily users and the London economy.

The judge’s decision

The judge decided that the balance of convenience fell in favour of the automatic suspension being lifted and permitted London Underground to enter into the contracts with Siemens. She stated that:

“There is a strong public interest in introducing the new trains as soon as possible and decommissioning the old stock. Maintaining the suspension is likely to cause years of delay to the works. The public benefit has already been deferred as a result of the collapse of the PPP. Further delay is not justified in this case.”

The judge also commented that public interest in contracting authorities complying with procurement law must be balanced against the public interest in the contracting authority’s entitlement to proceed with a MEAT tender following a lawful and fair procurement.

Whilst each case will turn on its own facts, the judge made some further interesting comments as to the court’s approach in such cases:

• The time taken to prepare the procurement was reasonable and proportionate given the scale of the re-organisation required and the potential costs of the project during a period of national austerity.
• The judge refused the application for an expedited trial – the substantial exercise of disclosure had scarcely started and would involve large number of technical documents which would likely lead to amendments to the parties’ pleadings. Expert evidence would likely be required in this case. As such the trial of the dispute would not be ready for trial before November 2019. In any case, the court would not have been able to accommodate a 4 week trial before November 2019 without causing unjustified disruption to other cases in the court’s list.
• There may be cases where the works or services are critical for health or safety or where a significant deadline will occur before the dispute can be determined. Urgency in delivering works or services could be a persuasive argument for or against the grant of interim relief by reference to the public interest. Each case must be judged on its own facts.
• The court recognised that it is rare for expert evidence to be permitted in procurement cases. In procurement challenges the court is concerned with the lawfulness of the process rather than reassessing the decision. It is not required to make its own determination as to the winning tenderer. Therefore in many cases, expert evidence is not appropriate. However, in this case, the court would be asked to determine whether London Underground’s evaluation of at least two of the technical proposals was within the range of reasonable conclusions open to it, and the court found it difficult to see how that could be determined in the absence of expert evidence.
• A court should not take into account the further delay that would be necessary if the contracting authority had to re-run the procurement exercise – the procurement exercise would only have to be re-run following a trial where the court had found that the contracting authority had acted unlawfully and the appropriate remedy for such unlawfulness required the award of the contracts to be set aside.

The European Commission announced in 2017 that it would disseminate guidance on the development criteria to be applied to lift the automatic suspension and such guidance is awaited.

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