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Automatic suspension of healthcare contracts: the Lancashire Care case

Internecine litigation within the public sector is never a pretty sight for the taxpayer, who ultimately foots the bill.  And unfortunately the healthcare sector is currently a prime battleground for claims brought by one public body against another.   The recent judgment in Lancashire Care NHS Foundation Trust v Lancashire County Council  [2018] EWHC 200 (TCC) (8 February 2018) is just such a case. It is also a relatively rare example of the Court refusing to lift the automatic suspension of a health care contract.  The case concerned a contract for the provision of public health and nursing services for those aged 19 and below in the defendant Council’s area.  The two Trusts who bought the claim were the incumbent providers of the services which had been subject to the tender, which was ultimately won by Virgin Care Services Ltd. Fraser J found firmly in favour of the  claimant Trusts on the issue of adequacy of damages. The key factor was that the claimant Trusts were the incumbent providers of the type of care services in question. The failure to secure the contract would not just cause redundancies but would result to a significant restructuring of patient pathways and delivery of care in Lancashire (at [39]).  He also indicated (although neither party sought to argue it) that the fact claimant Trusts were operating the current contracts on a not-for-profit basis was also a material factor when considering whether damages would be adequate. The case should therefore be added to the growing list of examples which tend to suggest that the balance of convenience is tipped firmly in favour of maintaining the suspension where a public body is the claimant (see a more detailed discussion of this in the remedies section of Chapter 12 of the Landmark Chambers Guide to NHS Law which can be found here

One particular aspect of this case is worth noting as it is of wider application for NHS commissioning as a whole.  One of the arguments that the defendant Council put forward was to the effect that if the automatic suspension were maintained, the Council would have to extend the current contract provided to the Trusts, and that those extensions would themselves breach the PCRs. In the particular context of an application to lift a suspension, this was not a particularly attractive one to advance. The judge made short thrift of it: in summary, he held that the Council couldn’t rely on one type of potential unlawful action (i.e an illegal award of extensions to the current contracts) to justify the unlawful award of the new contract (see the analysis at [31] to [37]).

It is hard to  find much fault with Fraser J’s reasoning here.  But what the argument does highlight is a wider problem: namely repeated extensions to current healthcare contracts where commissioners have decided either to abort procurement competitions for new contracts for the same services halfway through, or fail to award contracts at their conclusion.  In such circumstances, unless the extensions to the current contracts are advertised after advertising and a competition, or fall within the standard contract extension provisions in the NHS contract, then they may constitute a direct award of a contract and therefore breach both the Public Contract Regulations (“PCRs”) and the NHS (Procurement, Patient Choice and Competition) (No.2) Regulations.  There are various “safe harbours” that could potentially be relied on in Regulation 72 of the PCRs (which codify the Pressetext conditions for the amendment contracts during their term): for example, it might be possible to show that the value of those amendments is not substantial within the meaning of that term as used in that Regulation.  Regulation 32 also allows for a direct award without advertising in cases of extreme urgency, but only in cases of unforeseen circumstances (which do not include circumstances of the authority’s own making).  That therefore cannot provide a get-out-of-jail card for the contracting authority.   Indefinite and repeated contract extensions are thus potentially problematic, and commissioners need to be careful before putting themselves between this rock and a hard place.