On 28 July 2023, Lord Justice Coulson handed down a preliminary judgment in the IGT v Gambling Commission case in the English High Court. This is a significant procurement decision, which clarifies who has recourse to remedies in a procurement dispute.

Background

The judgment is the latest in a long-running procurement litigation, which arose out of the competition for the award of the Fourth Licence to run the National Lottery (“4NL”) by The Gambling Commission – a services concession contract, subject to the rules under the Concession Contracts Regulations 2016 ("CCRs"). The contract was ultimately awarded to Czech-owned company Allwyn, with incumbent supplier Camelot, who held the licence for over 30 years, finishing in second place.

At the time of the award, Camelot brought challenges against the Gambling Commission, claiming improper evaluation and a discrete conflict of interest in the tender process. Subsequently Allwyn acquired Camelot, which (unsurprisingly) then withdrew its challenge.

The dispute shifted focus when one of Camelot’s key sub-contractors, International Game Technology PLC (“IGT”) group of companies, pursued a stand-alone claim for damages against the Gambling Commission, arguing that they should have recourse to the remedies under the CCR for the significant loss of business suffered as a result of Camelot not being awarded the contract.

Legal issue

The legal questions centred on: (i) whether sub-contractors have legal standing under the CCRs to bring a cause for action before the UK courts; and, separately, (ii) whether a third-country sub-contractor can have recourse in services concession contract claims. The second question arose due to the corporate structure of the claimant group, which includes a US company, who was also a key sub-contractor of Camelot.

The meaning of “economic operator”

Under CCRs regulations 50 and 51, contracting authorities owe duties to “economic operators”. The judgment focussed largely on the exact meaning of “economic operator” under the CCRs, and whether this includes sub-contractors. IGT argued that because there is no current working definition of economic operator, and no express suggestion that sub-contractors do not have standing in current case-law, this confers a wide interpretative margin of who can bring a claim in procurement challenges, which catches anyone who provides services or supplies products on the open market – being the “plain reading” of the definition in the CCRs.

The court, however, rejected this claim, holding that such a wide interpretation is incompatible with the true legislative intent behind the regulations, which must be interpreted purposively. Otherwise, this would open the “floodgates” for claims coming from all sorts of actors, in a potentially never-ending supply chain regression.

Analysis

Do potential sub-contractors have standing?

The decision discussed at length the meaning and intent behind the relevant EU law, which the CCR transposes into UK domestic law (its application post-Brexit remains unaffected and was not the subject of this dispute). After scrutinising the EU preparatory works, which serve as authoritative explanatory notes for the law enacted, emphasis was placed on the difference between the interest in obtaining a procurement contract and the interest in the award of such contract.

Citing the final wording agreed in the preparatory works, it was held that the intention behind the EU Directives was to exclude anyone other than the (un)successful bidder(s) from accessing remedies, after reference to "any aggrieved third person" was removed from the original legislative text. Accordingly, it was held that the term “economic operator” under the CCRs is to be interpreted in a purposive manner that matches the meaning under EU law. That means that the only parties with an actionable cause for damages are those who:

• bid (successfully or not),
• tried to bid, or
• could not bid (on discriminatory grounds)

Crucially, this list included Camelot (the unsuccessful bidder), but not its sub-contractors nor its parent entity.

Does a third-country entity have standing?

As to whether a third-country (US-based) sub-contractor is caught by the scope of the CCRs, and more broadly, if such an entity has standing to bring legal claims before the UK courts, the court confirmed that the answer is no.

Insofar as the CCRs are concerned, an argument was put forward concerning the scope of the Government Procurement Agreement ("GPA"), agreed among the members of the World Trade Organisation (WTO) relating to procurement procedures, to which both the UK and the US are a party. As the third-country sub-contractor was US-based, the GPA applies to them, as well as the UK entities. Upon scrutiny, the court noted that the annexes to the GPA, which prescribe the scope of who has cause for action, do not include sub-contractors.

What this means for your organisation

• If you are a bidder:
  • You should be mindful of your relationship with fellow bidders before entering a competitive tender process.To avoid being caught in a dispute with your sub-contractors, you may wish to bid as a joint venture, special purpose vehicle or consortium (which would fall within the definition of “economic operator” per the court’s judgement), rather than relying on the prime/sub-contractor model.
  • Another option is entering into a contractual agreement with any sub-contractors, which addresses the position in the case of either party wishing to raise a procurement challenge.

• If you are a sub-contractor:
  • As above, you might want to negotiate a contractual position with the lead bidder, and to include clauses which strengthen your position if you want the lead bidder to challenge the decision (remember, this judgment says that you do not have standing to challenge in your own right).

• If you are a third-country bidding entity:
  • You might want to set up a UK entity to use to bid for UK contracts. However, be reminded that if you are a sub-contractor, you will be precluded from challenging in any instance.

At Burness Paull, our specialist procurement law team is best placed to assist you in procurement matters, from straightforward advice to complex issues and challenges. Please do not hesitate to contact us.

Related News, Insights & Events