Blue Light Legal

Welcome to the third issue of Blue Light Legal, a quarterly bulletin looking at the latest legal developments and know-how across the areas of commercial contracts, procurement, outsourcing, technology, data protection, employment and construction relevant to the fire and rescue sector.

We hope you enjoy this issue. If you have any comments or feedback, please get in touch with Saman Anwar.

 

Commercial Contracts

• Triple Point Technology, Inc v PTT Public Company Ltd (2021) - the parties entered into a contract under which Triple Point agreed to develop, implement, and maintain a software system to assist PTT’s commodity trading in Thailand. Disputes arose when the project faced delays. PTT refused to make payment, and Triple Point refused to perform the contract. PTT then terminated the contract, seeking to recover, amongst other heads of loss, liquidated damages. Prior to termination, Triple Point had completed stages 1 and 2 of phase 1 of the works, but the other works remained incomplete. The contract included a liquidated damages (LDs) provision for delay to the works:
• “If Contractor fails to deliver work within the time specified and the delay has not been introduced by PTT, Contractor shall be liable to pay the penalty at the rate of 0.1% of undelivered work per day of delay from the due date for delivery up to the date PTT accepts such work …”
• The contract also required Triple Point to exercise “all reasonable skill, care and diligence and efficiency in the performance of the Services under the Contract.”
• The contract further contained a limitation of liability clause: “This limitation of liability shall not apply to CONTRACTOR’s liability resulting from fraud, negligence, gross negligence or wilful misconduct of CONTRACTOR or any of its officers, employees or agents.”

The main issues were: (1) can you claim LDs where the work is never completed?; (2) how do the liability caps interact with LD clauses?; and (3) do LDs exhaust the cap?

On Issue 1: yes, PTT was entitled to LDs - they did not “fall away” because there had been no acceptance. This would render LD clauses ineffectual where there was no performance at all. This is good news for customers. The right to liquidated damages accrues until the termination of the contract, and thereafter general damages may be sought.

On Issue 2: the Court ruled in favour of PTT which was entitled to damages of approximately USD14.5m. Triple Point’s liability to pay LDs was not capped. The Court decided that including the word ‘negligence’ in the exclusion to the liability cap had the effect of excluding all breaches of the duty of contractual skill. There are no specific rules to interpreting limitation of liability clauses, but the nature of the clause may give context to its intention. In the absence of clear words to the contrary, it can be assumed that parties do not intend to give up rights they would otherwise have at law.

On Issue 3: payments made under the LDs should count towards exhaustion under the liability cap.

Why is this case relevant?

Contract drafting tip 1: when drafting a contract, it could be made crystal clear by stating that the LDs apply “up to the date (if any) Customer accepts the work”. It may be preferable to spell out overtly that accrual of liquidated damages for delay is not dependent on the work having been completed/accepted, and that they accrue up to termination even where completion/acceptance has not occurred.

Contract drafting tip 2: when drafting a contract, liability caps or exclusions should clearly state if it includes liability to pay LDs. When parties seek to carve out specific acts/omissions/causes of action from a liability cap, they must be clear whether they intend to provide for a carve-out of contractual claims, or something else.

 

Procurement

An update on the Procurement Bill:

• Latest progress and webinar – the Procurement Bill received Royal Assent on 26 October - officially making the Bill into an Act of Parliament. The UK Government is now planning for the necessary secondary legislation to be laid in Parliament in early 2024, and it is anticipated that the new regulations will come into effect from October 2024 after a 6 month preparation period. The Procurement team at DLA Piper are holding a webinar on Wednesday 15 November on the new Procurement Act and the key updates to the procurement regime. The webinar will cover routes to market, contract management, including changes to contracts, transparency requirements and exclusions and debarment. Please register via our website, and feel free to share the webinar details with colleagues who may also want to attend.

Proposed legislation:

• Economic Activity of Public Bodies (Overseas Matters) Bill - the UK government has recently introduced the Economic Activity of Public Bodies (Overseas Matters) Bill to the UK Parliament. The Bill seeks to ban public authorities from imposing their own boycott or divestment campaigns against foreign countries and territories. Clauses 14 and 15 of the Bill set out the Bill's relationship with procurement legislation and the related changes to local government contracting restrictions contained in the Procurement Act. The Bill has now had its first and second reading and has been sent to the Public Bill Committee which is expected to report to the House of Commons by 14 September 2023. A House of Commons library research briefing explaining the main clauses of the Bill is available here.
• Foreign Subsidies Regulation - The Foreign Subsidies Regulation contains a set of rules for addressing distortions caused by foreign subsidies granted by non-EU countries to businesses that are active in the EU. One rule introduced by the Regulation is a public tenders notification requirement. The notification obligation applies from 12 October 2023. In terms of this rule a participant in a public procurement procedure launched after 12 July 2023 must notify its “foreign financial contributions”to the contracting authority with its tender when:
• it is tendering for a works, supply or services contract or a concession estimated to be worth at least EUR250 million; and
• it (or its holding companies, any subsidiary companies without commercial autonomy and/or its main sub-contractors) was granted foreign financial contributions of at least EUR4 million per third country over the 3 preceding years.

“Foreign financial contributions” cover any form of direct or indirect contribution from non-EU governments or any public or private entity attributable to a third country. They can include direct grants, interest-free or low-interest loans, tax incentives, state-funded R&D, government contracts, and grants of exclusive rights without adequate remuneration.

The Regulation provides for fines of up to 1% of aggregate turnover for incorrect or misleading information in the notification, and up to 10% of aggregate turnover for failure to notify or circumvention of the requirements. The template filing form was issued within the European Commission Implementing Regulation (EU) 2023/1441 on 10 July 2023.

Procurement case law updates:

• Teleperformance Contact Ltd v Secretary of State for the Home Department and another (2023) - in a procurement involving 5 contracts for visa and citizenship application services, the defendant, Secretary of State for the Home Department (SoS), awarded the claimant, Teleperformance Contact Ltd (TCL), one contract (Lot 5). TCL made 4 other unsuccessful bids and commenced proceedings against the SoS concerning 3 of these. The SoS applied to lift an automatic suspension on entering the contracts subject to challenge under regulation 95(1) of the Public Contracts Regulations 2015 (PCR 2015).

TCL was a special purpose vehicle (SPV) which delivered the procured services. It was a wholly-owned subsidiary of a holding company (TLS) owned by the group holding company. The financial losses TCL claimed were not sustained primarily by TCL itself, but by other group entities and the parent company. TCL could not recover those losses against the SoS.

The High Court upheld the SoS's application and lifted the stay. It considered that damages would be an adequate remedy for TCL if the suspension were lifted and it succeeded at trial. In analysing the adequacy of damages, it was inappropriate to account for the losses of other SPVs and the wider group companies because:

• a disadvantage of organising business through SPVs could just be that losses were sustained by a third-party entity with no right of action, and which was owed no duty, under the PCR 2015;
• the other TLS group SPVs were not economic operators with standing to bring claims and were owed no duty under the PCR 2015. It was not unjust to ignore their losses when considering injunctive relief;
• there was “insufficient nexus” between the TLS SPVs' losses and TCL's. TCL would exist despite TLS SPVs' losses (not least to operate Lot 5).

TCL's losses could be quantified and damages would be adequate in respect of those.

Why is this case relevant?

This case is helpful to clarify the circumstances in which losses suffered by group companies (as opposed to the bidding entity itself) can be taken into consideration when assessing whether a claimant in procurement cases could be adequately compensated by an award of damages.

• Dukes Bailiffs Ltd v Breckland Council (2023) - in this case Dukes, the incumbent provider, challenged the award of a contract for the provision of debt enforcement services by a contracting authority to another supplier. The claimant argued that the Public Contracts Regulations 2015 (PCR 2015) applied and that the award was unlawful on several grounds within the PCR 2015. The contracting authority opposed this argument and sought summary judgment on the basis that the contract was not a public contract but a below threshold concession contract to which the Concession Contracts Regulations 2016 (CCR 2016) applied. The Court agreed with the contracting authority. It held that the contract was a "concession contract” under the CCR 2016 and that none of the obligations or remedies within the PCR 2015 were relevant. The application for summary judgement was therefore granted. The decision will be of interest to contracting authorities who need to consider whether a contract is governed by the PCR 2015 or the CCR 2016 in future.

Dukes also claimed that, even if the PCR 2015 did not apply, the contracting authority had expressly or impliedly contracted with Dukes to award the tender as if it did, so breaches of the PCR 2015 were breaches of contract. However, the Court did not rule on Dukes' claim that the tender documents created a contract obliging the procurement procedure to be conducted "as if" the PCR 2015 applied. This question may proceed to trial if Dukes decides to pursue it, but any remedy will be limited to damages since the PCR (and its statutory remedy to set aside the contract award) does not apply.

Why is this case relevant?

The case emphasises the need to ensure that tender documents clearly set out the procurement rules that will apply to the contract. This will be even more important going forward when adopting the new procedures under the Procurement Act. It also highlights the benefit of ensuring that procurements are stated to be "subject to contract” within the procurement documents so that a contractual relationship will not be created in relation to the procurement procedure itself.

 

Procurement Policy Notes:

• PPN 08/23 (Using Standard Contracts) – the Government Commercial Function (CGF) and Government Legal Department (GLD) have published 3 standard contracts for use by Government Departments and other public sector organisations as part of their commercial activity. This PPN clarifies that where an organisation is purchasing bespoke goods or services, or goods and services which cannot be facilitated by a suitable government framework, such as a CCS Framework, DPS or Low Value Purchase System, they should adopt one of the standard contracts as the basis for all relevant procurements, rather than creating bespoke contracts.
• PPN 09/23 (Updates to the Cyber Essentials Scheme) - Cyber Essentials is a Government backed scheme to help businesses of any size protect themselves against a range of the most common cyber attacks and to demonstrate their commitment to cyber security. To ensure appropriate cyber security controls are in place and reduce cyber security risks in supply chains, the Government has required suppliers bidding for certain types of public contracts to hold Cyber Essentials or Cyber Essentials Plus certification (or equivalent). This PPN sets out the actions public sector organisations should take to identify and mitigate cyber threats for certain types of contracts, along with resources to support implementation.

 

Technology

• NIS2: the arrival of the second Network and Information Systems (NIS2) Directive is only 1 year away. With significantly enhanced requirements around cybersecurity management extending across the supply chain, increased reporting obligations in the case of cyber breach, and personal liability for senior management, working out whether or not an organisation will be in scope for NIS2 will be an important question, instigating possible months of preparations if the answer is yes. NIS2 has increased the number and type of sectors to which former NIS1 rules will apply, but the question of NIS2’s application will also depend on an organisation’s size and where it offers its services. This may be of interest to contracting authorities to understand whether any of their suppliers will be caught by NIS2. Please read further on our blog here.
• AI Governance Report: concerns over responsible AI have risen sharply alongside AI adoption, and global policymakers are rapidly formalizing AI rules to mitigate societal, technical and commercial challenges. Realising the transformational potential of AI means distinguishing genuine matters of concern from “phantom” risks, and enabling continued progress with appropriate legal frameworks, compliance protocols and ethical guardrails. DLA Piper’s AI Governance Report cuts through AI hype and hysteria to offer a practical perspective on AI governance, strategies, challenges and risks. These insights are based on original research among 600 leaders in a wide range of organizations across the globe. We asked about what they are already doing in relation to AI, what they are planning to do and what concerns remain to be addressed. A copy of the report can be downloaded here.

 

Data Protection

• EU-UK Data Privacy Framework Extension - following the European Commission’s adequacy decision for the EU-US Data Privacy Framework (DPF) (for further information see here), the UK Government has announced that from 12 October 2023, organisations in the UK can transfer personal data to US organisations certified to the “UK Extension to the EU-US Data Privacy Framework”, without the need for additional data protection safeguards. This enables the flow of data from UK to the US without the need to conclude Standard Contractual Clauses for DPF-eligible organisations. Please read further on our blog here.

 

Employment

• Business Transfers (Post-Brexit changes) - the UK Government has recently consulted on proposed changes in relation to the rules on employee information and consultation on a business transfer. In the consultation paper, the Government recognises that the TUPE regulations, which provide a legal framework for transfers of staff in a business acquisition or service provision change, provide important protections for employees and also recognises the importance of an employer consulting with employees and employees’ representatives in relation to a transfer. However, given that businesses can find some aspects of the regulations burdensome, the Government is proposing changes to TUPE consultation requirements with the aim of simplifying the transfer process. The proposals are that:
• small businesses (with fewer than 50 employees); and
• businesses of any size involved with small transfers of employees (where fewer than 10 employees are transferring),

should be permitted to consult directly with their employees on a TUPE transfer, if there are no employee representatives in place, rather than being required to arrange elections for new employee representatives. If employee representatives are already in place, then the employer would still be required to consult with them.

 

Construction

• JCT Contracts 2024 - the JCT have announced that we can expect their long-awaited new suite of contracts to be published next year, including important updates in relation to the Building Safety Act. Information about the new suite of contracts remains limited, but we understand the main features will include:
• modernising and streamlining – including adoption of gender-neutral language, and increased flexibility around the use of electronic notices;
• New Target Cost Contract – the introduction of a new contract family, JCT Target Cost Contract (TCC), comprising main contract, sub-contract, and guide;
• legislative changes – major updates in relation to the Building Safety Act together with amendments to the termination provisions to comply with the Construction Act and to reflect the Corporate Insolvency and Governance Act 2020;
• future proofing – including changes to reflect the objectives of the Government’s Construction Playbook, and the incorporation of previously optional supplemental provisions relating to collaborative working and sustainable development and environmental considerations, into the main body of the contracts; and
• liquidated damages – where works are not complete at terminations, LDs can be levied up to termination and subsequently general damages following the Supreme Court’s decision on Triple Point Technology, Inc v PTT Public Company Ltd (as detailed above).