Two recent cases have highlighted the dangers of so-called service level "ambushes" in relation to outsourcing contracts and similar agreements.
What is a service levels "ambush"?
The following cases illustrate the kind of behaviour which can be characterised as a service levels "ambush":
- In Mid-Essex Hospital Services v Compass (t/a Medirest) (2013), an NHS Trust wished to terminate a catering contract so that it could appoint another provider. It began to apply the service levels scheme to relatively minor failures, such as the discovery of butter sachets with no use-by date (for which 63,220 service failure points were awarded). The Trust's aim was to justify termination for cumulative failures to meet service levels.
- More recently, in Portsmouth City Council v Ensign Highways (2015), the Council wished to renegotiate a 25 year PFI contract for road maintenance. It adopted an approach where any failure, however minor, attracted the maximum number of service points (which could ultimately trigger various sanctions, including termination). This was with a view to pressuring the supplier into agreeing changes to the contract.
Does the customer always win?
Where (as in these cases) the customer is in a position to take the lead on the assessment of any failure to meet service levels, it may appear to be in a strong position. Indeed, that was largely how matters played out in the Medirest case, where the Court of Appeal ruled that the Trust was entitled to terminate on the basis of the supplier's failure to meet service levels.
That said, the Trust was criticised for initially applying the service levels scheme to relatively trivial matters such as butter sachets – a position from which it had retreated by the time the matter came before the court.
In Ensign Highways, however, the outcome was not as favourable to the customer. The Council argued that it was entitled to apply the service points as if they were a "fixed tariff" – so that minor failures could potentially attract maximum points. The court disagreed, noting that the Council had been content to operate the service points system much more flexibly in the past, having regard to the seriousness of the breach.
In addition, the Schedule where the service points were set out referred to "maximum" values, implying that the actual points awarded for each failure would often be lower. The court also took the view that the Council's interpretation "[did] not make [….] commercial sense" given the background to the contract.
