A recent decision of the Northern Ireland High Court has upheld a claim against a public authority for wrongfully rejecting a tender on grounds that it was abnormally low. This is the first case in the UK to uphold such a challenge. It provides useful guidance for public authorities and utilities as to how to investigate abnormally low tenders. Whilst this case relates to the previous 2006 public procurement regulations, it will be of particular interest now given that the new 2015/2016 regulations introduce a positive duty on authorities and utilities to investigate abnormally low tenders.

F P McCann Limited v The Department for Regional Development

The claimant, F P McCann, was a civil engineering contractor who formed a joint venture consortium with Balfour Beatty (referred to as “BBMC”) to bid for major road widening works in Northern Ireland. The tender process was run by the Department for Regional Development (the “DRD”) in 2009 under the Public Contracts Regulations 2006 (“PCR 2006”).

The contract and tender process

The works were to be let in two phases, the first being a consultancy appointment under an NEC3 Professional Services Contract, and the second for the works themselves under an amended NEC3 Option C with target cost.

The Phase 2 contract was to contain a pain/gain share mechanism for the parties, whereby the successful contractor would make interim applications at the “defined cost” (being actual costs plus an uplift) and would share in either the savings or the additional costs if the outturn cost was less or more than the target cost respectively. Agreeing the target cost during Phase 1 was to be a condition precedent for entering into the Phase 2 contract.

The commercial submission sought prices and output estimates for specified areas of works, which DRD thought would be those most likely to be subject to variation when it came to agreeing the target cost during Phase 1. These however only represented 20% of the overall estimated value of the works.

Regulations 30(6) and (7) of the PCR 2006

Regulations 30(6) and (7) provide that if an offer for a public contract is abnormally low, the authority may reject that offer but only if it has taken a number of steps including requesting an explanation and verifying the offer or parts of the offer being abnormally low with the economic operator. The equivalent modified provisions in the new regulations can be found in Regulations 69 of the new PCR 2015 and Regulation 84 of the UCR 2016 (and Scottish equivalents).

BBMC’s tender and ALT process

BBMC’s tender was considered to be substantially lower than the next lowest priced tender and lower still than the average tender (being said to be 59% of the benchmark price and 76% of the next lowest tender).

Over a two week period in November 2009 two clarifications were raised with BBMC. These related to the rates submitted in relation to drainage, earth works, pavements and structures. The second clarification request did not state specifically that there were concerns that the rates submitted were abnormally low. Following a DRD Road Service Board meeting in December 2009 BBMC were notified on 4 January 2010 that their tender had been rejected as it was considered abnormally low.

Wrongful rejection

In a judgment delivered on 1 June 2016, Mr Justice Colton upheld BBMC’s challenge, finding that whilst DRD had “sought to comply” with the PCR 2006, it had acted in breach of Regulation 30 when rejecting BBMC’s tender.

Mr Justice Colton set out three specific concerns with the DRD’s approach:

  • The decision to reject was made by the DRD’s Road Service Board based on papers which purported to summarise the conclusions of the team within the DRD responsible for assessing the commercial aspects of BBMC’s tender (known as the “Commercial Evaluation Panel” or “CEP”). However, the Board papers did not accurately reflect the conclusions reached by the CEP and included grounds of rejection which the CEP had discounted.
  • Regulation 30(6)(a) required the DRD to request in writing an explanation of those parts of the tender it considered to be abnormally low. However, the Road Service Board had based its decision partly on matters which the CEP had discounted and no explanation had been requested from BBMC in relation to these matters.
  • Regulation 30(6)(c) required the DRD to verify those parts of the tender which it considered to be abnormally low. The evidence showed that an issue of significant concern to DRD was whether it would actually be able to agree a target cost with BBMC for Phase 2, but BBMC were not informed of this concern. BBMC should at least have been asked to confirm that their rates would be used as the basis for agreeing the target costs. Further, the court was of the view that “verification also requires an element of engagement between [DRD and BBMC] whereby [DRD] explains to [BBMC] the basis and reasons for its decision” (at para. 86).

Mr Justice Colton expressed other concerns over the robustness of the DRD’s verification of particular parts of BBMC’s offer which it considered to be abnormally low. One element which contributed to the DRD’s decision to reject the tender was the low price for bitumen offered by BBMC. BBMC had explained the basis for its figure, but the DRD had rejected this explanation by reference to input it had received from a third party bitumen supplier in Northern Ireland. The third party bitumen supplier was called in evidence and did not support the DRD’s case. Neither had the DRD given BBMC a further opportunity to comment on the third party’s input.

Having held that the DRD had acted unlawfully in breach of its duties under Regulation 30, Mr Justice Colton held that BBMC was entitled to damages. He was however unable to conclude that BBMC would necessarily have been awarded the contract had the breaches not occurred, as it was conceivable that DRD could have properly rejected the BBMC’s tender had it complied with regulation 30(6). However, there was also a significant chance BBMC would have been awarded the tender and BBMC was therefore entitled to a “meaningful award” in damages to reflect that “loss of chance”.

Comment

The extent to which the EU public procurement rules require authorities and utilities to investigate abnormally low tenders has been unclear for a number of years. Whilst this case deals with the provision under the old 2006 rules, and not the new 2015/2016 rules, it is useful in setting out the applicable legal principles in terms of the standard of review and the degree of engagement the authority or utility is expected to have with the tenderer in order to address its concerns.