The Public Contracts Regulations 1996: framework agreements

McLaughlin and Harvey Limited v Department of Finance and Personnel [2008] NIQB 91

The Department of Finance and Personnel, acting through the Central Procurement Directorate (CPD), launched a procurement process for the award of a framework agreement for urban regeneration, further education, arts and sports developments in Northern Ireland.

The CPD awarded a framework agreement on the basis of the most economically advantageous tenders to five successful contractors. The claimant contractor came sixth and was aggrieved that its tender had missed being selected by a narrow margin (of 1%). The claimant contractor sought information from the CPD about its evaluation decision.

The disclosed elements of the evaluation

The CPD’s invitation to tender set out the following criteria and weightings. These were divided into the following levels:

  • Level 1 - the most economically advantageous tender;
  • Level 2 - two criteria: price (30%) and quality (70%);
  • Level 3 - five groups each with a weighting, all relating to quality; and
  • Level 4 - a series of quality particulars for each of the 5 groups in Level 3 which were subdivided, each carrying their own weighting in percentage terms.

The undisclosed elements of the evaluation

It subsequently transpired that there were two further levels which were not disclosed to tenderers:

  • Level 5: the quality particulars in the five groups at Level 4 were broken down into a set of 39 “topics”, each with a particular weighting attached to it; and
  • Level 6: each of the 39 topics in Level 5 were broken down into further items (186 new items), which did not carry any particular weight.

Did the CPD comply with the principle of transparency?

The CPD argued that Levels 5 and 6 did not constitute its award criteria: they were “sub-sub criteria” and therefore fell outside the scope of a contracting authority’s obligation to disclose.

The court found the 39 topics in Level 5 (together with their weightings) were part of “all the elements” which the Department took into account in its tender evaluation and therefore was obliged to disclose to all the tenderers in advance of the tender submissions.

The court was not required to rule on whether the 186 items in Level 6 (which did not have weightings attached to them) had to be disclosed. However, the court expressed a preference for the view that they did not need to be disclosed, considering that they were better described as “pieces of evidence for performance of the criteria or sub criteria” rather than criteria or sub-criteria themselves.

The Department was therefore in breach of its duty under Regulation 47(1) by failing to disclose the 39 topics in Level 5 to tenderers in advance of their tender submissions. (Regulation 47 (1) expressly provided that contracting authorities owed a duty to comply with the provisions of the Regulations).

The court’s conclusion with regard to the need to disclose the items at Level 5 is in line with previous case law, namely, whether these constituted elements which would have affected the preparation of tenders. Interestingly, the court took the view that the particular items at Level 5 were in fact “reasonably predictable” but that the specific weightings attached to these were not. In other words, knowledge of the specific items at Level 5 would not have made a difference to the preparation of tenders and as such would not have required disclosure. However, the specific weightings attached to them would have done and therefore disclosure was necessary.

Remedies for breach of the Regulations

When determining the remedy to which the claimant contractor was entitled, it was relevant that:

  • only a modest improvement in the CPD’s marking for the claimant contractor would have meant that the claimant contractor would have been a successful tenderer; and
  • there could be up to £800 million worth of contracts to be allocated over the four year period of the framework agreement.

The court therefore concluded that the claimant contractor was entitled, under Regulation 47(8), to a “substantial remedy”.

Regulation 47(8): the various remedies available

The remedies available under Regulation 47(8) were:

  • an order requiring the contracting authority to amend any document; and/or
  • an order setting aside any decision or action or order of the contracting authority; and/or
  • an award of damages where the claimant contractor had suffered loss or damage as a consequence of the breach.

However - under Regulation 47(9) - the court could only make an award of damages if the contracting authority had already entered into “the contract” in relation to which the breach of the Regulations had occurred.

The arguments in relation to remedies

The claimant contractor contended that the court should either amend the framework agreement (by adding it as the sixth economic operator to the framework agreement) or set aside the framework agreement.

The Department argued that (under Regulation 47(9)), the court only had the power to grant damages on the grounds that it had already entered into the framework agreement (i.e. the “contract” in relation to which the breach had occurred) with the successful tenderers.

The Court’s approach: amending the framework agreement

The court declined to amend the framework agreement (by adding the claimant contractor as the sixth economic operator to the framework agreement) on the basis that this remedy would have the effect of diluting the work which was available to the existing economic operators. This would be unfair on the best of the selected economic operators.

The court then considered whether it had jurisdiction to set aside the framework agreement.

The Court’s approach: setting aside the framework agreement

The fundamental question was whether the framework agreement (which had already been entered into) was a “contract” which fell within the scope of Regulation 47(9). If it was, the court would not have the power to set aside the framework agreement.

The court examined the relevant Directives and the Regulations and found that:

  • Regulation 2 was critical. It defined a framework agreement as “an agreement or arrangement” entered into by a contracting authority “which establishes the terms … under which the economic operator will enter into one or more contracts with a contracting authority in the period during which the Framework Agreement applies.”
  • Regulation 2 thus made a clear distinction between:
    • Framework agreements, under which pre-selected operators were allowed to bid, without competition from parties outside of the framework agreement, for specific contracts (during the life-time of the of the framework agreement) for the provision of work, goods or services for a contracting authority.
    • Under such a framework agreement, the CPD made no guarantee to award any specific contracts to any of the economic operators under the framework agreement.
    • Contracts subsequently made with the economic operators pre-selected under the framework agreement for the provision of work, goods or services for a contracting authority.
  • Regulation 47(9) restricted the remedies which the court was entitled to grant only when the contracting authority had entered into a “contract”, as opposed to a framework agreement, (as described above).

In short, whilst the court accepted that the framework agreement was a “species” of contract, it concluded that it was not the species of “contract” identified in Regulation 47(9) and therefore the court retained the power (under Regulation 47(8)) to set aside the framework agreement.

The court thus made an order for the framework agreement to be set aside. Significantly:

  • It was left open to the Department to conclude a new framework agreement following a further tendering process involving all the tenderers who competed in the original tendering process (on the basis that any new tender process would be determined by a different panel).
  • The Department was allowed to proceed with the specific contracts which it was ready to go ahead with.

The Court’s approach: damages

The court held that damages were a manifestly inferior remedy to that of setting aside the framework agreement for two reasons:

  • First, an assessment of the claimant contractor’s loss of profits (in relation to a framework agreement spanning four years) would take time. This was not ideal, given that remedies are intended to give effective and rapid relief.
  • Secondly, it was in the public interest to ensure that the best five economic operators were in fact selected. Given the amount of public money to be spent on the works it was in the public interest to try to ensure that the best five were selected, whether or not that included the claimant contractor. Further, it was not in the public’s interest to pay for new buildings and then to have to pay the claimant contractor a percentage of the profits made by the contractor who carried out the works.

Editors’ comments: setting aside the framework agreement

This is the first case in which the court has granted an order for the setting aside of a framework agreement. Previously, it was always assumed that if a framework agreement had been entered into then, under Regulation 47(9), a “contract” had been entered into, with the result that the court was only entitled to grant an award of damages.

The court did not explain in its judgment on what basis it would be legally compliant for the contracting authority not to repeat the whole procurement exercise from the beginning but instead to invite only the original shortlisted tenderers to re-tender. However, this would seem to us to be in line with general EU principles in that arguably such process does not involve any discrimination. This is because any defect in the award criteria would not have affected the outcome of the selection process on the basis of which tenderers would have been shortlisted.

Harder to explain is the basis on which the court thought that it would have been legally compliant for the contracting authority to proceed with the award of contracts with regard to particular projects which were “ready to proceed” despite the fact that it had just set aside the framework agreement on which those contracts were to be based.

It is also not clear whether the court would have considered it inappropriate to set the framework agreement aside if the contracting authority had already awarded (call-off) contracts under that agreement.

View: McLaughlin and Harvey Limited v Department of Finance and Personnel [no.2] [2008] NIQB 91 and McLaughlin and Harvey Limited v Department of Finance and Personnel [no.3] [2008] NIQB 122