One of the more important trends which we have noticed over the past year or so is the increasing number of cases coming before the courts involving successful challenges to tender procedures in particular in relation to alleged breaches of the European Public Procurement Rules. One reason for this is undoubtedly that tenderers are becoming more aware of the possibility and indeed availability of their right to challenge the procurement process if they are unsuccessful.

Back in 1999 HHJ LLoyd QC, in the case of Harmon CFEM Facades (UK) Ltd v The Corporate Officer of the House of Commons2, observed that the principle of equal treatment of tenderers requires that all tenders comply with the tender conditions so as to ensure an objective comparison of those tenders which are submitted.

What must you tell bidders about your award criteria and your evaluation methodology?

This basic principle of equal treatment came before the European Courts in the case of EMM G Lianakis AE and Others v Municipality of Alexandroupolis3. It was a case about Article 36(2) of Council Directive (EEC) 92/50 which provides that:

Where the contract is to be awarded to the economically most advantageous tender, the contracting authority shall state in the contract documents or in the tender notice the award criteria which it intends to apply, where possible in descending order of importance”.

Here, the Town Council had invited tenders for a town planning project. It had set out the award criteria in the contract notice and had listed these criteria in a specific order of priority. The list was (i) proven experience on projects carried out over the last three years (ii) manpower and equipment and finally (iii) the ability to complete the project by the anticipated deadline. Thirteen consultancies responded. However, during the evaluation procedure, the committee in charge of the appointment set weightings of 60%, 20% and 20% for each of the three award criteria. It also set up certain subcriteria, for example stipulating that experience should be evaluated by reference to the value of completed projects.

As the stipulation of the weighting factors and sub-criteria were only made at a date after the submission of the tenders, certain tenderers brought proceedings against the Town Council. The Greek Court referred the case to the European Court asking whether Article 36(2) precluded a contracting authority from acting in this way, i.e. stipulating at a later date the weighting factors and sub-criteria to be applied to the award criteria referred to in the contract documents or notice.

The European Court noted that the purpose of the legislation is to ensure that there is no discrimination between different service providers. Where a contract is to be awarded to the economically most advantageous tender, a contracting authority must state in the tender documents the award criteria which it intends to apply. Potential tenderers must be in a position to ascertain the scope of the criteria elements when preparing their tenders. Therefore, a contracting authority cannot apply weighting rules or sub-criteria which it has not previously brought to the tenderers attention.

Tenderers must be placed on an equal-footing throughout the procedure which means that the criteria and conditions governing each contract must be adequately publicised by the contracting authorities. Here, the projects award committee referred only to the award criteria and it was only later after submission of the tenders that it introduced the stipulation of the weighting factors. Accordingly, this did not comply with the article requirements. In other words, the European Court was making clear that compliance with the legislation requires the equal treatment of tenderers. The evaluation process must be transparent and objective. That had not happened here.

As to the consequences of any such breach? Well, where a public authority does not adhere to applicable public procurement law ( or the “OJEU Procedure”) when tendering for work, then it is susceptible to a claim by an aggrieved tenderer. The whole thrust of the public procurement law is to ensure that those tendering are able to compete on an equal basis and that public contracts are awarded fairly. There is also common law authority to the effect that public authorities engaged in tendering processes may in fact create collateral contracts with the tendering parties. The nature of those contracts is likely to be that if the public authority in question has stated that it will evaluate tenders in accordance with a given procedure, then that public authority is obliged to the tendering parties to do just that.

Letting International Ltd v London Borough of Newham4: the requirement of transparency

Here, Mr Justice Silber applied the Lianakis decision and held that a contracting authority cannot further define its award criteria following submission of tenders as to do so would be contrary to the relevant Directive and the principles of equal treatment and transparency. LIL had tendered for a position under a framework agreement. The tender evaluation criteria stated that the contract would be awarded on the basis of the most economically advantageous tender. The evaluation of the tenders was to be based on the detailed written response, pricing and site visits. The evaluation criteria was weighted as follows, specification (50%), price (40%) and suitability of premises, staffing and working conditions (10%).

After LIL’s tender failed, it sought details from Newham as to how the tenders had been marked. It emerged that the proportions attributed to the subject matter of the method statements establishing compliance with specification were not equal but varied between 5%-17%. These weightings were established after the tender had been published but before any tenders had been received. LIL also learnt that the overall criteria of compliance with the specification had been broken down into 28 sub criteria. The weightings had not been previously disclosed. Finally, when evaluating the sub criteria, full compliance with the specification received three marks out of five, whilst the next highest mark was reserved for tenders which not merely met but actually exceeded the specification. Consequently, LIL obtained an interim injunction, upheld by the Court of Appeal, restraining Newham from entering into any contract or framework agreement pursuant to the above tender arrangements.

Following the Lianakis case, and in accordance with the Public Contracts Regulations 2006, the Judge noted that if parties wish to use sub criteria, they must state them in the tender notice. The requirement of transparency means that all criteria used to enable a contracting party to determine which tender will be accepted must to be disclosed. The weighting here should, in the view of the Judge, have been disclosed. The critical factor was not whether the disclosure of the weightings would have affected the preparation of the tenders but whether they could have affected the tenders.

If a tender meets and focuses on the sub criteria considered most important by the contracting authority, it is much more likely to obtain higher marks than one which deals not only with those issues, but also matters which fall outside the selected key sub criteria. A claim for breach of the EC regulations is not dependent on a party showing that if there had been full disclosure of the relevant criteria and approach, the party’s tender would have been different. All a party has to show is that as a result of the breach, it risked suffering loss and damage. Thus, the claim that Newham failed to mark its tenders fairly and objectively became academic as it would not alter the relief to which LIL was entitled. (As it happened, LIL failed in this part of their case.)

Accordingly, if LIL had been informed as it should have been of the weight attached to each item in the method statements and that to obtain full marks it had to exceed the specification, then it would have had a “significant chance” of being both a successful tenderer and then successfully obtaining some work under the framework agreement. That was enough to justify bringing its claim for breach of the transparency provisions.

During the case, the parties had agreed that if the Judge reached the conclusion which he did, he should then invite the parties to agree on the remedy which should be adopted. This he did although noting that:

“rather than having a new tender procedure, Newham might consider it prudent merely to add the name of the Claimant as one of the successful tendering parties. This is merely a suggestion and I will happily hear submissions if this were not to be mutually acceptable.”

Seeking an injunction

It is not yet known whether this suggestion will assist in the resolution of the dispute. However, it is certainly often the preferred outcome for aggrieved tenderers. In the Northern Irish case of McLaughlin and Harvey Limited v Department of Finance and Personnel5, M&H had sought an interlocutory injunction preventing the award of the framework agreement to the successful tenderers. In October 2007 M&H had tendered for a place on the defendant’s proposed four year framework agreement for various construction projects with an estimated value of £500m-£800m.

On 17 December 2007 they were told that their tender had been unsuccessful and therefore requested a debrief meeting. At this meeting, M&H claimed that they realised that Department had marked their tender using a methodology which had not been disclosed to them in advance. M&H claimed this was in breach of the European requirement for transparency and was therefore unfair. They had come sixth in the competition (there being 5 places on the framework) but their score was only 1% behind and so even a modest improvement in their score would have materially affected the outcome. However M&H were unable to persuade the court that the Department should not be allowed to proceed with the award of the framework agreement. The key test in such cases is a sequential one taken from the decision in American Cyanamid Co v Ethicom Ltd6

  1. Has the plaintiff shown there is at least a serious issue to be tried? 
  1. If it has, has it shown that damages would not be an adequate remedy for the plaintiff and would be an adequate remedy for the defendant if an injunction were granted and it ultimately succeeded? 
  1. If there is doubt about the issue of damages the court will then address the balance of convenience between the parties; 
  1. Where other factors are evenly balanced it is prudent to preserve the status quo; 
  1. if the relative strength of one party’s case is significantly greater than the other that may be legitimately taken into account; and 
  1. There may be special factors in individual cases.

The Judge added a seventh namely that the court has an overall discretion to do what is just and convenient in the circumstances.

One of the factors the court took into account was the effect on the Department of granting the injunction but then the Department and not M&H succeeding at the trial. Usually this could be dealt with by M&H as claimant giving an undertaking or crossundertaking in damages. However the undertaking offered here was a qualified one confined to the additional costs sustained by the Department in putting individual projects out to tender generally pending the trial. The Department noted that construction inflation was running at 4%-6% and that inevitable delays caused by the injunction could add as much as £1.6m to construction costs on projects of this size. Furthermore the Judge noted that the whole purpose of this Framework Agreement is to obtain greater value for money for the public purse and the loss of that for projects for half a year would cost them £7.5m. Therefore M&H’s undertaking in damages would not fully compensate the Department in the event of an interlocutory injunction being granted but the Department ultimately succeeding at the full hearing.

The final question the court considered was whether or not it could order the Department to add M&H to the list of contractors who benefit from the Framework Agreement. At first blush, that argument was contrary to Regulation 47(9) of the Public Contracts Regulations 2006.

“In proceedings under this Regulation the court does not have power to order any remedy other than an award of damages in respect of a breach of duty owed ...if the contract in relation to which the breach occurred has been entered into.”

That seemed to preclude any award other than damages if the injunction was not granted and the Department proceeded to conclude the Framework Agreement. But did it? The court disagreed that a Framework Agreement was a “contract” within the meaning of Article 47(9). This definition distinguished between an agreement or arrangement and a contract which would only be entered into thereafter. There was a clear distinction in the language of that Regulation between the Framework Agreement as such and any contact or specific contract made under it. The purpose of Regulation 47(9) is not to compel a contracting authority to break a contract with another economic operator which it has entered into. Either the disappointed economic operator obtains interim relief preventing the contract from being entered into or it must be content with damages. However, a Framework Agreement is different. It is the selection of a number of operators, the number not being defined in the Regulations, who will be eligible to bid for these contracts over the duration of the Framework Agreement. Therefore it was not impossible that the court, if satisfied that there was a breach of transparency or a manifest error or unfairness which could have had a causative effect on the outcome, would order the Department to add the plaintiff as a sixth contractor to the list.

Public bodies are increasingly using framework agreements and the failure by a contractor to secure a place on those frameworks can have a significant impact on its business. This case demonstrates some of the hurdles faced by a contractor in trying to prevent the award of that framework agreement where it alleges there has been unfairness in the tender process. In this case, no evidence was put forward by the plaintiff that the existence of its business rested on being awarded a place on the framework agreement and therefore damages would constitute an adequate remedy. The court also was clearly persuaded by the submissions that any delay to the contract award would significantly delay and increase the costs of major infrastructure projects which ran contrary to the intention of awarding the framework in the first place.

Ps: Confidentiality and competitive dialogue

In the case of Varec SA v Belgium7, Belgium issued a tender for the supply of parts for military tanks. Varec’s bid was rejected on the ground that it did not meet the required technical specifications. Varec challenged the decision in front of the tender tribunal. The successful tenderer objected to the proceedings on the ground that if the tribunal agreed to review Varec’s challenge, it would compel the successful tenderer to reveal some of its business secrets. Accordingly, it refused to disclose the full details of its bid to the tribunal. The issue found its way before the ECJ. The question was whether the tribunal was obliged to protect confidential business information (i.e. not disclose it to third parties) while at the same time being entitled to take note of such information for the purposes of the claim. The ECJ decided that:

“[The law] must be interpreted as meaning that the body responsible ... must ensure that confidentiality and business secrecy are safeguarded in respect of information contained in files communicated to that body by the parties to an action, particularly by the contracting authority, although it may apprise itself of such information and take it into consideration.”

Thus the tribunal was allowed to take into account confidential information when reviewing challenges brought by third parties. However it had to guarantee that it would protect commercially sensitive information when dealing with such challenges.