Released on 7 July 2008, the High Court decision in Letting International Limited v London Borough of Newham re-emphasises the need for an appropriate degree of disclosure of the criteria to be used for assessing tenders, their weightings and sub criteria, and the requirement to apply those criteria properly during the evaluation process. The decision also highlights that a tenderer bringing a claim under Regulation 47(6) only needs to show the “loss of a significant chance of obtaining the contract” rather than proving that his tender would have been successful had it not been for the alleged breaches of the procurement rules.

Factual Background

The case concerned two types of framework agreements awarded by the London Borough of Newham (Newham). The framework agreements included: (a) the procurement, management and maintenance of private sector leased properties and (b) the management and maintenance of private sector leased properties. Letting International Limited (Letting) applied to be included in these frameworks and subsequently received an Invitation to Tender (ITT). Letting submitted a tender and it was duly informed on 8 November 2007 that it had been unsuccessful.

Within the criteria used for assessing the “most economically advantageous tender” specified in the ITT, Newham set out 5 categories of Method Statements under the award criterion “Compliance with Specifications”. Tenderers were asked to provide written responses to the Method Statements and the overall weighting of the “quality assessment of method statements” element was 50%. However, the ITT did not include any information on the breakdown of the marks assigned to each specific Method Statement. Effectively, the proportions attributed to the subject matter of the Method Statements were not equal and varied from 5% to 17%. The weightings had apparently been established after the tender document had been published (but before any tenders had been received). Moreover, when marking each of the Method Statements, full compliance with the specification was awarded only 3 out of 5 available marks because the highest marks (of 4 and 5) were reserved for tenders which did not merely meet, but exceeded the published specification.

Following correspondence with Newham, Letting brought proceedings claiming that Newham had acted in breach of the Public Contracts Regulations 2006 (the Regulations) which implement EC Directive 2004/18/EC.

The Judgment

After considering the obligations under the Regulations as interpreted by European Court of Justice (ECJ) case law, the Court went on to consider the relevant issues put forward by Letting. The Court first considered whether Newham acted without the requisite degree of transparency by not setting out in advance the detailed criteria and sub-criteria against which it actually marked the tenders and their relative weightings. It emphasised that the requirement of transparency means that all criteria used by a contracting authority to identify the most economically advantageous tender and their relative importance have to be disclosed in advance so that tenderers are aware of them when they prepare their bids. The Court dismissed Newham’s contention that Letting ought to have anticipated some of the award criteria. It stated that “the prize of a contract must not simply go to the tenderer which is the most experienced or the most successful at guessing the relative priorities of the contracting authority”. The Court also rejected Newham’s submission that award and sub-criteria should be distinguished from the “machinery” for applying them, which are not required to be disclosed. Newham sought to rely on the approach adopted in the Scottish case of Clyde Solway Consortium v Scottish Ministers [2001] SC 553, but the Court dismissed this approach by stating that the Clyde case has to be considered in the light of, and to be subject to, subsequent ECJ case law “which take a different approach from that adopted in the Clyde case”.

The Court next considered whether Newham acted without the requisite degree of transparency when it awarded only 3 marks out of 5 for full compliance with the specification, reserving the highest marks (of 4 and 5) for those tenders which did not merely meet, but which actually exceeded the published specification. In this regards the Court stated that a test of considering if a standard is “fully met” does not mean that the test is really one of exceeding it. The Court accepted Letting’s submission that greater effort would have been made by it to exceed the specification if it had been informed in advance that this was required in order to increase the prospect of achieving high marks and being successful on its tender.

Finally, although the Court was not convinced that a “manifest error” of assessment of tenders has occurred in this case, it rejected Newham’s submission that proceedings under Regulation 47(6) could only be brought if a claimant has suffered actual loss due to the errors complained of and that it would have been awarded the contract and made some profit but for these errors. Instead the Court stated that a claimant has to show that as a result of the breach of the Regulations it “risks suffering loss and damage”, it is not necessary to show actual loss. Otherwise, the principle of transparency would be substantially undermined because infringements of the Regulations would hardly ever be challenged. One example would be the case where a contracting authority has failed to have any tender procedure at all. In such a case a tenderer might find it impossible to prove it would have succeeded in winning the contract because it would have no idea who else might have bid and on what terms.

Practical implications

This case is another indication of the growing importance of the principle of transparency in public procurement law and should be read in conjunction with the recent ECJ decision in Lianakis (Case C-532/06). It provides practical guidance as to the degree to which contracting authorities should specify sub-criteria and weightings in the tender documents.

Contracting authorities are advised to finalise and refine their evaluation methodology at a very early stage of the procurement process. This information, comprising of the award criteria, their weightings and sub-criteria (and possibly their weightings as well) should be communicated to tenderers with the tender documents. This is not to say that contracting authorities are under an obligation to formulate and apply such a detailed evaluation methodology. They could also assess bids on the basis of the general award criteria and their weightings. However, in more complex contracts, such as construction projects or the procurement of IT systems, it is hard to see how contracting authorities could objectively evaluate tenderers without referring to detailed evaluation methodology. In such cases, there is an obligation to disclose.

Equally important is the correct application of the award criteria at the evaluation stage. Failure to award full marks to tenders that fully meet the specification might compromise the principles of equal treatment and transparency, unless the tender documents clearly provide and explain that the highest marks would be reserved for tenders that exceed the minimum specification.

This case also demonstrates that the loss of a significant chance of obtaining the contract is enough for a tenderer to have a cause of action under Regulation 47(6). UK contracting authorities can no longer take comfort from the very high standard of proof that claimants previously had to satisfy as claimants no longer have to demonstrate that they would have been successful in the tender had it not been for the alleged breaches of the procurement rules.