UK: Equal Treatment And Fairness In Procurement

  1. HHJ LLoyd QC in the case of Harmon CFEM Facades (UK) Limited v The Corporate Officer of the House of Commons [1999] EWHC TCC 199 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 the tenders submitted by the various tenderers.
  2. This concept of equal treatment has been explored in two cases, one from Scotland and the other from Northern Ireland.
  3. In the Harmon case, Harmon, a European-based firm, had tendered for the works at the new parliamentary building for the House of Commons. The contract was awarded to another tenderer. Harmon successfully brought an action claiming that the House of Commons had breached the UK's obligations under the Treaty of Rome not to discriminate on the ground of nationality and the principle of the equal treatment of tenderers. Harmon also successfully claimed damages for breaches of the Public Works Contracts Regulations 19911 (now superseded), on the basis that the criteria for selection (under Regulation 20 the contract was to be awarded to either the most economically advantageous or the lowest price tender) was not stated in any of the tender documents. Harmon was awarded for both the loss of profit and the wasted tender costs.

The Aquatron Case

  1. The most recent example of a successful damages claim as a result of failings in the operation of the procurement process is the Scottish decision in Aquatron Marine, t/a Aquatron Breathing Air Systems v Strathclyde Fire Brigade.2 This case is a useful guide to the principles regarding equal treatment of tenderers.
  2. In March 2004, the Defendants, who operate the Strathclyde Fire Brigade ("Strathclyde"), issued an invitation to tender for certain services associated with its breathing apparatus equipment, under the Public Services Contract Regulations 1993.3 As published in the Official Journal of the European Communities4, the description of the contract contained four main elements:
  3. "...the Service Maintenance and Repair of Breathing Apparatus Compressors. The Service Maintenance and Repair of...Oxygen Transfer Pumps. The Provision of Air Purity Testing to EN12021:1998. The Examination and Repair of Low Pressure Tyre Compressors."

  4. The Office Journal specified the criteria for the award of the tender as:
  5. "Economically most advantageous tender complying with technical specifications, i.e. price, delivery date, running costs, cost effectiveness, after sales service, compatibility, but not necessarily in that order."

  6. The quality of the service to be provided was not included, nor was the technical merit of the tender.
  7. Tenders were received from Aquatron and two others. Aquatron's tender was submitted on or about 30 April 2004 and specified an annual sum of £74,100, a total cost over the three year contract period of £222,300.00. The other two companies that tendered for the work were ComAir UK Ltd at £215,949.96 and MB Air Systems Ltd at £253,740.00.
  8. The tenderers were invited to attend a "clarification meeting". Attached to this invitation was a list of issues to be discussed. These included:
  9. a) Providing an outline of the tenderer's organisational structure;

    b) Providing details as to the training, experience, skills and competence of the engineers;

    c) Confirming the qualifications of the Health and Safety representative;

    d) Confirming the understanding of the requirement to carry out annual testing and recalibration of the breathing equipment;

    e) Confirming that the accreditation is ISO 9001:2000 applied to the servicing, maintenance and repair of breathing equipment and provide evidence of this accreditation; and

    f) Providing a copy of the quality system manual.

  10. As part of the evaluation process, Strathclyde prepared a "Tender Evaluation/Award Criteria Form" under which only three criteria were to be used in any comparative evaluation. These were price (50%), quality (25%) and technical merit (25%). However, as already noted, neither quality nor technical merit were included as criteria to determine the economically most advantageous tender in the Official Journal notice.
  11. Strathclyde excluded Aquatron's tender from the tendering process at the first stage. Aquatron challenged this decision.
  12. The first issue to be dealt with by the Court was to identify the legal tests that applied when a tenderer challenged a contracting authority's decision not to award him a contract.
  13. Regulation 32 made it clear that what is involved is a legal obligation to comply with the Regulations. Regulation 21 stated that a contracting authority could only award a contract on the basis of the "lowest price" or the "most economically advantageous" tender. This carried with it the implication that the considerations which govern the award will be economic ones. Regulations 8 and 16 made it clear that any technical specifications and any requirement to produce information must be stated in the contract documents. Therefore, a tenderer cannot be excluded by reason of some unspecified technical defect or because of the failure to provide information not expressly called for. At the evaluation stage, the criteria applied must be those published and not either hidden criteria or ones created later during the tendering process.5
  14. The European Court of Justice stated that compliance requires the equal treatment of tenderers. That must involve the process and the evaluation being transparent and objective.
  15. The Court held that Aquatron's tender was rejected on the following grounds:
  • a) Inadequate accreditation;

    b) Lack of qualified staff to carry out the contract; and

  • c) Lack of evidence proving Aquatron's quality standards.

  1. During the evaluation of tenderers, Strathclyde decided that it wanted the tenderers to be accredited by a government body and not a private company as Aquatron was. However, this was not what the specification provided for; it merely required accreditation to ISO 9001:2000 issued by a recognised accreditation centre.
  2. In relation to the lack of qualified staff to carry out the contract, Strathclyde incorrectly concluded that Aquatron lacked the requisite staff to carry out the contract due to Strathclyde's failure to ensure the relevant members of the evaluation team had a copy of Aquatron's tender covering letter.
  3. Aquatron was said not to have supplied evidence of quality standards achieved by their workforce. However, the specification simply asked for evidence of the quality standards of the tenderer's workforce to be supplied. It did not set any minimum requirement to be met in order to proceed to full evaluation.
  4. A contracting authority has a wide discretion in its evaluation of the commercial benefits or drawbacks of any tenders received, but it is not vested with any discretion to avoid compliance with the Regulations or to award a contract on the basis of considerations not mentioned in the documentation required by the Regulations.
  5. Lord Carloway held that the exclusion of Aquatron from the tendering process at the first stage of determining the specification amounted to a breach of the Regulations. The Evaluation Sub-Committee did not possess the requisite expertise to process the tenders from a technical viewpoint, did not have sufficient experience to carry out the task of evaluation and did not have adequate understanding of what was required of the defenders in terms of the Regulations.
  6. Having established that Strathclyde's treatment of Aquatron's tender involved several breaches of the Regulations, the next issue was to determine what, if any, losses flowed as a result of Aquatron's exclusion prior to the evaluation stage.
  7. The Court was satisfied that the other tender was legitimately excluded due to deficiencies in its certification. In determining what would have happened had the evaluation taken place in accordance with the Regulations, the Court concluded that Aquatron would have been awarded the contract.
  8. The financial effect on Aquatron not being awarded the contract was that while they did not suffer a downturn in annual profit, they would have made considerably more profit had they been awarded this contract.
  9. In assessing damages, the starting point was to assess the income generated by the contract, plus the extra work likely to be commissioned under it and then to consider the loss of profit. Aquatron was awarded £122,149.20 against their tender price of £222,300.00.

The Belfast Library Board case

  1. There had been a similar decision in Northern Ireland a few months previously.
  2. In the earlier case of Gerald Martin Scott & Others v Belfast Education and Library Board6 the High Court of Justice in Northern Ireland was asked to determine whether the tender documents gave rise to an implied contract, the terms of which were that the Employer must act in good faith, and if so, do the implied terms require the absence of any material ambiguity in the tender documents that would significantly alter the tender?
  3. Gerald Martin Scott were tendering contractors for a contract to be placed by the Belfast Education and Library Board. Scott sought an interim injunction restraining the Belfast Board from proceeding from the tendering process due to mistakes and/or ambiguities in the tender documents which, Scott argued, meant that the tenderers could not tender on an equal basis.
  4. Mr Justice Weatherup held that an implied contract can arise from the submission of a tender. It may arise by inference from the scheme of the tendering process and the presumed intention of the parties. Furthermore, an implied contract may arise from a tendering process for a public works contract. The implied terms to such an implied contract extend to the implied term of fairness and good faith.
  5. Good faith was not an issue in this case; it was a question of fairness. It was held that fairness applied in a number of respects:
  • a) To the nature of the application of the specified procedures in a particular contract;
  • b) To the assessment of the tenders according to the stated criteria;

  • c) To the evaluation of the tenders in a uniform manner as intended by the tender documents.

  1. No unfairness would arise if there was a mistake in a tender submitted by a tenderer due to a misinterpretation of the tender documents or if there was simply a mistake by the tenderer. However, if the tenderer was mistaken because of an error in the tender documents, this could result in one or more tenderers adopting a different approach to the tender from that which must have been intended by the tender documents. This may affect the assessment of the tenders, the uniformity of the evaluation and the fairness of the process.

Conclusion

  1. An ambiguity in the tender documentation that impacts on the approach of tenderers may affect the assessment of the tenders and the uniformity of the evaluation. An undetected ambiguity may affect the fairness of the tendering process by impacting on procedures or assessment of tenders according to the criteria.
  2. Fairness requires the absence of ambiguity that is material, in that it caused the tenderer to proceed on a mistaken or different basis to the other tenderers. Furthermore, fairness requires that the material ambiguity has a significant effect on the tender. A significant effect is one that causes the tenderer to submit a tender which is more than negligibly different from the tender which he would have otherwise submitted.
  3. As discussed by Lord Carloway in the Aquatron case, tenderers must be in a position of equality, both when tenders are being formulated and when they are being assessed. The principle of equal treatment implies an obligation of transparency so as to allow all reasonably well-informed and normally diligent tenderers to interpret them in the same way. Furthermore, when the tenders are being assessed the award criteria must be applied objectively and uniformly.

Footnotes

1 Regulations 20 and 31(3)

2 [2007] CSOH 185

3 SI 1993/3228 – These Regulations have now been superseded

4 6/11

5 Aquatron Marine, t/a Aquatron Breathing Air Systems v Strathclyde Fire Brigade [2007] CSOH 185 para 87

6 [2007] NICh 4

To see further articles on matters relating to construction, engineering and energy projects, please visit www.fenwickelliott.co.uk.

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