UK: Challenging Procurement Procedures - What Is Your Likely Remedy If You Are Successful?

Last Updated: 21 November 2008
Article by Jeremy Glover

Following, two separate hearings, the courts decided that the procurement procedures followed in respect of a proposed framework agreement in Northern Ireland were flawed. Recently there has been a third hearing about the appropriate remedy. The case is McLaughlin and Harvey Limited v Department of Finance and Personnel.

In short, the selection of the economic operators for the framework agreement was to be carried out by a panel of the central procurement directorate of the Department. Various tender documents were prepared. All tenderers were directed to read the tender documents and it was stated that the responses would be evaluated against the criteria provided in Section 8.3 of these documents. However, there was to be additional material not in the documents given to the tenderers, which M & H said consisted of criteria or sub-criteria to be used for evaluation. The Judge found that the tenderers were judged by a number of different criteria but that the criteria were given weightings which varied from topic to topic. It did not seem that the weightings for each topic were predicted or even predictable by a reasonable bidder. They were subjective judgments formed by the tender panel collectively. What the Department should have done was to provide the weightings to the bidders in advance. This material could have affected the preparation of the tender documents. It was likely to have done so. A bidder would be bound to take it carefully into account in allocating their bid.

That said, there was no intention on the part of the Department to discriminate against M & H. Indeed, no other bidders were given the information. What had happened was that those preparing the evaluation guide prepared it before they looked at the tenders. The Judge thought that it would be preferable that any sub-criteria development for the tenders should be formulated and spelt out before the tenders are received so as to avoid the suspicion of some special treatment. The Judge did note that it was somewhat surprising that the Panel managed to do all their valuation work without making any notes at all. This was particularly the case when the scheme in relation to weightings and sub-weightings was very detailed and complex.

Therefore, the Judge found that there was a breach by the Department of a duty owed under Regulation 47 of the Public Contracts Regulation 2006.

Following that judgment, the parties were unable to agree on a remedy for M & H. Therefore the case found its way before Judge Deeny again at the end of October. He made it clear that the matters complained of were neither minimal nor tangential but entitled M & H to some substantive remedy. In particular the Judge recalled that even a modest improvement in the marking of M & H's tender could have materially affected the outcome. Further, some 30% of the marking overall was given under the criterion of price. M & H had the fourth lowest price of the economic operators and therefore was well placed to benefit from any slight improvement in the quality assessment of its tender. Finally the tender was for a place on a Framework containing some £800m worth of contracts over a period of four years.

A key issue was the extent of the court's powers to grant remedies. M & H's first preference was for the court, by way of declaration, mandatory injunction or otherwise, to order the Department to add it to the list of preferred economic operators under the Framework. Alternatively M & H asked that the court set aside the contract award leaving the Department either to rerun the competition or dispense with the Framework altogether. European Regulation 47(8) notes:

Subject to paragraph (9), but otherwise without prejudice to any other powers of the court, in proceedings brought under this Regulation the Court may ....

(b) If satisfied that a decision or action taken by a contracting authority was in breach of the duty owed in accordance with paragraph (1) or (2) –

(i) order the setting aside of that decision or action or order the contracting authority to amend any document;

(ii) award damages to an economic operator which has suffered loss or damage as a consequence of the breach; or

(iii) do both of those things.

However, paragraph (9) of the Regulations goes on to say that:

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 the duty owed in accordance with paragraph (1) or (2) if the contract in relation to which the breach occurred has been entered into.

The Department said that this paragraph prevented the court from granting any remedy other than an award of damages in respect of the breach of duty. However the Judge rejected this argument. The reason for this was that in his view, the wording of the Regulations specifically referred to a breach in relation to "the contract" which has been entered into. By that was meant a public services, supply or works contract as defined in the Regulations. It would also extend to a specific contract under a Framework Agreement, but not the Framework Agreement itself. If a court is dealing with a public contract or a specific contract under the Framework Agreement (which is just another type of public contract) and the party bringing the proceedings has either not sought or been refused interim relief then the court is not at liberty to set aside that specific public contract. Damages are the only remedy.

In the view of the Judge, the purpose of the Regulations was clear. By definition the contract will have been given to a third party which, by the time the matter is before the court, may well be engaged in the very works of supply or construction under the contract. It would be entirely unfair on that third party and, indeed, on the public, to interfere in that contract which has been made. The economic operator under such a contract will have performed work for the Department and will have received or will have been promised remuneration as consideration in return. For the court to set aside a contract which may be partly or wholly performed would be contrary to principle and inappropriate. Therefore damages would be an appropriate remedy.

However, the position was completely different with regard to a Framework Agreement. The Framework consists of the pre-selection of certain economic operators who will be allowed to bid, without competition from parties outside the Framework, for specific contracts during the life time of the Framework. Therefore the Department had not made an promises to the economic operators under the Framework, and it had not yet, in fact, awarded any specific contracts.

The court considered but dismissed the suggestion that the Department would be at risk of significant litigation from the five successful economic operators if the tender had to be re-run. Whilst they may not succeed the second time, the fact was that the first procedure was conducted unlawfully. Therefore they had not lost anything to which they were lawfully entitled. If in fact they were the best economic operators under the Framework Agreement, it is likely that they would succeed on a re-run of the Framework Agreement procedure. If they did not it was because the second procedure was fairer and more transparent than the first.

The position was less clear-cut with regard to M & H's preferred remedy - adding it as a sixth economic operator to the Framework Agreement. In that event the work available to the other five economic operators would be diluted to the extent of having an additional competitor. An additional competitor was as it happened consistent with the strong aim of encouraging competition in community law. But the successful parties had entered into a procedure by which they were selected as one of only five economic contractors eligible for this substantial quantum of work over the next four years. Thus the likelihood of the successful tenderers being able to take action against the Department was not "beyond the bounds of possibility".

Judge Deeny said that the aim of the court was to achieve fairness and transparency according to law. The setting aside of the decision would, in all likelihood, lead to a rerun of the Framework Agreement competition. It would be rerun in the more transparent way indicated by the court. That would be in the public interest to secure the tenderers who would be most economically advantageous to the public. If M & H was right it may well improve its performance but if it does not, as above, the fairer new procedure should lead to the five best tenderers succeeding, whether or not they are in the present top five or six.

There was no legal precedent for the proposal that the Judge here should simply add M & H to the list of contractors. As we have seen, Silber J proposed it in the Newham case. However, ultimately the court here felt that to insert M & H into the Framework, whilst it could be done, it could only be done by a "somewhat strained" interpretation of the legislation. On the other hand the Judge was entirely satisfied that the court had the power to set aside the decision to enter into a Framework Agreement with five parties but excluding M & H.

The Department submitted that that the proper remedy here was one of damages. The issue before the Judge was which is the most appropriate remedy to grant? The assessment of the loss of profits might well have to wait for some time, perhaps years, to allow the court to make a reasonable estimate of the profits which the successful economic operators enjoyed from the Framework Agreement. This was in the view of the Judge clearly not ideal. The profits of the economic operators who were given contracts under the Framework Agreement (or who are not) would not necessarily be publicly available, particularly as they applied to each contract. Indeed as some of these contracts were likely to be of a very substantial nature it may take years for them to work out before one would know what profit, if any, the economic operator made out of a particular contract.

The Judge was faced with a difficult decision. accepted that the appropriate way to proceed on any assessment of those damages would be on the basis of the loss of chance principles. However, reliably fixing the value of that percentage loss of chance would take time, face difficulties and be costly. This lead the Judge to conclude that whilst the Department was entitled to maintain that damages could be an adequate remedy, in his view they were an inferior remedy here to that of setting aside the Framework Agreement. Judge Deeny concluded that:

I say that not only for the reasons set out above but for public policy reasons. At the present time there is a question mark over whether the best five economic operators were selected under this Framework Agreement. Given that some £800m of works are said by the Department to be at stake here it must be in the public interest to try and ensure that the best five, whether or not that includes the plaintiff, are in fact selected. Secondly it cannot be in the public interest for the public to pay for these new buildings and to pay the plaintiff again a percentage of the profits of the contractor who actually builds the new buildings. That is in the most literal sense of the word a waste of money. It may be that in some circumstances there is no alternative to such an award being made, but where, as here, there is a much better alternative I consider it preferable to opt for it.

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

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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