Procurement news blog

Readers who have been following public procurement case law will recall that the disclosure of award criteria has featured as a headline topic and major risk area for contracting authorities. The European case of Lianakis held that contracting authorities must generally disclose all award criteria and related sub-criteria, together with percentage weightings attached to each, in the tender documents upfront. This was confirmed in the High Court with the decision in Lettings International v London Borough of Newham, which concerned the same issue. In both of these cases, the public body had disclosed the headline award criteria and weightings but had subsequently decided on sub-criteria during the evaluation, without any disclosure. It has been standard practice since those cases for us to advise clients that the safest course is to always disclose upfront all criteria and sub-criteria together with their weightings.

This new case, Varney v Hertfordshire County Council, heard in the High Court recently, seems to indicate a possible relaxation of the position by the courts. The case concerned a tender for waste management services at 18 sites. The Council ran a restricted procedure procurement process and stated that the contract would be awarded to the “most economically advantageous” tender, with the award criteria being Price (65%) and Customer Satisfaction (35%). There was a PQQ stage, at which the claimant Varney was selected to tender.

The ITT required the bidders to complete “Return Schedules” and submit these with bids. The Return Schedules asked for details of the bidders’ proposals in relation to seventeen different areas, including Customer Service, Dealing with Hazardous Waste, Dealing with Emergencies and Severe Weather Conditions, Site Cleanliness, and many others. At the beginning of each Return Schedule, the Council set out the service level expected in relation to that area, although the relative importance of each of the Return Schedules was not detailed.

Varney argued that each of these Return Schedules amounted to a new award criterion, which should have been disclosed upfront together with relative weightings. The judge disagreed and held that each of the Return Schedules simply dealt with an aspect of either price or customer satisfaction (the two award criteria). The judge on that basis said that “I do not consider that to be a different of new sub-criterion, let alone a separate award criterion”. The judge was careful to state that previous case law would have required disclosure of the Return Schedules had they amounted to new award criteria or sub-criteria. But in this case, they merely amounted to sub-criteria of the award criteria already disclosed and weighted.

This case is obviously helpful for contracting authorities. The judge appears to be minded to distinguish the situation in Lianakis and Lettings International, on the basis that in those cases the undisclosed “sub-criteria” at issue actually amounted to separate award criteria proper. However, in this case, the judge took the view that the Return Schedules were sub-criteria in the proper sense of the word, i.e. merely more detailed aspects of the main award criteria.

The case seems to have turned quite heavily on its own particular facts, and particularly on the credibility of the claimants’ witnesses. The safest course remains for contracting authorities to always disclose award criteria, sub-criteria and their respective weightings. However, the case will be a useful authority to turn to if a contracting authority is ever challenged on disclosure of sub-criteria. If the sub-criteria are merely a detailed facet of the main award criterion, this case will make it more difficult for a challenger to establish a breach.

In court proceedings, the parties are typically obliged to make available to the other party all documents that are relevant to the case, regardless of whether they are beneficial or harmful to the disclosing party’s case. In cases concerning public procurement, such documents can be especially sensitive from the contracting authority’s point of view, particularly where tenders may need to be re-run as a result of the claimant’s challenge. Bidders are also likely to be concerned to ensure that their pricing structures and other business secrets are not disclosed to their detriment and to the advantage of a competitor.

The law imposes requirements around confidentiality in the procurement context. Regulation 43 of the Public Contracts Regulations 2006 requires contracting authorities to keep confidential those elements of tenders which bidders have “reasonably designated” as confidential. Behind that regulation there also sits the general “common law” rules on confidentiality, which will impose a general requirement to keep matters confidential if they are of an inherently confidential nature and are disclosed in confidential circumstances. Set against these elements of law, however, is the Freedom of Information Act 2000 (“FOIA”), which is likely to require a public body to disclose information unless it comes within the strict and limited exceptions within that Act.

When procurement challenges come to trial, then, there is often an inherent conflict between the desirability of a full and transparent review on the one hand and the legitimate protection of confidential information and commercial interests on the other.

The issue of what types of document should be made available by public sector bodies to the claimant in public procurement disputes arose in the Technology and Construction Court in April 2010 in the case of Croft House Care Limited and Ors v Durham County Council.

Here the local authority argued that certain types of document were sensitive and if disclosed would compromise their legitimate commercial and public interests and create potential difficulties for them in re-running the tender process, with other documents being confidential to the other tendering parties. The court held that these were not valid grounds to allow the authority to prevent the claimants from inspecting the documents. Certain safeguards were however put in place such that those documents could be redacted to preserve some confidentiality; could only be read in the solicitors’ office; could not be copied; and notes could not even be taken during the inspection.

The court is likely to have to provide such specific direction in future cases, but it is worth bearing in mind that as a last resort, if sensitive documents ultimately do have to be disclosed, conditions to their release can be obtained which provide greater protection to the public body than might otherwise be thought to be the case. Public bodies should always take care to point out in the tender documents that they are subject to the requirements of FOIA and that bidders should take care to designate as confidential any information whose confidentiality they would wish to preserve. It is however sensible to avoid giving bidders any cast-iron guarantees of confidentiality, as circumstances (such as a FOIA request or a court order) may arise which require disclosure and are outside the contracting authority’s control.

This announcement about the coalition government's new initiative to increase transparency will be of interest to all those involved in public sector procurement, in particular the new requirement to publicise details of all central government contracts valued over £10,000 and all local government contracts valued over £500.

Note that these are requirements to publicise these details after the award, and not a requirement to advertise these very low value contracts. (The normal procurement regime on over and under threshold contracts will of course continue to apply).

Here are the key requirements:

Central government spending transparency

• Historic COINS spending data to be published online in June 2010.
• All new central government ICT contracts to be published online from July 2010.
• All new central government tender documents for contracts over £10,000 to be published on a single website from September 2010, with this information to be made available to the public free of charge.
• New items of central government spending over £25,000 to be published online from November 2010.
• All new central government contracts to be published in full from January 2011.
• All UK international development spending over £25,000 to be published online from January 2011.

Local government spending transparency

• New items of local government spending over £500 to be published on a council-by-council basis from January 2011.
• New local government contracts and tender documents for expenditure over £500 to be published in full from January 2011.

Readers with an interest in the application of the procurement rules to development agreements might find this article useful, written by Nathan Holden, a partner in Mills & Reeve’s Local Authorities practice. Nathan analyses the recent Muller case and summarises the latest position in relation to development agreements.

The Bribery Act received Royal Assent on 8 April 2010 and will come into force when the relevant Secretary of State issues a commencement order, likely to be in October of this year. The Act simplifies the existing law on bribery and enables courts to deal with it more effectively. It also creates offences of, among others, accepting, or conniving in the acceptance of, a bribe which will be particularly relevant to public bodies. You can read our full article on the Bribery Act on the Mills & Reeve website.

The OGC has recently published guidance on the new requirement (announced in the recent Budget) for all public contracts to include a requirement that suppliers of goods and services must pay their sub-contractors within 30 days. Note that the requirement does not apply to public works contracts.

The aim of the new requirement is to assist businesses in managing their cash flow and to give encouragement to small and medium sized companies whose need for prompt payment is likely to be greater.

The OGC provides suggested wording for the new clause, as follows:

Where the Contractor enters into a sub-contract with a supplier or contractor for the purpose of performing its obligations under the Contract, it shall ensure that a provision is included in such a sub-contract which requires payment to be made of all sums due by the Contractor to the sub-contractor within a specified period not exceeding 30 days from the receipt of a valid invoice.

Readers of this blog will recall that the recent European case of Uniplex has clarified the law on the limitation period for claimants to bring a claim for damages under The Public Contracts Regulations 2006. The Regulations state that the claim must be brought within three months of the date on which grounds for the claim first arose. There was previously a lack of clarity about how the latter date should be arrived at – was it the date of the breach of itself, or rather the date that the claimant obtained knowledge of the breach? The Uniplex decision made it clear that the three month period will only start once the claimant has (or ought to have had) the relevant knowledge.

The recent case of SITA v GMWDA is the first UK case to be decided in the light of the Uniplex ruling. The facts were quite straightforward – GMWDA ran a competition for a massive £3 billion new project which would be the largest of its kind in the UK. In the later stages, Viridor Laing was appointed preferred bidder, with the SITA consortium as reserve bidder. SITA was sent an “unsuccessful bidder” letter accordingly on 18 April 2008. Following nearly a year's delay due to the global credit crunch, GMWDA finally entered into the contract with Viridor on 8 April 2009. Following the award of the contract, there was lengthy correspondence between the parties, in which SITA demanded further information about the procurement process and threatened to commence a claim if this was not provided. SITA alleged that there had been a breach of the Regulations as the final form of the contract had introduced new elements and that SITA ought have been brought back into the competition accordingly.

On 27 August 2009, SITA commenced its claim. GWMDA argued that SITA was outside the three month window in which to bring a claim – the date the “grounds” arose was no later than the date the contract was entered into, which was 8 April 2009. The limitation period therefore ended on 7 July 2009 and SITA was out of time.

SITA’s answer to this argument was that it did not know whether it had actually suffered an actionable loss, until it possessed the information it obtained during the correspondence with GMWDA after 8 April 2009.

The High Court disagreed and ruled that a claimant is fixed with knowledge from the time it knows of the breach, regardless of whether any loss is also apparent at that point. It decided this not least in the interests of legal certainty, because the judge thought it easier to date a breach than to date loss arising from it (lack of legal certainty was what the ECJ criticized in the 2006 Regulations in the Uniplex decision).

This decision was good news for contracting authorities as it shows that bidders do not have a carte blanche to “sit on their hands” but rather they must bring a claim as soon as they have knowledge of a breach, regardless of whether any loss/damage is yet apparent. The case does turn on its own facts to some extent - it is likely that, in most procurement claims, the challenger will become aware of both the fact of the breach and the loss/damage at the same time.

Norwich City Council has been in the news lately; reports are that a High Court injunction has been granted against it, preventing it from entering into a contract for the maintenance of its public housing. Reports state that Norwich C.C. is now having to find £1 million a month to obtain an interim solution pending the full trial of the issues, expected to be held this summer. This is bad news for Norwich C.C. which was already having to save £8 million in the budget for this year.

According to the press, the existing contract was worth around £34 million a year. When it came up for renewal, the challenger, Morrison Facilities Services Limited (MFS) submitted a bid of around £23 million. However, it was pipped to the post by the £17 million bid of Connaught PLC. The MFS bid and the other bids received were all around 25% to 33% higher than the Connaught bid.

There is no formal definition of an abnormally low bid; contracting authorities will have to assess each bid on a case by case basis. Further, there is no express duty to reject an abnormally low bid, although Regulation 30(6) gives contracting authorities a right to do so, following proper investigation. Although no transcript of the interim hearing is available, it seems that MFS’s case was based on the argument that the failure to properly investigate a suspiciously low bid amounted to a breach of the fundamental EC Treaty provisions around equality of treatment, transparency and non-discrimination, also enshrined in Regulation 4.

Given the tough economic times, contracting authorities are likely to be receiving a greater number of low bids from bidders desperate to get a foot in the door. This case shows that contracting authorities will do well to be on their guard; if a contracting authority intends to award a contract to a very low bidder, it should make sure that proper investigation does take place and that there are objectively reasonable reasons for the low value of the bid.

Readers may be aware that a major policy objective at both European and UK level is to increase the opportunities for small and medium sized suppliers (SMEs) to tender for public contracts. SMEs are seen as being a potential source of innovative and cost-effective providers for some types of public contract.

In November 2008, the Glover Report was published which contained several recommendations, including that by the end of 2010 all public sector contract opportunities should be included on one single, free, online portal. In summer 2009 the government removed subscription fees to Supply2.gov.uk for SMEs in an aim to make the site more accessible. It has also released a free online procurement training course aimed at SMEs, called "Winning the Contract".

Last week, the OGC built on these initiatives by publishing guidance for authorities on how and when to flag contract opportunities to SMEs. The guidance includes a list of characteristics of contracts that may well be appropriate for SME involvement. These include when the contract is low value, requires local delivery is for a tailored or innovative product or service.

The guidance also includes suggested wording for inclusion in OJEU notices and other advertisements to make it clear that the contract could be delivered by SMEs. It is however also important to make it clear that the mere fact that a bidder is an SME will not confer an automatic advantage in the evaluation (since this would be discriminatory and contrary to the spirit of the procurement regime). The suggested wording is:

"The Contracting Authority considers that this contract may be suitable for economic operators that are small or medium enterprises. For the avoidance of doubt the contracting authority points out that no weight will be attached to whether an economic operator is an SME in selecting economic operators to [submit tenders/participate in dialogue/negotiate] or in assessing the most economically advantageous tender".

Last week the European Court of Justice gave judgment in the Uniplex case.

As many of you will be aware, Regulation 47 of the Public Contracts Regulations 2006 provides that challengers must bring a claim for damages "promptly" and in any event within three months of the date on which the grounds for the claim first arose. Until this judgment, it has been unclear how the requirement to begin a claim "promptly" fits together with that three month period. There have also been questions about "the date on which grounds for the claim first arose" - does this mean the date of the breach itself, for example, or alternatively does it refer to the date that the challenger became aware of the breach?

The judgment is helpful in two ways. It confirms that:

1) the period for bringing proceedings should start to run from the date on which the claimant knew, or ought to have known, of the alleged breach.

2) the wording in Regulation 47 which allows a court to dismiss an action brought within 3 months on the grounds that it is not brought "promptly" breaches the principles of certainty and effectiveness and is not compatible with the Remedies Directive. Challengers are entitled to the full three months in which to bring their claim.
 
This is of course in relation to a straightforward damages claim; claims for ineffectiveness have different limitation periods and must be brought within 30 days of the date the contract was awarded, or within six months where the contracting authority does not notify bidders of the award or advertise it.

Alongside the recent changes brought in by the Remedies Directive, this case is likely to give further encouragement to suppliers wishing to bring a claim in the courts.

The Bribery Bill has recently had its second reading in the House of Lords and will be of interest to both contracting authorities and private sector suppliers alike. The Bill will shortly enter into the Report stage where it receives detailed parliamentary scrutiny. It is therefore possible that it may come into force in April 2010, though watch this space for further updates once the Report stage is completed.

There was seen to be a need for this reform of the law because the UK has never as yet successfully prosecuted a company for bribery, even though it signed up to the OECD’s bribery convention back in 1989.

What is the new law?

If enacted in its current form, the Bribery Bill will simplify the existing law on bribery and enable courts to deal with it more effectively. The Bill creates offences of, amongst others, bribing another person/company/public body or accepting a bribe in return for giving an advantage to the briber.

Of particular interest to contracting authorities is the offence under section 2 in which a person “requests, agrees to receive or accepts” an advantage of some kind in return for improperly performing, or allowing the improper performance of, a “function or activity” where that function/activity is either of a public nature or done in the course of a business.

The Bill makes it clear that if the bribery offence is committed with the consent/connivance of a senior officer of the company or public body, then that person is also guilty of an offence. This will potentially catch all those working at manager level and upwards.

Although it does not affect contracting authorities directly, the Bill also creates a new offence where a commercial organisation (i.e. not a public body) negligently fails to prevent bribery.

Penalties under the Bill include fines and/or imprisonment for up to ten years (for the more serious offences).

What are the implications for contracting authorities?

Contracting authorities could therefore be guilty of bribery if, for example, they agree to “fix” a procurement evaluation process in the briber’s favour in return for some advantage. It seems it would also be possible for a contracting authority to be guilty of bribing a supplier if it offers some sort of advantage to a supplier in return for the supplier agreeing to improperly perform an activity connected with the running of its business (e.g. bribing the supplier to submit a lower-priced bid than it would otherwise have done).

The OGC will no doubt be publishing updated boilerplate standard clauses on the prevention of corruption, which take into account the Bill’s provisions and which contracting authorities will need to ensure are included in public contracts. Contracting authorities may also like to address in public contracts the consequences of a supplier being found guilty of a Bribery Bill offence. For example, the prosecution of a major supplier for negligent failure to prevent bribery is likely to be embarrassing for a contracting authority, which may wish to have the option of immediately terminating the contract in these circumstances.

The OGC has published detailed guidance on the new Remedies Directive, in three parts:

• Part 1: About the rule change, including transitional provisions
• Part 2: The new rules on the standstill period (including additional guidance on the level of detail to be included in award notification letters)
• Part 3: The new remedies rules

Earlier this month the Scottish court gave an interesting judgment in the case of Sidey Ltd v Clackmannanshire Council & Anor. Readers will probably be aware that recent amendments to the Public Contracts Regulations 2006 have implemented the EC Remedies Directive in the UK and given the courts a power to declare public contracts “ineffective” in certain cases where there has been a breach of the procurement rules.

This Scottish decision shows that the courts may well exercise the power to declare public contract “ineffective”, even where the public contract was entered into before 20 December 2009, notwithstanding the fact that the new rules are stated not to have any effect on procurement processes commenced before 20 December 2009.

Briefly, in this case, the contracting authority voluntarily followed a procurement process, even though the contract was actually below the threshold for the application of the Regulations. There were breaches at the evaluation stage, and Sidey Ltd brought a challenge. The court upheld the challenge and ruled that the contract should be set aside, because no standstill provisions had been observed and therefore Sidey Ltd had had no opportunity to seek redress for the technical breach. As such, the court made its judgment as if the Remedies Directive were already in force.

It is true that the court was probably heavily influenced by the fact that the contracting authority admitted that there had been manifest errors at the evaluation stage which had led to the wrong result. Nonetheless the case does show that contracting authorities should not simply assume that the transitional provisions to the new rules will automatically protect public contracts dating from prior to 20 December. It also shows that if contracting authorities opt to follow a procurement process on a voluntary basis, then the courts are likely to treat the contract as if the rules applied in full.

The Public Contracts Regulations 2006 only apply to procurements where the value of the proposed public contract falls over a specified threshold (although the general requirements of non-discrimination, equality of treatment and transparency must still be respected for under-threshold contracts). There are different thresholds depending on whether it is a public works, public supply or public services contract. These thresholds will be as follows from 1 January 2010:

PUBLIC SUPPLY CONTRACTS
Contracting Authorities specified in Schedule 1 – £101,323 (€125,000)
Other Contracting Authorities – £156,442 (€193,000)
Indicative notices – £607,935 (€750,000)
Small Lots – £64,846 (€80,000)

PUBLIC WORKS CONTRACTS
Contracting Authorities specified in Schedule 1 – £3,927,260 (€4,845,000)
Other Contracting Authorities – £3,927,260 (€4,845,000)
Indicative notices – £3,927,260 (€4,845,000)
Small Lots – £810,580 (€1,000,000)

PUBLIC SERVICES CONTRACTS
Contracting Authorities specified in Schedule 1 – £101,323 (€125,000)
Other Contracting Authorities – £156,442 (€193,000)
Part B Services – £156,442 (€193,000)
Indicative notices – £607,935 (€750,000)
Small Lots – £64,846 (€80,000)

The new Remedies Directive coming into force on 20 December 2009 contains a remedy of ineffectiveness – a challenger may in certain circumstances apply to court to have a public contract declared ineffective. One of these circumstances is where the contract was awarded without any advertisement or competition, in contravention of the The Public Contracts Regulations 2006.

However, a safe harbour is available. Contracting authorities who believe they are justified in awarding a contract without competition can protect themselves against a claim for a declaration of ineffectiveness by publishing a voluntary transparency notice in the OJEU, and by observing a voluntary standstill period of ten days from the day after the date of the notice.

The standard form for these voluntary transparency notices has now been published and is available for download from the EU Commission.

The amended Remedies Directive comes into force on 20 December 2009. The new rules include more detail on the content of award decision notices sent to bidders, and a new power for courts to make public contracts ineffective in certain circumstances. These changes are being introduced via amendments to The Public Contracts Regulations 2006.

While it is clear that new procurements commenced on or after 20 December will be fully subject to the new rules, it is less obvious what is required of procurements that have already been started (but not yet finished) before 20 December.

It’s true that the UK regulations do state that "nothing in these Regulations affects any contract award procedure commenced before 20th December 2009”. The difficulty, however, is that the parent EC Directive from which these amendments come, and which takes precedence over them in terms of legal force, contains no transitional provisions at all, simply stating that “Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 20 December 2009.”

There must therefore be a risk for contracting authorities which conduct debriefs along the old lines after 20 December in reliance on the transitional provisions in the Regulations that a disgruntled supplier will allege that the Directive requires the standstill and review element to be run along the new lines after 20 December, even for procurement processes that were commenced before that date.

Contracting authorities may decide the safest option is to run all debriefs in accordance with the new rules after 20 December, regardless of whether they are strictly required to do so by the letter of the UK Regulations. This may the best option where there are relatively few suppliers who need to receive the new, more detailed award decision notices. Where there are a large number, though, this may not be an attractive route to take.

The UK legislation implementing the Remedies Directive for the procurement of goods and services was published today. The Public Contracts (Amendment) Regulations 2009 come into force for procurements commenced on or following 20 December 2009.

Changes in the final version include clarity around the information required to be given to unsuccessful suppliers.

In the recent case of Deane Public Works Ltd v Northern Ireland Water, the High Court in Northern Ireland ruled that a contracting authority was entitled to exclude a bidder who filled in a PQQ with details of experience that was older than that which had been requested by the contracting authority.

Northern Ireland Water simply excluded this bidder, without attempting to clarify. At the same same time it did clarify two points with two other bidders, both of which were manifest errors rather than information about an out-of-date project.

The court held that the public body was right not to obtain clarification from the offending bidder – because to do so would have constituted an infringement of the principle of equal treatment.