Procurement news blog

July 2018 will live long in the memory: long hot summer days, a World Cup semi-final and a Welshman winning the Tour de France. With all the excitement it is perhaps not surprising that the latest determination by a judge of what Regulation 69 requires a Contracting Authority to do (or not do) passed by without comment from this blog. However, with the arrival of Autumn it is time to look back at some of the summer’s most interesting procurement decisions.

One of those decisions was Fraser J’s latest analysis of Regulation 69 and whether Contracting Authorities have a positive obligation to investigate if a bid is abnormally low.

In a trial that included evidence that the Claimant might deliberately have over-bid in order to “hurt” the Defendant and in order to effectively create a scenario in which it could bring a challenge based on ‘abnormally low bids’ the judge was critical not just of the behaviour of the Claimant but, more pertinently, of the way it had attempted to demonstrate that the winning bid was ‘abnormally low’.

The judge described the approach to establishing “abnormally low” as “entirely ignoring commercial factors”. The Claimant chose to challenge the bid based on a comparison of rates for some items along with a consideration of its own profit margins. However, the judge was very clear that a simple comparison of numbers is not enough. In every case commercial judgement has to be allowed for including the experience and business skill of the tenderer.

The judge reiterated that the law on abnormally low bids remains that set out in NATS (Services) Ltd v Gatwick Airport Ltd despite the fact that this decision related to the 2006 Regulations and earlier Directive. In particular he emphasised the finding of the court in that case that the purpose of the Regulations is to encourage competition and that:

“A key aspect of this is price and tenderers who are keen to secure a project will want to pitch their prices at a level which will be the lowest. They might be keen to break into a market or establish their market share. There is nothing wrong with that for them or for the utilities or contracting authorities, who are (almost) always keen to place contracts at the lowest price and, preferably, at lower than they have budgeted. One needs to consider how, commercially, a tenderer, which is not the incumbent provider or not the market leader, will ever get a contract unless it puts in attractively low prices”.

Mr Justice Fraser approved the NATS judgment and concluded that the court should be “very slow to interpret the Regulations…as imposing some wide ranging obligation….to determine whether there is or might be an abnormally low tender”. As for whether failing to consider if a bid was abnormally low might amount to some kind of “manifest error” on the part of the Authority this risked “placing an impossible burden on contracting authorities, and stifling true commercial competition.”

The judge concluded that there was no obligation under Regulation 69 to investigate any allegedly abnormally low tender. Regulation 69 simply requires that if a bid is to be rejected as abnormally low then it must be investigated before that is done. There is no corresponding duty to investigate it if the bid is accepted albeit that many contracting authorities, including here, may carry out some form of independent verification of bids as part of their own due diligence process.

For anyone interested in the behaviour of bidders, and perhaps particularly incumbents, the case generally makes interesting reading not just because the judge found that the Claimant “took a conscious decision not to bid on a commercial basis….to try to engineer a situation where the other bids were far lower than its own, in order to justify an attack on the outcome…”. There was also some interesting evidence on the behaviour of (some) incumbents when providing TUPE information and the disclosure of some damning evidence on the decision making process which the judge refused to keep confidential. This included the presentation slide about seeking “to hurt” the Defendant.

It is possible that this case sounds the death knell of challenges on abnormally low bids. They are difficult anyway but the emphasis on commercial factors, nous and experience are all intangible factors which might be impossible to gainsay. That is not to say that we will see an end to Authorities rejecting abnormally low bids but it must be right that the factors the judge relied on here to dismiss the claim must also have to be factored into an Authority’s thinking when considering a bid under Regulation 69 and whether or not it can properly be rejected as ‘abnormally low’.

SRCL Limited v The National Health Service Commissioning Board (also known as NHS England)

Posted by Helen Prandy

The government has just published a tranche of papers outlining the potential impact of a “no deal” Brexit. One of the topic areas covers access to public contracts in the event that no deal is reached in time for 29 March 2019 (when Britain leaves the EU).

The paper is light on detail but there are a few points to note:

• if there is no deal, contracts will no longer be advertised in the OJEU but instead a replacement UK-specific e-notification service will be made available free of charge to all users;
• current procurement legislation (in particular, the Public Contracts Regulations 2015) will be amended accordingly;
• the requirements to advertise on Contracts Finder will continue; and
• further guidance will be issued as Brexit day draws closer.

Posted by Jenny Beresford-Jones

This firm recently successfully defended the Secretary of State for Health and Social Care against a claim by DHL Supply Chain Limited for summary judgment in connection with the procurement of a new logistics contract. The procurement is part of an overhaul by the Department of Health and Social Care of the NHS Supply Chain and disaggregating it from a single supplier, DHL, in order to drive efficiencies, leverage NHS purchasing power and generate savings which can be applied to front line services.

In an application before the Technology & Construction Court in early August DHL sought summary judgment on “a simple point of construction” relating to one of the requirements in the Selection Questionnaire. At the same time, the Court also heard our application to lift the automatic suspension imposed by Regulation 95 of the Public Contracts Regulations 2015 and allow the Department to enter into a contract with the winning bidder.

The case was unusual as it looked at summary judgment in the context of a procurement claim where no limitation argument was considered.

In order to defeat a claim for summary judgment a Defendant is required to show that it has a defence with “a realistic prospect of success”. The Court accepted that the construction of the Selection Questionnaire put forward by the Department was supported by other tender documents and in any event the wording should be construed against a factual basis on which the Court needed to hear evidence.

The application to lift the automatic suspension came down to a consideration of where the balance of convenience lay which is always fact specific. In this case, the judge held that the balance of convenience lay in favour of the Department allowing the automatic suspension to be lifted.

DHL were subsequently denied permission to appeal these decisions by the Court of Appeal although a claim for damages continues.

DHL Supply Chain Limited v Secretary of State for Health and Social Care [2018] EWHC 2213 (TCC)

Posted by Helen Prandy

We’ve recently had a decision in a case concerning child and adolescent mental health services in Lancashire. The contracting authority was Lancashire County Council. These services have up to now been provided by two local NHS Trusts (the “Claimants”) but on the re-procurement the winning bidder was Virgin Care, which was scheduled to start provision of the services on 1^st April.

The effect of the claim was to “automatically suspend” the award of the contract to Virgin. The Claimants’ scoring on price almost identical to Virgin’s and very close on technical / quality (2 actual marks difference, which equated to 4% on weighting).

The general trend has been for the Court to find in favour of the contracting authority; to lift automatic suspensions and allow contract award to proceed. This judgment is usually made on the basis that, were the Claimant to eventually show that the procurement rules were breached, a payment of damages could be made to compensate the Claimant for having lost out. More rarely, however, the Court maintains the suspension of the award process until a full trial can be held.

Unusually, the Claimants in this case succeeded in persuading the court to maintain the suspension of the award pending the main hearing of the complaint, such that the contract with Virgin was not signed. The Claimants demonstrated that, in the event their claim was successful at full trial, an award of financial damages could not be sufficient to compensate for, for example, the loss of senior staff and lost funding for sustainability and transformation. The judge decided that there would be a significant effect on the operational activities of the Claimants which would affect the quality of the healthcare they provided and which could not be compensated for in mere financial terms. The fact that it was possible in this case to have an expedited trial of the main claim so that the question could be resolved quickly, was also a factor in the judge’s decision to maintain the suspension.

We have now had judgment in that expedited main trial, where the judge upheld the Claimants’ argument and ordered the Council to set aside its decision to award the contract to Virgin. The Claimants argued, amongst other things, that the procurement process had lacked transparency, and that the evaluation had not been done properly, typical grounds on which procurement challenges are based.

The judge reminded us of the legal framework for assessing whether the Council’s running of the procurement process had met the required standards of transparency, non-discrimination and equal treatment. The Council was obliged to give details of the how the process would be run, how the evaluation would be conducted and how marks would be awarded, and to do so in such a way that was objectively capable of being understood by a reasonably well informed and normally diligent bidder (often referred to as the “RWIND tenderer”). Bidders should be put in a position of awareness as to how the Council would mark the tenders, including the relative importance of the various elements of the bid. The Council was then required to conform to the stated process in order to ensure transparency.

The Claimants argument was that the evaluation of Lot 1 was not done transparently as it departed from the stated process. Lot 1 accounted for 95% of the value of the procurement, weighted at 80% quality, 20% price, so representing the lion’s share of the overall contract. The general evaluation scheme set out award criteria; these were further developed (for the quality element) in an appendix using a list of seven questions (to each of which marks were attributed). Each of the seven questions were expanded into a series of sub-bullet points which were not separately given marks. The evaluators were instructed that “Scores must be based on the evaluation sub-criteria identified directly under each question.” In the absence of separate marks for each bullet point, the Judge decided each was to carry equal weighting.

There was evidence that the moderation of the scores given by evaluators was not carried out compliantly – moderators looked first at the scores achieved by Virgin and then went on to try and moderate these by looking comparatively at the Claimants’ tender and scores. This was not the permitted approach as it amounted to using the Virgin bid itself as an evaluation/moderation schema rather than the actual award criteria (set out in the seven questions and associated bullet points). The moderation process also meant that certain points of the original evaluation were altered, and on examination moderators were not always able to identify whether a comment was written in the “original” evaluation or was a product of the later process of moderation. This led the judge to agree with the Claimants’ argument that “a procurement in which the contracting authority cannot explain why it awarded the scores which it did fails the most basic standard of transparency”.

There was also evidence that record keeping fell below the standard required – the notes of the moderation were never agreed upon/signed off by the evaluators, plus there was more concerning evidence that the Claimants had been misled by the Council on the dating of the evaluation notes; the judge took a dim view of this practice, saying “to describe this (as the Council did) as merely “a regrettable episode of poor administration” is, to my mind, an unacceptable understatement.”

All this meant that the Claimant was not put in a position where it could understand how the evaluation had been done and the reasons for finding that the Virgin bid was the most economically advantageous tender. While the judge did expressly state that there is no requirement to disclose a full account of each individual moderating decision, the reasons given and the account of the moderation process must still be sufficient to allow a claimant to understand what has been done in the evaluation/moderation, and why.

The judge upheld the Claimants’ complaint and ordered the Council to abandon its decision to award the contract to Virgin. Presumably, a new procurement will now have to be run unless the current contract with the Claimants can somehow be lawfully extended (under Regulation 72).

The case is a reminder to contracting authorities of the important of adhering to a stated procurement process and of adequate record keeping. It is also a reminder that moderation needs to be done on a bid by bid basis against the award criteria for each tender, and not comparatively against the top scoring bid.

(1) Lancashire Care NHS Foundation Trust and (2) Blackpool Teaching Hospitals NHS Foundation Trust v Lancashire County Council [2018] EWHC 1589 (TCC)

Posted by Jenny Beresford-Jones

Readers of this blog may recall that last year the Supreme Court dealt something of a blow to bidders by limiting the circumstances in which damages for a procurement breach might be awarded (click here to read our blog post on this).

Now, almost exactly a year later, the High Court has further clarified the position on the court’s powers to order that a contract should be awarded to a bidder where a finding has been made that the Contracting Authority breached the Regulations.

This is an order commonly sought by bidders whose key interest is usually to secure a valuable commercial contract particularly where a court has already concluded that but for the Authority’s breach of the Public Contracts Regulations it would have been the winning bid. With some justification most bidders might consider that in those circumstances it is ‘only fair’ that the contract should be awarded to them.

The Public Contracts Regulations prescribe 3 potential remedies for bidders but these do not include a power to order an Authority to enter into a contract with a bidder who has been successful in proceedings. However, the Regulations do not fetter “other powers of the Court” and so in principle it is possible to ask the court to order that the Authority must enter into a contract with a bidder following the outcome of legal proceedings.

However, the High Court has reiterated that such a remedy will be granted only in “exceptional circumstances”.

As is often the case with such pronouncements there is no clarity around what might amount to an “exceptional circumstance” but the way English law stands at the moment it is in fact difficult to identify any circumstance where such an order might be made.

Why so pessimistic?

Well, English courts have had a long-standing aversion to forcing the provision of services. For example, an employee cannot be ordered to work and an employer cannot be ordered to employ someone. Even more importantly though, in most procurements, ordering an Authority to appoint a particular bidder actually places that bidder in a better position than it was in the tender process itself. Usually the tender documents will reserve a right not to award a contract so all bidders go into the process knowing that a contract may not be concluded.

English courts particularly dislike the principle of putting a litigant in a better position than it would have been in the ordinary course of events so as long as procurement documents retain the right not to award I cannot see any circumstance in which a court will take it upon itself to award the contract and oblige the Authority to appoint a previously unsuccessful bidder.

It is fair to say that the English legal system is not a particularly welcoming place for disappointed bidders: ineffectiveness is virtually unheard of, even now an automatic suspension can be relatively easy to lift , the path to a damages claim is not straight-forward and costs can be prohibitive. However, given the knots the UK Government already finds itself in over the terms of Brexit it is difficult to see this at the top of anyone’s list of legislative priorities any time soon.

MLS (Overseas) Limited v The Secretary of State for Defence and SCA Shipping Consultants Associated Limited (as Interested Party)

Posted by Helen Prandy

The fact that the GDPR comes into force today needs no introduction, given the constant bombardment of all our inboxes with requests to ‘opt in’ over the last week.

Whilst you may have heard quite enough about the GDPR for now, there are some important implications in the public procurement/public contracts context.

Specifically, we note that the Crown Commercial Service has just updated its original Procurement Policy Note on Changes to Data Protection Legislation and GDPR – the previous PPN (03/17) has been amended and replaced by Action Note PPN 05/18.  You should now refer to the updated version only.

The new PPN states that "for any contract amendments yet to be agreed and for new contracts to be let after 25 May, you should use the provisions of the new PPN including the updated standard generic clauses at Annex A". This suggests that there is no need to go back and amend model clauses based on those in the older PPN, where these have already been agreed as part of your GDPR preparation work stream.

The scope of the PPN continues to include Central Government Departments, their Executive Agencies and Non Departmental Public Bodies, with other public bodies being advised to follow it given that they are also subject to the GDPR and Data Protection Act obligations.

The original PPN included model GDPR clauses for new contracts and guidance on how to make existing contracts compliant. The updated note was issued to provide greater clarity on questions and issues that arose in response to organisations preparing to use those model clauses in practice. For example:

• The new PPN clarifies the distinction between Controllers and Processors, pointing out that a Processor does not process personal data for its own purposes. A Processor has no interest in the personal data save to the extent it is obliged to process it as a part of its contract with the Controller.
• There are also updates to the model clauses to try to build in some flexibility to reflect the fact that not every contract that involves the processing of personal data will automatically involve a Controller to Processor arrangement. For example, we have become aware of public bodies seeking to incorporate the model “Controller to Processor” clauses into all their contracts on the basis that they were within scope of the old PPN, even when it was not appropriate to do so because the arrangement was in fact a “Controller to Controller” arrangement.
• The original PPN noted that you should avoid liability clauses which purported to protect a Processor from any liability for its GDPR breaches (on the grounds that this would be to undermine the purpose of the new legislation). The new PPN amplifies this with drafting suggestions for liability clauses to ensure a Controller is able to recover the full costs of civil data protection claims or regulatory fines issued by the ICO, where the breach was the Processor’s fault.
• The original PPN acknowledged that in some cases there could be Joint Controllers and explained that there would need to be a transparent agreement between these Controllers as to how the arrangement is to work; the new PPN expands on this with more detail of the features you should include in such an arrangement with a Joint Controller.
• The new PPN also addresses the question of expired/ legacy contracts, where personal data is still being processed (e.g. stored) by a Processor, even though the contract has expired. The PPN reminds us that data being processed like this after today will become subject to the GDPR and this means the Controller must decide whether the data must be retained or deleted. A Processor who has been instructed to delete by the Controller but continues to process, will be in breach of the GDPR.
• The model clauses contain an obligation on the supplier to adopt “protective measures” to protect against data loss. The new PPN has amended this slightly to confirm that the Controller is not obliged to approve the “protective measures” of the Supplier (although it may reject these, acting reasonably). This is to address to concerns raised by Controllers that (1) they would not have the resources to check adequacy of protective measures in each case and (2) that any such approval would amount to a ‘blessing’ of a Processor whose protective measures turn out be insufficient in the event.
• In terms of procurement procedures, the new PPN contains guidance on additional questions and due diligence for new procurements (including a new standard SQ question) and a suggested model question for the ITT/award stage. The standard SQ will be updated in due course but this hasn’t been done as yet. This means that in the interim period, you will need to add the model clauses/suggestions in the PPN to Selection Questionnaires/ITTs.

There is a fair amount to get to grips with here! If you need more information/guidance about the GDPR generally, please take a look at our GDPR Hub where you can find free-to-access resources and, if needed, contact one of our data protection law specialists for an initial chat about your query.

Posted by Jenny Beresford-Jones, Mills & Reeve LLP

The Government has confirmed that the Competition and Markets Authority (CMA) will be the regulator for any State aid regime which is adopted for the UK post-Brexit.

Responding to the House of Lords EU Sub-Committee’s report, following the Committee’s inquiry and call for evidence on the impact of Brexit on UK competition policy, the Government acknowledges the need for a UK-wide State aid regime following exit from the EU (the existing EU State aid rules will continue to apply during the transitional period with the European Commission continuing its responsibility for approving and monitoring aid).  Whilst the Government’s longer term decisions on State aid control will be influenced by the outcome of the EU / UK future trade negotiations, without prejudice to these, the Government is of the view that the UK should be prepared to establish a full, UK-wide subsidy control (State aid) framework, with a single UK body for enforcement and supervision, at the point this is required.  A functioning State aid regulatory regime is seen to be a key part of ensuring fair competition both internationally and within the UK’s internal market; and subsidy controls ensure government interventions are smart, targeted and have incentive effects. 

To ensure any future UK State aid regime is operable, the Government believes the CMA will be best placed to take on the role of independent State aid regulator. This role reflects the CMA’s experience and understanding of markets as the UK’s competition regulator and the independence of its decision-making from Government.  Establishing a clear regulatory function should, according to the Response, ensure the State aid rules will be operated fairly throughout the UK internal market.

Coinciding with the Government’s Response, the CMA has now announced two new appointments through its twitter feed:  Sheldon Mills takes on the role of interim Senior Director for State aid and Juliette Enser as interim Project Director for State aid.

The full text of the Government’s Response (covering both State aid and wider competition policy) is available here.

Have you seen our new Procurement Portal page on State Aid? Click here to read our helpful guide to when State Aid issues may arise and how you might structure your procurement project so as to avoid the application of the State Aid rules.

Posted by Ruth Smith
Mills & Reeve LLP