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October 2010

October 27, 2010 1:54 PM | Posted by Beresford-Jones, Jenny | Permalink
On 7 September 2010 “property and environmental services giant” Connaught appointed KPMG as administrators. In the wave of publicity which followed KPMG quickly announced that it had “sold” the “majority of the ongoing contracts and their related assets” to Lovell a subsidiary of Morgan Sindall. Since then announcements have been few and far between.

In fact, many local authority lawyers are now saying that their clients have refused to recognise the “sale” and have taken the work in-house or re-started time consuming and expensive procurement exercises in some of which Lovell are competing with other interested parties despite the purported sale.

The predicament of councils across the country following the collapse of Connaught encapsulates both the problems said to have caused that collapse and the difficulties now facing insolvency professionals and local authorities in the aftermath of that collapse: the effect of The Public Contracts Regulations 2006  (“the Regulations”).

For many cash-strapped local authorities Connaught represented a very good deal. Too good some competitors complained leading to legal challenges that the bids were in fact economically unsustainable. Unfortunately, if something seems too good to be true then it often is and the collapse of Connaught has left those who thought they had secured a good long-term deal without a supplier for essential building and other maintenance work.

When companies become insolvent the ripple effect on smaller enterprises is dramatic but the problem is magnified where a large number of public contracts are involved. The problem of unpaid debts is exacerbated by the already hard economic conditions and the most swingeing cuts in a generation to public services recently announced by the Coalition. Moreover, the effect of the Regulations is that an administrator cannot just “sell” or novate from one supplier to another making the continuity of work and provision of services difficult to guarantee both for the public authority and the many smaller contractors caught out by the insolvency.

The problem centres on a ruling by a European court which established that in order to ensure transparency of procedures and equal treatment of tenderers, amendments to the provisions of a public contract during its term will constitute a new award if those amendments render the contract “materially different” from the original contract. Substitution of one party for another or, in other words, novation by private treaty of public services is unlikely to be compatible with European law and in order to make it compatible the whole tendering process should be undertaken again.

The problem is very real. Many of those councils whose contracts were apparently sold to Lovell or which have tried to arrange alternative provision have spoken of contractors who were prepared to challenge the arrangement under the Regulations had they gone ahead with a replacement for Connaught.

It is unlikely that the law on this issue will change (or certainly not soon) despite the fact that it fundamentally undermines the efficacy of administration for companies with significant public contracts and creates untold uncertainty both for those dependent on public bodies and those procuring services on behalf of public bodies. Given the extent of public spending cuts and the dependence of the economy on public sector contracts Connaught may not be the last “giant” to fall.

If you would like to discuss any of the issues raised in this post in more detail, please contact Helen Prandy on 01223 222344, .
October 4, 2010 3:23 PM | Posted by Beresford-Jones, Jenny | Permalink

Readers of this blog may be aware that the distinction between selection criteria and award criteria has been a hot topic in procurement law recently (together with issues around adequate disclosure of award criteria). The European Lianakis case in 2008 emphasised the importance of ensuring that only criteria aimed at assessing suitability of bidders in general should be used at selection stage, while award criteria ought to evaluate the merits of particular bids in response to a particular requirement.

A couple of recent European decisions against the IT services supplier European Dynamics (“ED”) are therefore interesting given that they cover this distinction between selection and award criteria. The cases are helpful to contracting authorities as they appear to suggest that, while the selection and award stages are distinct and require separate treatment, it is possible to use the same information at both stages, provided it is used in a way appropriate to that particular stage.

The first case concerned a procurement of IT services run by the European Monitoring Centre for Drugs and Drug Addiction ("EMCDDA"). ED claimed that EMCDDA had made a manifest error in confusing its use of selection and award criteria and that it was not entitled to evaluate qualifications and experience at award stage. The judgment is helpful in that it appears to acknowledge that experience and qualifications may be used as award criteria, provided this is done comparatively and in relation to the particular contract being let.

One of the stated award criteria was "technical merit of human resources for the execution of the tasks, 30%". The evaluation committee in this case gave reasons to ED as to why it was unsuccessful – one of these was that, while the system architects ED proposed using had rich academic qualifications, they had limited experience. The court took the view that, given the stated award criterion of "technical merit", EMCDDA was entitled to comparatively evaluate qualifications and experience at award stage; the court certainly did not criticise it for taking this approach. Indeed, the court commented that "the evaluation report does not call into question [ED’s] knowledge or the experience which it has established. During the award stage, those qualities are assessed in the light of the specific proposals made by the applicant regarding the implementation of the defined services".

This is helpful to public bodies as it appears to suggest that a contracting authority may use responses to the same set of criteria (in this case, education and experience) in two ways; (1) at selection stage, to de-select all those not meeting an absolute minimum standard, and (2) at award stage, to look comparatively at how the responses to those criteria score under a particular stated award criterion. The Court held that in applying the criterion relating to technical merit of the human resources, the evaluation committee could clearly take into account the qualifications for and relevant professional experience relating to the required tasks. These did not constitute criteria in their own right but were an inherent part of the stated criteria (and, therefore, it did not matter that qualifications/experience had not been expressly stated as an award criteria in themselves).

The second case concerned a procurement of computer services run by the Publications Office of the EU. ED was unsuccessful and brought a claim against the Commission, claiming that it was criticised for having exceeded the maximum number of pages permitted for best practice documents and that the Publications Office thereby confused award and selection criteria. ED argued that the documents concerned had already been evaluated in the selection procedure and that criteria designed to assess a bidder’s general suitability to perform the contract in question could not be regarded as award criteria.

The Court noted that there must be a distinction between selection criteria and award criteria, which are governed by different rules. However, and interestingly, it found that the assessment of the sub-criterion relating to best practice was different at the two different stages. At the selection stage, the review involved assessment of the technical and professional capacity of the various tenders. However, at the award stage, the review covered compliance with the criterion of the number of pages to be included in the tender. Therefore, if the tender had satisfied the selection criterion as to the content of the best practice documents, there was nothing to prevent the Publications Office from taking into account in its award criteria the fact that the volume of best practice documents exceeded the maximum number of pages requested. This decision again is very helpful as it suggests that the same information can be used in different ways at each of selection and award stage.

It is of course true that all cases turn on their own facts to some extent; the court in these cases may well have been influenced by the fact that the claimant was European Dynamics, which has brought a string of claims in relation to procurements where it has been unsuccessul in the last year or so. Nonetheless, these cases do seem to show the court's willingness to take a common sense approach to selection and award criteria.


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