This Q and A was generated in the course of a webinar “How to deal with complex procurement issues” hosted by Thomson Reuters on 9 March 2017. The specialist panel was comprised of Owen Willcox (webinar co-ordinator and Procurement Editor, Practical Law), Michael Bowsher QC (Monckton Chambers), Rebecca Rees (Partner at Trowers and Hamlins LLP), and Michael Rainey ( Managing Associate, at Addleshaw Goddard LLP). The panel members put their heads together after the webinar and drafted the replies to the questions received.
Q: Surely in order to be able to take advantage of the reverse Teckal provisions in regulation 12(2) of the Public Contracts Regulations 2015 (PCR 2015), the company would have to already be able to show that it was a Teckal company – and therefore the 80% restriction applied. Could that be why it’s not in the PCR 2015?
A: We believe there is another reason. In order to rely on regulation 12(2), the relevant company has to be a “controlled legal person”. What we think this means is that they satisfy limb (a) of the test in regulation 12(1) (the similar control) but not the other two limbs, although they do need to satisfy all 3 limbs to be a Teckal company. This is because:
- Limb (b) of the regulation 12(1) test says “more than 80% of the activities of the controlled legal person are…”, which indicates that an entity can be a controlled legal person for this purpose without meeting the activity test.
- Limb (c) of the regulation 12(1) test is repeated in regulation 12(2), which indicates that it is not a part of the test for establishing that the entity is a controlled legal person for this purpose.
Q: Where deficient performance leads to a contracting authority agreeing to novation in lieu of termination, could this be a comparable sanction? There will be a proof issue for a third party contracting authority, presumably.
A: Arguably it could be a comparable sanction. There may be an issue of proof depending upon how the original contracting authority dealt with and recorded the contributory deficiencies.
Q: Have there been cases involving procurement challenges re discretionary exclusion for poor performance?
A: There is some consideration of past performance issues in the following case: Willmott Dixon Partnership Ltd V London Borough of Hammersmith and Fulham [2014] EWHC 3191 (TCC) (9 October 2014).
Q: How would you treat a post award conviction of a current director of grave professional misconduct?
A: This would depend upon the nature of the conviction and the terms of the contract. Depending upon the terms, it may, for example, be a vetting and barring issue and/or grounds for imposing a performance sanction of some description.
Q: The PCR 2015 say that if a contracting authority deems the evidence insufficient re evidence provided by the economic operator to prove they have self-cleansed that there must be a statement in writing from the contracting authority. What should we include?
A: Regulation 57(17) requires a statement of the reasons why the authority considers such measures to be insufficient.
The FAQs accompanying PPN 08/16 provide:
“The measures taken shall be evaluated taking into account the gravity and particular circumstances of the criminal offence or misconduct. If such evidence is considered by the contracting authority (whose decision will be final) as sufficient, the potential supplier shall be allowed to continue in the procurement process. If the potential supplier cannot provide evidence of ‘self-cleaning’ that is acceptable to you, they are to be excluded from further participation in the procurement and provided with a statement of the reasons for that decision.”
We would suggest that the statement of reasons complies with the general Wednesbury requirements applicable to the giving of reasons by public authorities.
Q: Is the proportionality requirement not particularly relevant if you’re looking at grave professional misconduct of a director?
A: Regulation 18 PCR 2015 requires contracting authorities to act in a proportionate manner. In Connexxion Taxi Services BV v Staat der Nederlanden and others Case C-171/15, the ECJ ruled, albeit in relation to Directive 2004/18/EC, that EU law did not preclude national legislation which required a contracting authority to assess, in accordance with the principle of proportionality, whether it was appropriate to exclude from a public contract a tenderer which was guilty of grave professional misconduct. The ECJ also ruled that Directive 2004/18/EC required this in any event (i.e. there is no need for a national law requiring proportionality. However, if there was a law requiring outright exclusion with no proportionality, this would be contrary to the law). Although the PCR 2015 is not worded in exactly the same terms as the provision at issue in this case, we consider that this case should be taken into account when such an exclusion decision is being contemplated.
Q: When bidders use the same bid writer and identical answers are given to certain method statements can we reject both bidders? There is no specific rejection of bids statement in the ITT.
A: The PCR 2015 (regulation 57(8)(d)) contains a discretionary power to exclude bidders on the ground of collusion between bidders aimed at distorting competition. The contracting authority must have sufficiently plausible indications to conclude that the bidder has agreed with other bidders to distort competition.
Where one of the discretionary grounds for exclusion applies to a candidate, that candidate may nonetheless be permitted to continue in the procurement process if they can provide evidence that they have taken measures which sufficiently demonstrate their own reliability (regulation 57(13)-(17), PCR 2015).
The contracting authority must evaluate the evidence and, if the evidence is deemed insufficient, inform the candidate in writing of the reasons for its rejection.
In our view, there are potential grounds for exclusion if regulation 57(8)(d) is satisfied, subject to the self -cleaning provisions above. Because regulation 56(1)(b)(i) requires authorities to verify that tenderers are not excluded under regulation 57, in our view, the absence of a collusion provision in the procurement documents would not be decisive, although its inclusion would be helpful.
Q: How does one include for internal costs and considerations (e.g. transition, project management), particularly where this advantages incumbent bidders?
A: If this question relates to the authority’s internal costs, i.e. costs accrued by the client because they have to change suppliers, we do not believe they can be taken into account. This would appear to be a business cost to them that they have to periodically tender their work and this might result in the change of a supplier and the additional cost in changing supplier (for example all the contract mobilisation additional costs and time) are part and parcel of the process and, in our view, should not be added on to the non-incumbents bids.
If the question relates to bidders costs, ultimately, the authority must meet its obligations to ensure transparency and equal treatment between bidders. However, in European Dynamics v Commission of the European Communities (Case T-345/03), the court did accept that this does not mean that the playing field must be completely levelled and if the incumbent does have a better chance of winning, it will not always follow that there has been any breach of the procurement regime. In particular, it said:
“It also follows from the case-law cited at paragraph 71 above that the principle that tenderers should be treated equally does not place any obligation upon the contracting authority to neutralise absolutely all the advantages enjoyed by a tenderer… To accept that it is necessary to neutralise in all respects the advantages enjoyed by an existing contractor or a tenderer connected to that party by virtue of a subcontract would, moreover, have consequences that are contrary to the interests of the service of the contracting institution in that such neutralisation would entail additional cost and effort for that institution. Nevertheless, in order to comply with the principle of equal treatment in this particular situation, a balance must be struck between the interests involved. Thus, in order to protect as far as possible the principle of equal treatment as between tenderers and to avoid consequences that are contrary to the interests of the service of the contracting institution, the potential advantages of the existing contractor or a tenderer connected to that party by virtue of a subcontract must none the less be neutralised, but only to the extent that it is technically easy to effect such neutralisation, where it is economically acceptable and where it does not infringe the rights of the existing contractor or the said tenderer.”
Whether the proposed method of evaluation complies with the procurement regime will always depend on the applicable facts, however, it is possible that the greatest risk of challenge could come from a lack of transparency as to exactly what is being evaluated. If an authority wishes to take account of the total cost to it, it is important that this is made clear so that at a later stage another bidder could not claim that they were unaware of this.
Q: I guess the conflict of interest would also be an issue where the existing Contract Manager thinks very favourably of the incumbent supplier? Are you therefore advising that the current contract manager should never be involved in evaluation panels?
A: We do not consider that to be a blanket requirement of regulation 24 PCR 2015, which requires authorities to apply the provisions of the regulation to the circumstances of each procurement. However, if the Contract Manager could be perceived to be biased, in a given procurement, s/he should probably not be involved.
Q: what was the case name where the ECJ held rumour /allegation against company director of misconduct was not sufficient? Also could an authority exclude tenderer on the basis of a ground under regulation 57 PCR 2015 being committed by its parent or co. in group?
A:We do not recall referring to a specific case on this point, but see European Dynamics v European Commission Case T457/10 (15 October 2013).
Regulation 57(1) sets out the mandatory exclusion grounds and the requirement to exclude also applies where the convicted person “is a member of the administrative, management or supervisory body of that economic operator or has powers of representation, decision or control in the economic operator” (regulation 57(2)). (Note that the economic operator may provide evidence that it has taken measures sufficient to demonstrate its reliability (regulation 57(13) to (17)).) This appears to provide for the possibility of exclusion due to the misdemeanour of a bidder’s group company.
Regulation 57(8) sets out the discretionary grounds for exclusion. However, regulation 57 does not provide for suppliers to be excluded where the person who falls within regulation 57(8) exercises decision or control over the supplier. Therefore, it may be difficult to justify that supplier’s exclusion on the ground of a group company’s misdemeanour, unless the supplier were somehow complicit.
Q: Would “identified and specific sub-contractors” include sub-contractors for which, as part of the contract, a right of refusal by the contracting authority is given though not nominated. Would it differ if the refusal was a right to be notified only?
A: The relevant question on the slide was intended to test whether a contracting authority could lawfully effectively pre-select sub-contractors which the main contractor would be required to employ for the purpose of performing the contract and we concluded that as a general principle this was not permissible.
As to the “refusal” of sub-contractors, PPN 08/16 provides that
“as Part 1 and Part 2 of the standard Selection Questionnaire provide a formal statement that the relevant grounds for exclusion do not apply to the potential supplier completing it, a completed form is required for each organisation the potential supplier will rely on to meet the selection criteria.”
Further, that:
“You can choose whether or not to ask for a self-declaration of exclusion grounds from subcontractors who are not being relied on by the bidder to meet the selection criteria. However if you choose to ask for one then the procurement documents should explicitly state that one is required. (The standard Selection Questionnaire includes a line to this effect).”
As to notification , the position is different and is provided for in regulation 71 PCR 2015.
Q: Can I have a copy of the slides please if available. My colleagues who have registered for this webinar had difficulty logging on webex. Is it possible to access recording of the webinar?
A: A link to the slides and the recording will be made available to everyone who registered.
Two points:
1. I fundamentally disagree with the proposition that a contracting authority cannot take into account internal costs of the authority. Reg 67(2) PCR 2015 refers specifically to “price or cost” – so they are alternatives and cover different things. If cost covers only amounts paid to the contractor, this would be the same as the price. Price is what is paid to the contractor, cost is what it costs the authority (so the “costs of change” in terms of migrating data to a new ICT system are part of the cost but, unless paid to the new contractor, not part of the price). Reg 68(1)(a) specifically refers to costs “borne by the contracting authority” ie internal costs, not those paid to the contractor. This is clear from the reference to increased energy costs and maintenance costs (including maintenance costs, which would be part of the price if paid to the contractor tendering for the project, but part of the cost if paid to a different contractor or borne internally through the DLO).
2. In relation to conflicts of interest, absent allegations of misconduct as in Counted4 CIC v Sunderland, it makes no sense to exclude the contract manager from the evaluation panel. They will be the person with arguably the greatest expertise in the works, services of supplies being procured. It is worth looking at Pratt v Transit New Zealand – although a Commonwealth case it is still relevant.