Practical Law

David Hansom, Associate, Eversheds LLP:

Challenges to public procurement decisions have increased enormously over the last few years, and the tide shows no sign of slowing. Faced with fewer opportunities and more competition for those that remain, bidders have much greater awareness of their rights in procurement litigation and are increasingly not afraid to use them.

However, the case of J Varney & Sons Waste Management Limited v Hertfordshire County Council decided in the High Court on 16 June 2010 is a shift away from the recent run of pro-tenderer cases. 

 
This case concerned a claim by J Varney & Sons, one of the unsuccessful tenderers for contracts for the operation of 18 household waste recycling centres in Hertfordshire for the period 2008-13.
 
Varney brought 2 claims relating to the initial procurement and changes to the contracts when awarded, alleging various breaches of the Public Contracts Regulations 2006 including allegations that the Council:

• failed to disclose the criteria, sub-criteria and weightings which would be applied in determining the tenders which were most economically advantageous and used criteria inconsistent with the information supplied to tenderers;
• used a selection criterion at the evaluation stage as an overriding criteria, namely the financial strength and stability of tenderers and then ignored the directions of its Corporate Services Department in applying it;
• accepted tender prices which were abnormally low and not sustainable over the life of the contracts;
• was inconsistent and committed manifest errors in marking the tenders;
• failed to enforce commitments in the contracts made with a successful tenderer and, once the contract was in operation, changed important terms in such contract.

Varney’s claim was unsuccessful and, in summary, the following key lessons emerge:

• there is a clear risk that a tenderer who waits for 3 months from notification that its tender has been unsuccessful before bringing a claim based upon a lack of transparency will be struck out on limitation grounds, where the intended use of undisclosed sub-criteria or weightings was apparent on the face of the ITT;
• in some cases, where it can be shown to be relevant and it has been identified as an evaluation criteria in the ITT, tenderers’ financial strength can be used at the evaluation stage;
• even though the obligations on an authority in respect of abnormally low tenders may be less than previous cases might suggest, careful consideration should be given to whether unusually low bids are sustainable in terms of contract performance and, if so, whether they should be rejected on this basis;
• tenderers intending to challenge under the Regulations should pay particular attention not just to whether there has been an infringement, but also to demonstrating the impact on their tender if they are to succeed in a damages claim.

The case considered a number of important current issues which have previously been decided by the UK Courts and the European Court of Justice (ECJ) and, at a practical level, frequently arise in the course of a procurement.
 
In the case of Lettings v London Borough of Newham, the failure of the Council to disclose sub criteria and weightings was a breach of the Regulations which led the Court to consider that damages would not have been an adequate remedy had the challenger’s application to injunct the process not been granted. Also, in the important ECJ decision of C-532/06 Lianakis v Dimos Alexandroupolis, the Court said that contracting authorities cannot take account of a tenderer’s experience, staffing levels, equipment or ability to perform the contract within a set timescale. The Court’s clear view was that these matters fall within factors that should be assessed at pre-qualification questionnaire stage; they are not appropriate to the decision whether a tender is the most economically advantageous, i.e the award criteria.
 
The Varney decision is striking because it is at odds with these leading cases. However, to put the decision in context, the case does involve a lot of commentary about the quality and nature of the disgruntled tenderer’s case and it seems that the Judge’s decision is founded on the deserving party principle.  It was also a challenge brought under the old remedies regime, and the impact of the new ineffectiveness and automatic suspension provisions will further add to a challenger’s armoury going forward. 
 
In summary, this decision reflects a less rigid approach to the Regulations than previous cases and will be well received by procuring UK authorities but given that several of the key findings in this case cut across ECJ decisions, whether it will be followed is another matter.
 
David Hansom is a associate in Eversheds LLP’s Public Procurement team.