REUTERS | Bob Strong

UK Government announces settlement of the Magnox procurement litigation

On 27th March 2017 the Energy Secretary Greg Clark announced that the Nuclear Decommissioning Authority had settled the long-running damages claim brought against it by Energy Solutions and Bechtel arising out of the procurement competition for the £14bn contract to decommission the UK’s  12 Magnox reactors. 

The total amount agreed to be paid to two members of the Energy Solutions consortium is approximately £100m, with an additional £10m in legal costs.  The 2014 Magnox decommissioning contract will now be terminated on agreement with Cavendish Fluor, the original winning bidder, and a new procurement competition re-run for another contract to commence in 2 years’ time.

Energy Solutions in its original claim had sought approximately £100m, so the terms of the settlement mark a complete victory for Energy Solutions and a huge and very costly embarrassment for the UK Government.

Greg Clark at the same time also announced an inquiry led by Steve Holliday, former Chief Executive of National Grid, into what was described in the Ministerial Statement as a “flawed” and “defective” procurement process and the reason for having to re-run the process again.  What the £110m price tag doesn’t cover is whatever amount was agreed with Cavendish Fluor as part of the agreed early termination sum, and the costs of running the original procurement competition.  It also doesn’t mention the level of legal costs incurred by the NDA in defending this claim. The Ministerial Statement hints that heads may well roll – one of the possible outcomes it refers to is the possibility of formal disciplinary proceedings.

Mr Holliday will be assisted in his inquiry by the 320-odd page judgment of the High Court handed down on 29 July 2016 which held the NDA liable for several breaches of the Public Contracts Regulations 2006 (“PCRs”). The judgment deals in almost microscopic detail with each and every flaw in the procurement competition, both at a systemic level in the way the competition was designed and managed and at a granular level at the way individual scores were reached.

Earlier this month, and before the Ministerial Statement was announced, the Supreme Court had heard the NDA’s appeal against two separate decisions by the High Court in the course of this litigation. The Supreme Court’s judgment – which it is assumed will no longer be handed down if those appeals have been withdrawn  – would have been of interest to procurement lawyers. In issue was the test for damages in a public procurement case (whether the Francovich test of “sufficiently serious” applies to a damages claim under the PCRs), and whether or not failing to file proceedings within the standstill period and waiting until after a contract has been entered into affects a claimant’s entitlement to damages on the grounds of a break in the chain of causation.  Those questions may therefore go unanswered.  But the High Court’s judgment on liability last July remains of considerable practical value for procurement teams involved in bid assessment and those that advise them.

The general principles that apply to evaluating a bid as part of a public procurement competition regulated under the EU Public Contracts Directive and the implementing UK regulations are easily summarised:  bidders must be treated equally, in a non-discriminatory manner and the bid evaluation must be carried out transparently.   On the face of it, these general principles seem straightforward enough. But the application of these principles in practice in high-value and complex procurement competitions has proved notoriously problematic for contracting authorities.  Over the last few years, several major UK procurement competitions have run into problems at the bid evaluations stage – the West Coast Mainline competition being perhaps the most high-profile example.  What makes the NDA case unusual is that it progressed all the way to the Supreme Court before settlement was reached.

The High Court judgment in Energy Solutions EU Limited v Nuclear Commissioning [2016] EWHC 1988, has been summarised in Legal update, High Court rules that Nuclear Decommissioning Authority “manipulated and fudged” tender process for £7 billion clean-up contract. Below is a very quick outline of the main lesson to be learnt from the judgment for contracting authorities: namely, don’t shoot yourself in the foot by trying to limit the documentary audit trail.

Much of the claim brought by Energy Solutions centred on the lack of transparency in the way the NDA managed the documentary audit trail recording the scoring exercise including the imposition of restrictions on the experts who scored the bids taking notes.

Perhaps the most emphatic lesson to be learnt from this judgment is how self-defeating any attempt to limit the production and recording of internal note-taking by the evaluation team of a contracting authority can be.  The judgment is replete with criticisms by the judge of the NDA’s systematic attempts from the very outset of the evaluation exercise to limit the amount of material produced by the particular Subject Matter Experts whose task it was to score the technical aspects of the bids.

The NDA were faced with an uphill battle after it became clear through the documents obtained through disclosure that there was a version of training slides used to train the SMEs prior to the evaluation exercise commencing that referred to shredding of notes by the individual SMEs. The judgment’s criticism of any approach involving an attempt to destroy such documents was in unequivocal terms:

I find it extremely worrying that any public authority or its advisers on procurement could contemplate any policy that would involve the routine destruction of such important documents [i.e an audit trail of the the NDA’s collective decision-making]. Public authorities have express obligations of transparency under the Regulations.  It is difficult to see how the proposed or intended destruction of contemporaneous documents could ever been consistent with those obligations” (at [270]).

The NDA also came unstuck by restricting the use of e-mail by the SMEs and restricting their note–taking during closed evaluation sessions.   The SMEs were only allowed to record electronically notes on the AWARD system itself. That meant that when scores were changed, even after being “closed down” on the system, the lack of any record of oral conversations that led to these scores being changed led to a finding of a lack of transparency. The judge described the NDA’s approach as “wholly lacking in transparency…decisions about what to about scoring that could lead to a bidder being disqualified were made “off stage” and consciously so in my judgment” (at [132]).

Finally, NDA personnel also kept no record of the dialogue meetings, and this lead to inconsistencies between feedback given to bidders and the evaluation carried out.

It will be interesting to see what else the Holliday Inquiry uncovers, but most of the flaws in the way the procurement exercise itself was run are already in the public domain as a result of Fraser J’s judgment. On the eve of Brexit being formally triggered under Article 50, there may well be political mileage made out of the fact that yet another multi-million UK procurement competition regulated by EU procurement rules has come catastrophically unstuck. But that would be to miss the point: the High Court judgment indicates that what really went wrong here on the face of it was not a technical breach of some obscure part of the PCRs but a fundamentally flawed approach to public decision-making at odds with long-standing UK principles of good administration.

Landmark Chambers James Neill

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