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21 June 2016

Court Finds DRD Breached Public Contracts Regulations

Summary of Judgment

Mr Justice Colton, sitting today in the High Court in Belfast, found the Department for Regional Development had breached the Public Contracts Regulations and was guilty of a breach of duty to FP McCann Limited in respect of the award of a contract to design and construct the A8 dual carriageway between Belfast and Larne. The compensation payable to FP McCann will be assessed at a later date.

In 2009, FP McCann Limited (“the plaintiff”), as part of a joint venture with Balfour Beatty (the joint venture is referred to as “BBMC”) submitted a tender for the contract to design and construct the A8 dual carriageway between Belfast and Larne. The Department for Regional Development (“the defendant”), through the Roads Service, was responsible for the public procurement of the contract. Although the BBMC bid was the lowest under the commercial submission in the tender, the defendant decided not to award the contract to the consortium on the grounds that it had submitted an “abnormally low tender”. The plaintiff contended that BBMC ought to have been awarded the contract and the decision not to do so was unlawful. The company sought damages for the loss and damage it claimed it had suffered as a result of that refusal.

The legal context to the tender process

The contract was to be procured in accordance with the procedure under the Public Contracts Regulations 2006 (“the Regulations”). These Regulations implement EU Directives and provide that contracts should be awarded on the basis of objective criteria which ensure compliance with the principles of transparency, non-discrimination and equal treatment and which guarantee that tenders are assessed in conditions of effective competition. Regulation 30 of the Regulations provides that a contracting authority shall award a public contract on the basis of the offer which is “the most economically advantageous from the point of view of the contracting authority or offers the lowest price”. Regulations 30(6) and (7) provide that if an offer for a public contract is abnormally low, the contracting authority may reject that offer but only if it has taken a number of steps including requesting an explanation and verifying the offer or parts of the offer being abnormally low with the economic operator (ie the plaintiff in this case).

The contract and tender process

There were two phases of work in the A8 contract. In Phase I, the successful bidder was to be the consultant who designed the new road and progressed it through to a public inquiry. Under the contract, the consultant under Phase 1 would become the contractor under Phase II subject to the agreement of a target cost for Phase II. A fresh contract for Phase II would then be executed on the basis of this new agreement. The contract in this case had an estimated value of between £80m and £100m and was to be awarded on the basis of the most economically advantageous tender.

The procurement process was initiated on 24 April 2009. The tender sought rates on the following areas: core management team; drainage works, earth works, pavements; structures; and fee. After a review of the tenders received, the Roads Service issued a clarification request to BBMC on 18 November 2009 which stated that a number of the rates submitted by it (in relation to drainage, earth works, pavements and structures) may be abnormally low. BBMC replied to this request on 23 November 2009. The Roads Service issued a second clarification request on 27 November 2009 seeking further clarification on rates in respect of drainage, earth works, pavements and structures although this clarification did not state specifically that there were concerns that the rates were abnormally low. BBMC replied on 1 December 2009.

The tenders were then evaluated by a Commercial Evaluation Panel (“CEP”) appointed by the defendant which produced a report and recommendations. The report concluded that the BBMC’s bid was abnormally low and that there was a risk that BBMC and Roads Service would not be able to agree a target price under the contract and that the project would not therefore proceed to Phase II. The decision in relation to the awarding of the contract was taken at a meeting of the Road Service’s Board on 16 December 2009 when the Lagan Ferrovial Costan Consortium was named as the successful bidder.

The applicable legal principles

Mr Justice Colton said that the issue in this case turned on the legality of the defendant’s decision to exclude the BBMC bid. He said that the concept of fairness under the applicable law and legal principles embraces an obligation on the defendant to ensure equality of treatment between tenders, objectivity, transparency and proportionality. The judge noted that the role of the court is a limited one adding that it is not undertaking a comprehensive review of the tender evaluation process or substituting its own view as to the merits or otherwise of the rival bids. The role of the court is to supervise the way in which the process has been carried out and to review whether proper procedures and basic principles underlying the EU Directive have been respected. The standard of review to be carried out by the court is to ensure that the principles for public procurement have been complied with, that the facts relied upon by the authority are correct and that there is no manifest error of assessment or misuse of power.

Concerns

The defendant gave evidence to the Court that the issues which gave rise to the recommendation to reject on the basis that the offer was abnormally low related to the tendered figures in respect of earthworks, pavements and structures. It stated that the figures for core management team, drainage and fee did not contribute to the recommendation. Mr Justice Colton said that having considered all the evidence he had a number of concerns about the tender process in this case:

  • Matters which were expressly excluded as contributing to the recommendation in fact did or may well have contributed to the actual decision taken by the defendant to reject the plaintiff’s bid. No member of the CEP was present when the Board reached its decision on 16 December 2009 and the judge felt this would indicate that the decision was informed by papers produced at the meeting. A consideration of these papers would suggest that the rates for the core management team, the fee and drainage were likely to have contributed to the Board’s decision notwithstanding the fact that the defendant claimed that drainage was excluded as a reason for the bid being abnormally low. The judge said these had been described in court as “errors” but supported the view that these rates were part of the thinking of the Department in rejecting the tender.
  • BBMC were not given the opportunity to explain matters which ultimately contributed to the decision to reject the tender. Under Regulation 30(6)(a) an authority must request in writing an explanation of the offer before it can come to any decision that a tender is abnormally low. The judge said the tender clarification requests focussed on the areas of drainage, earthworks, pavements and structures but no clarification was sought in respect of the fee and core management team prices which he found had probably contributed to the decision to reject the tender. Mr Justice Colton said this constituted a clear breach of the requirements of the Regulations.
  • The Department failed to comply with its obligation to verify the offer or parts of the offer which were allegedly abnormally low. Mr Justice Colton said it was clear from the evidence that the primary concern of the defendant was whether or not it could agree a target cost with the plaintiff. The defendant claimed that if the prices were abnormally low or unreliable, there was a real risk that they simply could not form the basis of a credible agreement. The judge said that: “Put simply or crudely, this type of contract is potentially open to the risk of a tenderer putting in an unrealistic bid to ensure it wins the contract and after the completion of Phase I seeks to negotiate prices upwards”. He said it was clear that a key part of the Department’s thinking was that based on the rates provided by BBMC they would not actually agree a target cost. This concern was not made clear to BBMC but a document presented to the Board clearly demonstrated the focus that the defendant was placing on the issue. Mr Justice Colton said the plaintiff should have been given an opportunity to deal with this issue to comply with the regulations and the principles of fairness and transparency. He considered in these circumstances that there had been a breach of Regulation 30(6)(c).

Other concerns.

Mr Justice Colton also had concerns about the way in which the matter was “dramatically” presented to the Board which he said clearly gave rise to an immediate concern about the reliability of the tendered figures. A further concern was the issue of bitumen prices quoted by BBMC which the judge said played a role in the defendant’s determination that the plaintiff’s tender was abnormally low. The commercial assessment report described BBMC’s rate for the supply of bitumen as being “significantly lower than the current market rate”, stated that “the only way of securing these rates is through a hedge fund arrangement” and advised that “this is a high risk procurement strategy with no guarantee of success”. The court heard evidence, however, that the rate quoted by the plaintiff was a sustainable rate. Mr Justice Colton said this confirmed his view that there were significant flaws in the process adopted in assessing the plaintiff’s tender and that the defendant’s may have taken a different decision had they been aware of the true position in relation to bitumen rates:

“These concerns lead me to the view that there has been a clear breach of duty by the defendant in respect of its consideration of the BBMC bid and specifically a breach of Regulation 30. I consider that if these matters had been properly dealt with there was a significant chance that the decision in this case would have been different.”

Decision

Mr Justice Colton found that the defendant was in breach of Regulation 30 of the Public Contracts Regulations 2006 and was guilty of a breach of duty to the plaintiff. He did not conclude that BBMC would necessarily have been awarded the contract as he took the view that many of the concerns raised by the CEP in relation to the tender could have supported a conclusion that the bid was abnormally low. On the basis that it was not therefore open to him to set aside the award of the contract, he held that the plaintiff is entitled to an award of damages for the loss suffered as a consequence of the breaches. Mr Justice Colton said he would give the parties the opportunity to make further submissions in relation to how such damages should be assessed: “The defendant’s breach of duty should be marked by a “meaningful award to reflect the loss of opportunity to the plaintiff to be awarded a significant and potentially lucrative contract”.

NOTES TO EDITORS

  1. This summary should be read together with the judgment and should not be read in isolation. Nothing said in this summary adds to or amends the judgment. The full judgment will be available on the Court Service website (www.courtsni.gov.uk).

    ENDS

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    Lord Chief Justice’s Office

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    E-mail: Alison.Houston@courtsni.gov.uk