Procuring procurement perfection - perhaps

The scope of this article is public procurement law generally. However it is hard to resist a nostalgic look at the way things were as regards IT. When computers the size of washing machines were first purchased by public bodies, the only guidance as to procurement was the racily-titled “GC Stores/1 (Edition April 1979) Standard Conditions of Contracts for Government Stores Purchases”. This was known as the Little Red Book. Or was that “Little-read”? Some of the resultant contracts suggested the latter. Frequently, contracts offered to IT providers contained unrealistic and unreasonable terms, particularly as regards warranties, liability, and ownership of IP rights.

Modern framework

Twenty five years later the procurement landscape has changed dramatically. In 2006 the then head of HM Treasury’s Office of Government Commerce (OGC), John Oughton, could say: “Standards define what excellence looks like and their application can take us a leap forward in getting the best out of public procurement. A universal framework ensures consistency and a standard of quality which is acceptable to both sides of a transaction and it promotes the interest of each”.

The statement reflects the efforts made by the EU, ECJ and national governments to lay down standards and a universal framework for public authorities and organisations hoping to win contracts from them. The EU has been extremely active in the realm of public procurement, and the result of its labours is the “Consolidated Directive” 2004/18/EC, which brings together previous directives on public contracts procurement (supplies, works and services). A separate directive, 2004/17/EC, relates to utilities.

OGC implemented the Consolidated Directive into UK law via various Public Contracts Regulations (SI 2006/5 and 6; SSI 2006/1 and 2). These came into effect on 31 January 2006, replacing a raft of previous regulations. Public procurement is a devolved matter.

“OGC Buying.Solutions” (http://online.ogcbuyingsolutions.gov.uk/information/about) enables OGC to provide access to 500,000 products and services through a range of framework agreements. Until 2006 “commodity” IT purchases (as opposed to major public IT projects) were dealt with under agreements known as G-Cat and S-Cat. However commodity IT agreements are now brought together under the “Catalist” banner. OGC is proactive. One of the most significant recent events in IT procurement occurred in December 2003 when OGC published its “Decision Map for Procurement” and accompanying “Guidance for IT Contracting”: www.ogc.gov.uk/7023_4193.asp .

Services and financial thresholds

Not every public procurement tender is caught by the directive and regulations. Value thresholds apply, and certain service contract types are only covered by small parts of the regulations. However most contracts that involve sale of goods or supply of services worth (as at January 2008) over 206,000 euro (412,000 euro for utilities) will be caught by the regulations, as will major public works contracts over 5,150,000 euro. Schedule 1 to the Public Contracts (Scotland) Regulations 2006 lists the public authorities covered, such as the COPFS, Registers of Scotland, the Scotland Office, Scottish Ministers, and Scottish Parliamentary Corporate Body.

Schedule 3 lists “Part A” services caught by the full terms of the regulations, including financial services, computer and related services, architectural services, engineering, and publishing and printing services. “Part B” services, caught only by reg 5 of part 1 of the Public Contracts Regulations 2006, include hotel and restaurant services, rail transport, legal services, education and vocational health services, health and social services, and recreation, cultural and sporting services. Frequently public bodies advertising Part B tenders will state that neither the publication of the advertisement nor anything in it shall be taken to mean that the authority intends to hold itself bound by any of the regulations, except those applicable to Part B services.

Co-ordinated remedies

The Remedies Directive 2007/66/EC (11 December 2007) requires member states to (i) co-ordinate laws and administrative procedures relating to the availability and application of review procedures relevant to the award of public services and public works contracts; and (ii) to make provision for the awarding of damages if the Consolidated Directive is followed incorrectly, or not at all, by public bodies. A similar directive, 95/13/EC, covers utility contracts for entities operating in the transport and telecommunications sectors. Although decisions made in public procurement tendering can be challenged by judicial review, this is problematic since such decisions involve the exercise of contractual power. A public body has a large amount of freedom and discretion in awarding a particular contract: see, e.g. Luck v Tower Hamlets [2003] EWCA Civ 52. However the aggrieved tenderer has another remedy. The regulations state that a tenderer who can show it suffered loss as a result of breach of the regulations can sue for damages. Such claims must be brought at latest within three months of the breach of duty (and sometimes even sooner: Holleran v Severn Trent Water [2004] EWHC 2508). A notice must first be served identifying the breach.

Case law

ECJ and UK case law emphasises that the directive and national laws must ensure a transparent, fair procurement process where candidates compete on a level playing field. Surprisingly, until November 2007 no Scottish case about public procurement law had gone to proof, for IT procurement or otherwise. (Tay Premium Unit Consortium, Petrs, 20 October 1995, unreported, and Clyde Solway Consortium v Scottish Ministers 2001 SC 553 did not pass the interim orders stage.) The Holyrood inquiry may of course be noted, but would justify an article in its own right.

The landmark case of Gebroeders Beentjes BV v Netherlands [1988] ECR 4635 concerned a refusal to award a public works contract because the tenderer was unable to employ long-term unemployed persons. The ECJ found that this inability bore no relation to considerations relevant to evaluation of contractors, or to the criteria relevant to the “most economically advantageous” offer. The court said (i) that social policy reasons of this sort were permissible providing there was no discrimination; but (ii) such criteria cannot be used for eliminating candidates, only for awarding the contract and then only if clearly stated in the OJEU notice. The conditions a tenderer had to meet must be specified in the OJ notice or contract documents and not be a secret or subjective matter; and must be capable of objective interpretation throughout the EU.

Procedural minutiae cannot excuse unfairness. Harmon CFEM Facades UK v Corporate Officer of the House of Commons [1999] 67 CON LR 1 concerned procurement of window frames for Portcullis House, the hyper-expensive MPs’ offices adjacent to the Palace of Westminster. The tendering process went through many rounds, some of extraordinary complexity, but was nevertheless deemed unfair. The court considered it manifest that one of the true drivers of the process had been a desire to ensure that a British company won the contract in the face of competing bids from Johnny Foreigner. The decision, running to several hundred pages, is also of interest for its discussion of whether, in what circumstances and to what extent, a court could or should award damages for the mere “loss of a chance” suffered by an unsuccessful tenderer.

Statements of principle

In SIAC Construction v Mayo County Council [2002] IESC 39, which concerned tendering for major sewerage works, certain principles were laid down by a court of five judges following a referral to the ECJ from the Irish High Court. The following emerged from the decision:

1. The duty to ensure equal treatment of tenderers lies at the heart of the directive. Tenderers must be in a position of equality both when they formulate their tenders and when those tenders are evaluated.

2. Equal treatment implies an obligation of transparency, so compliance can be verified. Award criteria must be formulated in the contract documents or the contract so as to allow a reasonably well informed and normally diligent tenderer to interpret them in the same way. The authority must interpret the criteria consistently throughout the process.

3. When tenders are being assessed the award criteria must be applied objectively and uniformly to all tenderers.

Lion Apparel Systems v Firebuy [2007] EWHC 2179 (Ch) concerned an application by an unsuccessful tenderer for an interim order suspending a procurement procedure for the supply of firefighting uniforms and equipment. The court held that an assessment of tenders carried out by a public authority should only be disturbed where the authority has committed a “manifest error”. The judge’s extensive recital of the relevant principles includes the following :

“26. The principal obligations upon an authority are to treat bidders equally and in a non-discriminatory way, and to act in a transparent way.

“27. The directive and regulations aim to ensure the authority is guided only by economic considerations….

“29. The criteria used by the authority must be transparent, objective and related to the proposed contract.

“30. When the authority publishes criteria, it must apply only those criteria. The published criteria may make provision for amendments. If the criteria are legitimately amended the authority must comply with the amended criteria.”

There was no decided Scottish case consequent upon a public procurement law proof until the November 2007 opinion of Lord Carloway in Aquatron Marine v Strathclyde Fire Board [2007] CSOH 185, which also concerned procurement by a fire brigade. The contract was for the repair or maintenance of air compressors and air purity testing. The criteria used in the OJEU notice indicated the contract would be awarded on the basis of “economically the most advantageous tender complying with technical specifications, i.e. price, delivery date, running costs, cost effectiveness, after sales service, compatibility, but not necessarily in that order”.

It transpired that, during evaluation, other criteria were used. This was not permissible. The authority was also adjudged not to have treated the unsuccessful tenderer fairly, as a covering letter mentioning (in outline) the tenderers’ staff’s experience was found not to have been shown to officers evaluating the tenders. The court however rejected allegations of arbitrary and capricious conduct against the authority, rejected claims that the authority had wrongly admitted a competing tender, and additionally found that the authority had acted in good faith. However, the court took the view that the evaluating officers lacked experience, technical expertise and an adequate understanding of what the regulations required. A statement that tenderers must produce details of their workforce’s quality standards was held not to constitute a requirement that individual CVs must be produced.

It remains to be seen whether other decisions will emerge, or whether (as is perhaps more likely) authorities will review their tender procedures to mitigate against that outcome.

Paul Motion is a partner in Brechin Tindal Oatts, Edinburgh

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TENDERING: THE FINANCIAL THRESHOLDS

Most contracts that involve sale of goods or supply of services worth (as at January 2008) over 206,000 euro (412,000 euro for utilities) will be caught by the procurement regulations, as will major public works contracts over 5,150,000 euro.