Leeds City Council fails in bid to get procurement claim thrown out

Leeds City Council has failed in an attempt to get part of a developer’s claim that the local authority breached procurement laws and contractual provisions thrown out.

In Montpellier Estates Ltd v Leeds City Council [2010] EWHC 1543 (QB), the claimant, Montpellier, argues that it was treated “appallingly” and led “down the garden path” by the council in relation to a procurement process initiated in 2007.

The claim – for breach of the Public Contracts Regulations 2006 and contractual provisions – was launched in February 2009. The judge, Mr Justice Eady, said he had also been told that Montpellier was “on the cusp” of serving additional claims founded in the tort of deceit.

The case involves Leeds’ plan to choose a site and a developer in relation to a proposed arena and linked facilities. Consultants engaged in September 2004 to provide a feasibility study identified four sites suitable for the potential development, one of which – City One – was owned by Montpellier.

Another of the four sites was council-owned land at Elland Road. The claimant suggested that a further site at Claypit Lane – owned by the local authority and Leeds Metropolitan University – was believed to be unsuitable for the planned development.

Leeds set up a project board to oversee the project in 2006. There were widespread concerns at the time that the Elland Road option would be viewed favourably by the local authority and the three private sector owned sites would face a built-in disadvantage during the procurement process.

The council then went through the process of submitting notices through the Official Journal. A contract notice in July 2007 invited tenders for the procurement of the arena. The procurement would be conducted in accordance with the competitive dialogue procedure provided for in Regulation of the 2006 Regulations. Bidders were able to make proposals based on sites in their ownership and/or address the Elland Road site.

Montpellier had concerns it would be used as a “stalking horse” for a development option involving public ownership. It said it received assurances to the contrary, with the council representing that any competition would be fair and open.

The claimant therefore participated in the various stages of the procurement process, with Montpellier again receiving assurances about fairness and transparency. The developer was invited then to take part in the third stage, the Invitation to Continue in Dialogue.

An addendum to the ITCD was issued in May 2008, requiring the bidders to revisit their proposals because they had exceeded the assumed level of public funding. Leeds sent out a clarification note three weeks later, which contained the first reference to a public sector comparator. The council said this was to “establish that the funding achieves value for money for the public sector investment”.

In June the council and its agent said the comparator was only being used as a test to ensure bidders were providing value for money.

Montpellier claims that the PSC was not truly being used as a test or benchmark, but was in effect a competitor. On 1 July 2008, the council acknowledged that the comparator did relate to an actual site – its identity was undisclosed – but maintained it was still only a hypothetical comparator.

Another clarification note from the local authority a month later called on the bidders to submit their best offer, which would be evaluated against the “evolving public sector comparator”.

Montpellier submitted its tender on 10 September 2008. However, at a meeting on 2 October, the council notified the company that the decision had been taken to terminate the competition. On the same day, it was announced that Leeds was to develop the arena at Claypit Lane.

Mr Justice Eady said: “It is MEL’s (Montpellier’s) case that the council had in fact embarked at least a year earlier on a parallel track of providing an alternative public development option, while not only withholding that information from bidders but taking positive steps to conceal it. In particular, when MEL….persisted in asking for reassurances, it was given a false picture.”

Counsel for Montpellier, Jonathan Hirst QC, said an email provided evidence that the intention was to lead the bidders “up the garden path”.

Rhodri Williams QC, for Leeds, submitted that the decision to abandon the procurement procedure was not taken through any application of the award criteria – a stage which had not been reached – but on the basis that the bidders’ commercial proposals were not affordable.

The council had fully complied with those obligations that arise when an abandonment takes place, he added. Williams also argued that the council’s procedure was consistent with Regulation 18 and that Montpellier’s proposal was not affordable within the competition’s affordability parameters.

Williams submitted that certain contentions made by Montpellier were not sustainable because they sought “to impose obligations in respect of termination that cannot be justified under the Regulations”.

He also cited a number of European authorities in support of the proposition that there is a right to terminate a procurement process that is fettered only by the obligations to (a) notify the Official Journal and (b) supply in writing, if requested by a tenderer, its reasons for its decision.

But Mr Justice Eady said: “I see the force of Mr Williams’ submission, in relation to the wide scope of a public authority’s discretion to terminate a procurement process, in general terms. Yet I do not think it would be right to strike out any of the passages…..(or otherwise grant summary relief) in the light of the particular facts of the case.

“The case pleaded, which Mr Hirst wishes to leave open for trial, is not directed solely to the circumstances of termination but….to the parallel process leading to the formulation of Plan B. It was continuing, albeit undisclosed, during the procurement process itself. What, if any, damage flowed from this will be for later consideration.”

The High Court judge also rejected other calls from Leeds for parts of Montpellier’s claim to be struck out, including demands for an injunction preventing the council from signing a contract with another developer.

A spokeswoman for the council said it was disappointed with the ruling.

She added: "However, we welcome the judge's confirmation that there is little likelihood of Montpellier being granted an injunction against the council to stop it agreeing a contract for the development of the arena. It is absolutely vital that this development proceeds without further disruption or delay from the company's actions."

The spokeswoman insisted that Leeds would continue "vigorously" to contest the case. "In the meantime we want to reassure Leeds people that it is still very much business as usual and work to build the arena will continue as normal," she added.