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Is sense prevailing?

A recent HIgh Court procurement case involving waste recycling centres represents a rare win for a local authority. Ruth Connorton and Richard Matthews examine the judgement.

The case of J Varney & Sons Waste Management Limited v Hertfordshire County Council [2010] EWHC 1404 (QB) decided in the High Court in June is a shift away from the run of pro-tenderer cases.

The case considered a number of important current issues which have previously been decided by the English courts and the European Court of Justice (ECJ) and, at a practical level, frequently arise in the course of a procurement. It reflects a less rigid approach to the Regulations than previous cases and will be well received by procuring authorities. However, given that several of the key findings cut across ECJ decisions, whether it will be followed is another matter.

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. In commenting on the tenderer and his witnesses the judge comments: “as happens far too often in civil litigation, his witness statements were something of a lawyer’s construct, carefully crafted to cover particular aspects of Varney’s case and to argue that case, displaying a level of sophistication which Mr Varney himself lacked in the evidence he gave in the witness box.”

In summary, the following key lessons emerge:

  • there is a clear risk that a tenderer who waits for three 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.

Facts

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 two 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.

The case also considered issues of timing of the claim.

The decision

Implied contract
The Court held (approving the decision of Morgan J in Lion Apparel Systems v Firebuy [2007] EWHC 2179), that there was no basis for the implication of a contract on the basis of the ITT and Varney’s tender, to the effect that the Council would give fair, reasonable and objective consideration to the tender. The Regulations created their own regime imposing duties on the Council in relation to any tender submitted and Varney’s attempt to get round the three-month time limit for bringing a claim under the Regulations on the basis of an implied contract failed.

Time limits
The Court decided that the claim for lack of transparency in relation to the use of undisclosed sub-criteria and weightings was time-barred. Varney sought to rely upon the decision in Uniplex (UK) Ltd v NHS Business Services Authority (C-406/09, 26 January 2010) to the effect that time only started to run for limitation purposes from the date when the unsuccessful tenderer knew the reasons why its tender was unsuccessful. The Court said that in these circumstances the relevant infringement of the obligation of transparency occurred when the ITT was published because Varney knew, or ought to have known, from its receipt of the ITT that the return schedules would be marked but that no weightings were disclosed in the ITT.

Varney argued (on the basis of the decision in Lianakis v Municipality of Alexandroupolis (C-532/06, [2008] ECR I-251) that until the Council had actually applied criteria it would have been open to the Council to consider the tender generally without assigning any specific marks and not breach the obligation of transparency. The Court dismissed this argument stating that any breach of the obligation was apparent before Varney’s tender was rejected and before Varney was informed of the reasons for the rejection of its tender. The Court did not consider that the Lianakis decision set a general position that time would not start to run until the point at which undisclosed sub-criteria were used.

Use of undisclosed sub-criteria
The procurement was conducted under the restricted procedure to select the most economically advantageous tender. The award criteria were identified as:

  • price (65%), and
  • resources to be allocated to the delivery of services and the manner of proposed delivery to provide outstanding customer satisfaction (35%).

The ITT required the completion of various return schedules concerning the standards of service which were expected. Varney alleged that each of the return schedules was a separate award criterion and that neither those criteria nor the weightings attached to each had been disclosed to tenderers.

The Court found that the return schedules were sub-criteria of the two evaluation criteria of price and customer satisfaction and applied the decision of the European Court of Justice in ATI EAC v ACTV Venezia (C-331/04 [2005] ECR I-10109). An authority had to disclose sub-criteria and weightings to tenderers in advance unless three conditions were satisfied; namely that the use of such sub-criteria and weightings:
(i)   did not alter the award criteria set out in the OJEU notice or the ITT;
(ii)  did not contain elements which, had they had been known at the time, could have affected preparation of the tender;
(iii) were not likely to give rise to discrimination against one of the tenderers.

The Court concluded that it was perfectly obvious that the award criteria were going to be marked by reference to the information contained in the tenderers’ responses to the return schedules. Advance disclosure of the sub-criteria and weightings would not have affected the preparation of any of the tenders. None of the tenderers had raised any query regarding sub-criteria or the weightings to be attached to them, notwithstanding a general statement in the ITT inviting such questions.

Use of information on tenderers’ financial standing during evaluation
Following the decision in Lianakis, the Court held that the Council had breached the Regulations by using a selection criteria – the financial stability of tenderers – at the evaluation stage. The Court did decide that the assessment of the risk of non-performance because of lack of financial stability could be one of the matters which the Council might legitimately take into account in determining which tenders were economically most advantageous, but that this would only be permissible if it had been a factor identified in the Invitation to Tender. Although the Council was in breach of the Regulations by failing to disclose that this was one of its evaluation criteria, the Court held that this had had no effect on Varney and therefore did not give rise to any claim in damages.

Abnormally low tenders
The Court decided that under the Regulations an authority is not under a general obligation to investigate a tender which appears abnormally low, unless it intends to reject it for that reason, Regulation 30(6). The Court did not follow the decision in the recent interim injunction of Morrison Facilities services v Norwich City Council [2010] EWHC 487 in which it was held to be seriously arguable that there was a general duty to investigate abnormally low tenders.

A challenge might still be brought on the basis that an authority had made a manifest error in deciding that a tender was not abnormally low or in failing to investigate such tender, but the Court held that such a duty could not arise unless the Council knew or suspected that tenders were abnormally low. This was not the situation on the facts of this case.

Challenges to the marking process
The Court followed the approach in Letting International Ltd v London Borough of Newham [2008] BLGR 908. An authority has a discretion or margin of appreciation in the marking of tenders and it is only where there had been a manifest error that the Court should intervene. It was necessary to demonstrate that the mark given was manifestly wrong, as opposed merely to identify significant inconsistencies or unfairness in the reasoning or approach.

Post award variation to contract terms/non-enforcement of rights
Varney alleged that the Council had not enforced its contracts with certain of the successful tenderers, for example in relation to levels of staffing at the relevant sites (which, Varney argued, were the promises which had secured the contracts in the first place), and that there had been de facto amendments to the contracts.

The Court held that the correct legal test was that the principles of equal treatment and transparency will only be breached as regards subsequent performance of a contract if there has been a material amendment to an essential condition of the relevant contract (Commission v Succhi di Frutta SpA [2004] ECR I-3801 and Pressetext v Austria (Case C-454/06 [2008] ECR I-4401). The Court held that in this case there was no evidence that the Council had “permitted” successful tenderers to breach their contracts or that there had been any material amendments to an essential element of the contracts. Indeed, the Council had sought to ensure compliance with the contracts.

There had also been certain proposed changes to the contractual arrangements that had the effect of increasing bonus payments to the contractors. Increased bonus payments had in fact been paid for a time, although formal variations to the contract were never implemented. The Court held that even if there had been unilateral amendments in breach of public procurement law (under the principles in Pressetext), this did not support Varney’s argument that it had lost the opportunity to tender for a new contract entitling Varney to claim damages. The Court suggested that if there were any remedy at all in this situation, it would have been for Varney to judicially review the Council’s decision to change the bonus arrangements.

Ruth Connorton is a partner and head of procurement and Richard Matthews is a parter at Eversheds. Ruth can be contacted on 0845 497 6080 or via This email address is being protected from spambots. You need JavaScript enabled to view it. while Richard can be reached on 0845 498 4372 or via This email address is being protected from spambots. You need JavaScript enabled to view it..
A&M Bacon