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Transparency in Procurement More Important Than Ever

07 August 2008

The importance of transparency in the world of public procurement is more important than ever after a judgement by the European Court of Justice.

Simon Evans is a partner at Cardiff law firm Dolmans, specialising in employers’ and public liability as well as officials’ indemnity claims against public institutions. He explains that the recent judgement of Lettings International Limited v London Borough of Newham emphasises the extent which procurement processes have to go to ensure they are transparent.

Mr Evans said: “Public procurement is a detailed and complex world and the conclusion of this long-running saga has provided us with yet further guidance on the transparency which is necessary under the Public Contracts Regulations 2006.

“Lettings International Limited (LIT) is a Property Management Company who carry out the business of procuring, updating, maintaining and managing properties leased to Local Authorities in order to enable them to meet statutory housing obligations. At the time, they were providing those services to London Borough of Newham (LBN).

“When LBN issued a formal contract notice, LIT submitted a tender for the contacts. However, their tender was not successful and after subsequent enquiries, LIT discovered various breaches of the Public Contract Regulations on issues of transparency. They obtained an injunction to prevent the granting of contracts, reaffirmed by the Court of Appeal, and this remained in place pending the resolution of the dispute.

“The facts of the case were that the tender valuation criteria stated that the contract would be awarded to the most economically advantageous tender. The valuation of the tenders would be based on written responses to five method statements, carrying a 50% weighting. No information was included on the breakdown of the marks assigned to each specific Method Statement.

“However, investigation later found that proportions attributed to each of the Method Statements varied between 5% and 17%. Also, the overall criteria had been broken down into 28 sub-criteria which had not been disclosed. “Finally, when marking each of the sub-criteria, a system was adopted to award less than full marks to tenders which fully complied with the criteria – full marks were only given to those tenders which not only met the specification, but exceeded it.

“These marking criteria had been established before any tenders had been received but were at no stage announced. The court decided that LBN had acted without the requisite degree of transparency by not setting out in advance the detailed criteria and sub-criteria against which they had actually marked the tenders. In so doing they came to the view that all criteria had to be set out in advance to allow bidders to fully understand how they could meet them.

“The court dismissed LBN’s argument that that LIT should have anticipated some of the award criteria and that the sub-criteria were not required to be disclosed. The court declared: ‘that the prize of a contract must not simply go to the tenderer which is the most experienced or the most successful at guessing the relative priorities of the contracting authority’.

“The Court also found that by not providing full marks when a tender complied with the specification amounted to a failure to act with the required degree of transparency, and accepted LIT’s submission that it would have made greater effort to exceed specifications if it knew this was required to achieve the highest mark.

“This Judgement is also highly significant regarding the finding as to whether or not actual loss had to be proved in order to bring proceedings. LBN relied on case law and argued that a claim could only be brought if LIT had suffered actual loss due to the errors complained of. The Court was not impressed by this line of argument and particularly LBN’s submission that the Claimant would have received little, if any, work because even if LIT had been successful the agreements which were being tendered for were ‘framework’ agreements as opposed to actual agreements.

“It is clearly a matter of speculation as to how much work a successful bidder would obtain, but significantly there was no minimum level of loss required under the regulations. Logically, if the Court had found otherwise, the principle of transparency would have been substantially undermined as infringements would be unlikely to be challenged.

“It is now clear that the previously high standard imposed on bidders in establishing that they would have been successful in the tender has been significantly eroded. Bidders now only need to establish the loss of a significant chance of obtaining the contract in order to have a cause of action.

“In terms of the actual remedy the Court did not give any ruling but simply advised the parties to agree what remedy should be adopted. It did however suggest that perhaps an appropriate remedy would simply be adding LIT as one of the successful bidders.

“There are numerous lessons that can be learnt from this judgement. While contracting authorities may not have an obligation to formulate and apply detailed evaluation methodology, it is difficult to see how tenders could be objectively evaluated in its absence.

“My advice to authorities is that if they are to utilise such criteria, then they need to be finalised at a very early stage and communicated to bidders prior to submission of tenders. Clearly once that process has been undertaken the contracting authorities need to be diligent in their application of those criteria.

“Following the LIT case it is clear that if full marks are not provided for meeting the criteria then the whole process is open to challenge on transparency grounds. On a practical level, the robust attitude of the Court has shown that there is little room for complacency or generalisation when setting out requirements and evaluating tenders. There is clearly a need for objectivity and clarity when setting out and applying criteria.

“This serves as a salutary warning to those granting public contracts, whether in terms of drafting or evaluating, that the Courts will not tolerate any deviation from the core principles of transparency even if each bidding party is treated equally. The effect of any breaches can be very significant and cause lengthy delays - 14 months in this case - in providing necessary services at very significant cost. Those who do not use the professional services of brokers or dedicated procurement teams run a significant risk of falling foul of the regulations and suffering the consequences.”

For legal advice, contact Dolmans Solicitors on 029 2034 5531 or visit www.dolmans.co.uk




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