• Sarah Schütte

Industry Insight No. 24: The practicalities of public procurement challenges

This article was first published by Lexis®PSL Construction on 17 April 2018.

Construction analysis: Sarah Schutte of Schutte Consulting Limited looks at some of the practical issues which can arise in public procurement challenges, in particular access to information.

Public procurement has been hitting the headlines again recently — Gemalto and De La Rue vying to produce the post-Brexit British passport, the West Coast mainline re-procurement, and ongoing Carillion supply chain woes all have their feet squarely in procurement.

What is the latest on the British passports procurement?

At the time of publication, the unsuccessful bidder, the British-headquartered printer De La Rue, had previously indicated that it planned to challenge the award by the Home Office of the £490m contract to manufacture British passports to preferred bidder Gemalto, a French-Dutch manufacturer of passports and identity documents. The procurement process was at ‘standstill’, extended from the initial 15 days for a further two weeks at De La Rue’s request.

Since publication, De La Rue has dropped its challenge.

The Home Office is therefore now free to confirm the award. On its analysis, the criteria applied to the tenders showed that Gemalto would save almost £120m to the public purse. It was awarded on the basis of MEAT (most economically advantageous tender), which is the appropriate basis according to the Public Contracts Regulations 2015 (PCR 2015). The criteria against which the tenders were scored are a combination of quality, cost and security.

In addition, and early on, an online petition raised almost 270,000 signatures, which catapulted it into the parliamentary debating ring. This was never going to change the outcome, contrary to what some people hoped. Notwithstanding, a healthy debate on how public procurement might operate in the UK post-Brexit is welcomed, since many of the UK’s procurement rules come directly from the EU in the form of Directives (which must be implemented by the national government).

Confidentiality rings

A ‘confidentiality ring’ is a group of named persons who have access, confidentially, to the procurement documents. It is set up to preserve commercial sensitivity. You need to choose, and propose, the members of the ring carefully. Lawyers are usually a given. The question is more sensitive around technical analysts. Bombardier Transportation UK Ltd v Merseytravel [2017] EWHC 726 (TCC) is the most recent case to consider these issues.

In the case of Bombardier v Merseytravel, the unsuccessful bidder, Bombardier, brought a public procurement claim against the awarding authority, Merseytravel, in the Technology and Construction Court (TCC) for disclosure of ’highly sensitive documents’. The documents sought included parts of the tender submitted by the successful tenderer, Stadler.

In particular, Bombardier wanted disclosure to be granted to all those who were within the confidentiality ring, not just the parties’ lawyers. Bombardier’s reasoning was that the lawyers could not understand Stadler’s tender, so others with more technical expertise, who would be able to understand it, should have access to it. Stadler opposed the disclosure generally. It was not a party to the proceedings.

The TCC granted Bombardier’s application bar its request to extend the confidentiality ring to include an additional (named) person.

Can an unsuccessful bidder recover its costs from non-parties?

This is a dilemma for the courts, and was considered in a subsequent judgment in the Bombardier v Merseytravel litigation. The TCC granted costs against Stadler (except in relation to the failed application for the additional person) on the basis that it had opposed the disclosure unreasonably and disproportionately, and was the ‘real’ party to the proceedings because the application related to its documentation. The authority was ‘neutral’ but had to be the defendant.

Costs orders against non-parties are naturally rare, but they could become more common after this case. The court will have to look carefully at the commercial nexus and who holds which documentation, and the reasonableness of disclosing it. Alternatively, the opposing organisation could agree to be an interested party or co-defendant to the proceedings, take part, and make representations.

What can a successful bidder do when an unsuccessful bidder seeks disclosure of its winning tender?

It is very tempting to refuse to hand over your hard-put-together documents. However, there are risks, as the Merseytravel case shows. This is a practical difficulty one of my clients has been wrestling with recently. It doesn’t feel right to it, in a confidential tender process, to offer to hand over its tender return, given the time put into the tender bid, and what it contains (calculations, confidential leads on suppliers, discounts etc). Lots can be gleaned by clever procurement agents, quantity surveyors and planners from their opponents’ tender returns.

What my client’s team has done is to extract the salient information, which the public authority has requested, and stress test it using different mathematical scenarios before handing it over. In this way, we know what further questions are likely to arise―and how to deal with them.

Therefore, when the unsuccessful bidder seeks access, there is room for the successful bidder to think laterally―it wants to keep the contract awarded to it, and the authority does not want to have to abandon the process and start all over, so there are subtle but lawful ways to support the authority to smooth the way and close down any potential challenge. Such action must not amount to collusion with the authority.

The standstill stage is delicate. There comes a sticking point when the unsuccessful bidder decides whether to formally challenge. Hence the rise in popularity of the standstill combined with the confidentiality ring—time is frozen to give the unsuccessful bidder a chance to see why it failed, compare its scores and to be satisfied that due process has taken place, and thus not make a formal challenge. While useful in theory, the practice is much more fraught.

Presumably this is where Merseytravel, Bombardier and Stadler disagreed, propelling Bombardier to launch its application for disclosure. Stadler alleged that Bombardier wanted the information for its ’commercial advantage’ but this was not borne out in evidence—and the TCC slapped Stadler down.

What practical steps can be taken in anticipation of a public procurement challenge?

Time is of the essence in public procurement for all parties. The standstill period is short, and although it may be extended, this is at the authority’s discretion (Public Contracts Regulations 2015, SI 2015/102, reg 69(1))

Authorities are obliged to enquire as to pricing where it appears that the tender is ’abnormally low’ (PCR 2015, reg 69(1)). In practice, they are looking for figures which are not within the expected range, or are out of kilter with other tenderers. To answer this question, and avoid further probing, successful tenderers must have all their detailed information at their fingertips—and a proper explanation, and then package it up sensibly to satisfy the authority (being prepared of course for it to be sent on to the unsuccessful bidder).

There are strict rules in PCR 2015, reg 69 for the authority to follow relating to ’assessment’, ’rejection’ and whether the information ’satisfactorily accounts’ for the low price flagged up (Public Contracts Regulations 2015, SI 2015/102, reg 56(2).

In addition, the authority may not award the contract to the MEAT bidder where it has not complied with ’environmental, social or labour law’ (PCR 2015, reg 56(2)). There is a check to be done here too. In our field, construction and engineering, the environmental responsibilities can be onerous, so this is a particular area of tender cost to take care with.

My client has completed a systematic exercise to reassess from all angles the tender submitted to ensure that all prices are justifiable and realistic, and to ensure that there are no gaps, an item hasn’t been missed off or misinterpreted in the specification which could account for a lower price than other bidders. I recommend others do the same if they find themselves in this position.

A successful bidder needs also be prepared to participate in proceedings, or to be a non-party (as in Merseytravel). I recommend engaging the services of lawyers early, so that they can start to read up on the materials and likely areas of challenge and weakness. As mentioned earlier, time is very short in procurement challenges.

In parallel, the lawyers should re-read thoroughly the proposed contract to check whether there are any significant amendments to standard terms (in the construction and engineering industry, authorities are almost always using NEC3/NEC4 nowadays), which would change the proposed risk allocation between the authority and the contractor. Drafting can look innocent enough, but alter greatly the parties’ contractual and legal positions on risk.

#procurement #riskmanagement


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