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Construction contracts are a contest

25 July 2018 by Robert Bell

Construction contracts are a contest

Courts will only overturn public procurement in exceptional circumstances


A recent judgment has shown the Technology and Construction Court’s reluctance to substitute the award of a contract in favour of a losing bidder. This is despite the losing bidder having successfully challenged the award by a contracting authority to another bidder, and the award having been set aside as a breach of the EU public procurement rules.

The ruling in MLS (Overseas) Ltd v The Secretary of State for Defence [2018] EWHC 1303 (TCC), if followed in similar cases, will substantially limit the remedies of successful challengers and shows that only in exceptional circumstances will the court force a contracting authority to award a contract to a bidder they had rejected.

Contending unlawful rejection

MSL (Overseas) Ltd (MSL) had previously launched a claim against the Ministry of Defence (MoD) for breach of the EU public procurement rules and in particular the Defence and Security Public Contracts Regulations 2011 (SI 2011/1848).

It contended that its disqualification from a tender process run by the MoD was unlawful and breached the principles of transparency and equal treatment. It alleged the MoD’s failure to state in the invitation to tender (ITT) that a ‘fail’ score in answer to question 6.3 would result in disqualification of the tender was a breach of the rules.

Consequently, the MoD’s rejection of MSL’s tender was unlawful. The contract was awarded to SCA Shipping Consultants Associated Limited (SCA) instead.

On 21 December 2017, the court held that the contracting authority’s decision to disqualify MSL’s tender was unlawful. The court considered that the ITT did not make it clear to the ‘reasonably well-informed and normally diligent bidder’, either expressly or implicitly, that a fail score on the criterion in issue would or could result in disqualification.

Therefore it held the MoD had acted unlawfully and breached its obligations of transparency and equal treatment under the regulations.

Remedies

The case came back before the TCC for a second time in May of this year. MLS issued a further application, seeking:

  • A declaration that the procurement was carried out unlawfully. An order setting aside the decision to award the contract to the interested party, SCA
  • An order requiring the MoD to award its contract instead to the claimant

MLS was the incumbent provider for certain port agency services to the Royal Navy. Following the launch of its procurement challenge, MLS had continued to provide these services under its pre-existing contract pending the determination of these proceedings. Following the December judgment, the parties agreed to an extension of the contract to ensure the Royal Navy’s operational requirements were met.

On 25 May 2018, the court ordered the MoD’s decision to award the contract to SCA should be set aside and granted a declaration that it would be lawful for the MoD to award the contract to MLS. Yet the court refused to make an order requiring the MoD to award the contract to MLS.
The court’s reasoning was as follows:

Limitation periods

The court held that MLS’s claim was not statute-barred. Under the regulations, the limitation period of 30 days begins to run from the date when the regulations are first breached or the date the claimant becomes aware or should have been aware they had been breached.

“The court held the MoD had acted unlawfully and breached its obligations of transparency and equal treatment”

The date of the relevant breach was the MoD’s failure to assess the tenders and award the contract in accordance with the published criteria, and not the date of the publication of the ITT.

Causation

It was argued MLS had failed to establish the loss and damage suffered by MSL had occurred by reason of the breach, but the court rejected this argument as the MoD had stated expressly in correspondence that MLS’s tender would have been successful had it not been scored a ‘fail’ on Question 6.3. Therefore, if the MoD had assessed the tenders based only on the published criteria in the ITT, it would have awarded the contract to MLS.

Strong public interest

The court had to undertake a balancing exercise as to where the public interest lay in this matter. There was clearly a strong public interest in allowing the MoD to secure from one of the parties a contractual commitment to the supply of port agency services so as to meet the Royal Navy’s operational requirements, without the delay and expense of a fresh procurement exercise.

On the other hand, MLS had its own strong private interests of having the opportunity to negotiate with the MoD a contract for the port agency services.

Serious and obvious

The court held that the impact of the breach of the regulations was both serious and obvious. In addition, the contract was of high value. The court decided damages might be an adequate remedy for MLS but it would be very difficult to assess the quantum of such loss.

Further, it would have a disproportionately adverse impact on the MoD, who would be required to use public funds for both the procurement of the services and compensation for loss of the contract in respect of a very high-value, long-term contract.

Reviewing the position of SCA, the court accepted they had a private interest in holding onto the MoD’s decision that it was the successful tenderer, but it would suffer little, or no, prejudice if the decision were set aside.

In addition, SCA had not taken steps or incurred expenditure in performance of the contract. Finally, MLS had continued to supply the port agency services to the MoD pending the resolution of these proceedings.

Although it was open to the court to require the MoD to enter into a contract with MLS or SCA, such an order would be granted only in exceptional circumstances. In this case, there were no exceptional circumstances that would justify this.

Deciding factors

This case highlights the importance for contracting authorities to set out fully the consequences of failing to satisfy ITT criteria and particularly whether this will result in disqualification.

On the point of substituting the award, the court was undoubtedly influenced by the very high-value and strong public interest issues present in this case. In view of these factors and the fact the MoD had reserved its rights to withdraw the procurement, the court decided it would not order the MoD enter into a contract with MSL. Courts would only do this if exceptional circumstances were present.

This decision appears to further whittle down the remedies that claimants can expect to enjoy in the event of a successful challenge to procurement in breach of the EU Public Procurement Rules. It comes hot on the heels of the Supreme Court’s decision in Nuclear Decommissioning case (Nuclear Decommissioning Agency v Energy Solutions EU Ltd [2017] UKSC 34), which limited successful litigants’ right to damages to cases where there were sufficiently serious breaches of the rules.

Robert Bell is a partner at Bryan Cave Leighton Paisner LLP

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