Contracting authorities: the right to be wrong

Two recent High Court cases make it clear that judicial review will rarely offer disappointed suppliers a remedy in procurement cases. 

The Public Contracts Regulations 2006 (“the Regulations”), like their predecessors, set out detailed rules about the award of contracts by public bodies – “contracting authorities”.  A breach of the rules can lay the authority open to challenge by disappointed suppliers or by the European Commission.  European case law has made it clear that in certain respects even complying with the black-letter law is not enough. Member States must honour the principles which derive directly from the EU Treaty, even where that means going beyond what is required in the relevant directives and domestic legislation.  The leading case is Telaustria, where the European Court held that  the obligations of transparency, proportionality and equal treatment deriving directly from the Treaty required the contract in question to be advertised, even though the relevant directive did not.

Two recent judicial review applications in the UK High Court, R (on the application of Menai Collect Ltd & ors) v. Department for Constitutional Affairs [2006] EWHC 727 (Admin) and R (on the application of Gamesa Energy UK Ltd) v. National Assembly for Wales [2006] EWHC 2167 (Admin) have made it clear that in domestic law the court will only rarely apply any legal requirements to public sector contracting which are not express in the governing legislation.  That is, if judicial review is to be available, it is not enough that the contracting authority is a public body, nor that it is acting in exercise of a statutory power.  The claimant must show that the public law duty which has been breached is either one which binds all public authorities at all times (so for example, fraud or bad faith or the pursuit of an intrinsically improper policy will confer a right to make a public law challenge) or it must be a duty imposed by the statute which grants the relevant power or imposes the relevant obligation.   Where the statute then also prescribes a remedy for breach of such a duty, that remedy must be preferred but where it does not, judicial review may be available.

Both cases were brought by way of applications for judicial review because the parties acknowledged that the Regulations did not apply.

In Menai Collect the Claimant company complained that the process by which a contract (for the enforcement of fines and other financial orders made by magistrates courts) had been awarded was flawed, essentially because the decision-makers had not been informed of some relevant facts and had been given an inaccurate view of others.  The authority’s decision was flawed by a failure to take account of relevant information, by being based on a mistake of fact and by a procedure rendered unfair because it prevented the decision-makers from being in possession of a full and accurate picture.

The court took the view that the Claimant’s case failed on both counts.  First, it said that the way that facts had been assessed, reported and taken or not taken into account was not faulty – perhaps not perfect but not fatally flawed.  In this case, the fact that a Regional Director’s assessment of the relative merits of different bidders differed from that of his subordinates is not in itself a ground to call that assessment “inaccurate”.  Although the court did not say so in terms, it seems reasonable to infer from the judgment as a whole that even if the court had thought that the Regional Director’s assessment was plainly wrong, then in the absence of flagrant irrationality or impropriety, it would not have interfered with the outcome.

Secondly, the court held that the Claimant’s case failed for lack of a legal basis.  Here the judgment as reported is, with respect, less clear than on the issue of fact.  The judge said that “…the tender evaluation process was an essentially commercial process…The manner in which the Defendant chose to inform itself as to the merits of the tenders was designed to be as objective as possible.  It is not every wandering from the precise paths of best practice that lends fuel to a claim for judicial review.”  This might tend to suggest that susceptibility to review of procurement decisions is a matter of degree: a serious shortcoming in the evaluation process might found a claim.  But the point of principle which the court seems then to make is not a matter of degree but of substance: is the matter complained of a breach of a duty laid upon the authority by the statute which empowers or obliges it to award the contract?  If it is not, then, the court seems to say, this is a purely commercial issue and not apt for judicial review.  Only where there is “bribery, corruption, implementation of unlawful policy and the like” is there a “true public law element”.

In Gamesa the National Assembly for Wales sought bids from businesses to plan and develop wind farms on Forestry Commission land.  Although the competition was started by way of an advertisement in the OJEU and in accordance with the Regulations, subsequent advice led the Assembly to decide that it was not in fact bound by the Regulations.  That decision was not ultimately contested in the proceedings.

Gamesa Energy UK Ltd (“Gamesa”) challenged the outcome of the procurement on a number of grounds, all connected with the way bids were evaluated.  The details of their allegations are not germane. Essentially they were that there was a lack of transparency about the marking system, such that Gamesa was unintentionally but significantly misled about the way its bid would be evaluated; and that the marking system which was used was not only opaque but intrinsically irrational and did not tend to produce the best result.  They claimed too that the authority did not make clear what information it required about bidders’ previous relevant experience.

Gamesa said that as a consequence, the authority’s conduct had been irrational and unfair.  This did not only prejudice Gamesa’s commercial interest but was in breach of the authority’s public law duty to obtain best value for public money and in breach of a legitimate expectation that procedures equivalent to those prescribed by the Regulations would be applied to the process.

The authority said that their processes were aimed at identifying a financially advantageous deal, which was consistent with their fiduciary duty to the public purse.  The process was not governed by public law rules and provided that the authority’s policy aims were legitimate (which was not contested) and their actions taken in good faith, the court had no power to intervene on the basis of irrationality or unfairness in what was a simple commercial exercise.

In this case the court took a robust approach, finding that the matters raised were not amendable to judicial review without considering the merits.

First, the authority was not, as a matter of law, obliged to carry out the procurement process in any particular way.  Provided that it conducted itself in good faith and without corruption, it was free to devise whatever process it thought fit.  Gamesa’s claim was essentially therefore that the authority had acted ineptly and that the outcome had been commercially damaging for them as well as failing to secure what they believed would have been the best solution for the public whom the authority represented.  But, the court found, ineptitude (whether or not it was present in this case, on which the court made no comment) did not become a basis for judicial review simply because the impugned party was a public authority exercising a public function. 

The judge quoted Menai Collect with approval.  He went on to say that there might be policy grounds for declining to review procurement and commercial decisions on the grounds of irrationality.  To allow such challenges would enable them to be made even where authorities acted in good faith and ensured a level playing field for bidders.  Although he does not say so in terms, it appears that he is concerned that there would be endless attempts to unpick decisions made in good faith and following reasonably fair competition, merely because it was possible to take issue with one or another aspect of the process, and particularly the evaluation approach.  It “could be regarded as creating an unreasonable impediment to impose upon a public body”.

So what does it all mean?  In neither case did the judge criticise the authority’s decision-making processes or criteria; but the clear message is that even had they been vulnerable to criticism, in the absence of bad faith, corruption or improper policy, public law is not engaged when public authorities act in the commercial sphere – except where the actual source of the relevant power or obligation creates such engagement.  It is lawful to make mistakes.

If you have questions or need advice about matters of public procurement or commercial contracting, contact David Gollancz on 020 7861 4670. 

STOP PRESS
Since writing the above, Unison has issued an application for judicial review of the decision to award a contract to DHL to take over the business of NHS Logistics.  The permission hearing is currently listed for 26 September: we will observe with interest and report on the outcome.  See also Procurement and Competition law: Stop Press