Fighting talk

A recent dispute between a developer and a city council involved allegations of deceit, fraud and a lack of transparency. Jon Hainey summarises the case and discusses how organisations can safeguard themselves against similar challenges.

A recent challenge by Montpellier Estates Limited (MEL) against Leeds City Council (LCC), arising out of the bidding exercise for Leeds Arena, has been dismissed by the High Court after a nine-week trial. 

The background

LCC published an Official Journal of the EU (OJEU) notice seeking bids from developers for a new leisure arena and associated facilities in Leeds, and stating approximately £20 million of grant funding was available for the development. Regarding the possible siting of the arena, developers were given the choice of using LCC land at Elland Road or proposing their own site. It then held a tender using a competitive dialogue procedure.

MEL, a company with a 10 acre site in Holbek called City One, expressed concern from the outset that it was being used as a ‘stalking horse’ for the project. It was concerned that LCC had a preference for a development on its own site at Elland Road and that the council had already decided it would not use a private developer or MEL’s site for the Leeds Arena development. Despite these concerns, MEL submitted a bid and was invited to participate in dialogue in October 2007.

Due to the economic climate at the time and lack of bank financing, private sector bidders struggled to deliver proposals within the £20m funding guideline, and in May 2008 an addendum was issued requiring bidders to revise their proposals.

A clarification note was then published in June 2008, explaining that LCC intended to use a public sector comparator (PSC) to establish whether the public funding requirements in the upcoming proposals achieved ‘value for money’, and that the PSC would be based on two possible developments – one at Elland Road and an alternative at an undisclosed site.

In August 2008, a second clarification note was issued, requesting tenderers to submit their best commercial offer to be evaluated against the PSC. If none were financially viable, the council would close the competition ‘with no contract awarded’.

On 5 November 2008, the LCC Executive Board concluded none of the tenders met the affordability or value for money requirements. The competition was terminated and the bidders advised. Later that day, the LCC announced that Claypit Lane – the previously undisclosed site – was the preferred location for the development.

During the time period over which the competitive tender progressed, the recession took hold and MEL claimed its City One site had, during the tender process, diminished in value by more than £43.5million, becoming unsellable – a situation that, MEL felt, would not have arisen had it not been used as a ‘stalking horse’. The company raised two claims against LCC.

The deceit claim

MEL alleged that LCC deceived it into entering and remaining in the procurement competition by false representations, including: that LCC had no preference to build the arena or for it to be at its Elland Road site; that MEL was not a stalking horse; and that the competition would be fair and transparent. MEL sought to rely upon 32 representations and alleged fraud and dishonesty against eight individuals, including an elected member of LCC and seven employees of LCC or its consultants. Having considered the detailed evidence, the judge rejected MEL’s allegations of fraud and dishonesty in their entirety.

The procurement claim

As to the procurement issue, MEL alleged that: LCC had breached the Public Contracts Regulations 2006 by failing to disclose the true nature of the PSC; that the ‘competition’ between the PSC and private developers was inherently discriminatory; and that the LCC’s scoring lacked transparency, fairness and objectivity in the way MEL’s proposal was judged against that of the PSC.

The High Court ruled the majority of the alleged breaches were time barred, and that it wouldn’t use its discretion to extend the time limit. The only allegations not time-barred were those relating to the scoring of the bids and the judge found no evidence of a breach in this respect.

Further, the Court held that a contracting authority has broad discretion to refuse to conclude a contract and to terminate. If a contracting authority delays informing bidders of its decision to abandon the procurement and continued negotiations that it knew were bound to fail, such conduct could breach the principle of good faith and amount to the abuse of its right not to contract. However, in this case, MEL had been fully informed about the true nature of the fall back option LCC was working on, so LCC was not in breach of its duty of transparency in not disclosing additional, more detailed, information about the PSC.

The High Court identified that the PSC was not a participant/competitor in the competitive dialogue procedure, and added that LCC was entitled to develop a fall-back option that involved robustly seeking to ascertain how much it would cost for the public sector to build the arena itself, if private sector bidders could not come up with better value for money proposals.

How can such claims be avoided in the future?

Although the claims against LCC were found to be completely without merit, cases like this do provide good opportunities to remind clients of the dangers associated with tender processes such as these, and how the risk of challenges can be minimised.

Clear and documented communication strategy

Firstly, whenever inviting tenders, it is important to ensure that there is always a clear communication policy in place to address both internal and external communications. For example, it is important that a clear delineation is made between those who are in an advisory position and those who are capable of making decisions on behalf of the council, and that this is communicated to all.

Internally, it should be remembered that communications in writing could always be open to public scrutiny and should be done on a formal basis. Externally, there should be a clear communication protocol with bidders that clarifies how they can raise formal questions and what can be relied upon in response. Written confirmation to that effect should be gained from the outset, and any meetings should clarify the formal process for providing information and the representations that can be relied upon.

Ideally, all communications in respect of the tender process should be stored in a central location for the duration of the project and any challenge period. This makes it easier to reference relevant communication in the case of a challenge. Such documentation protocol can be included within the communication policy.

Meticulous meeting notes

The keeping of accurate minutes is vital. A formal note of proceedings should be issued to participants, with agreed outcomes, preferably within two working days and provide them with a deadline for content approval. If inaccuracies or queries are raised, it is important that these are dealt with through the formal communication channels.

Thorough transparency

In the interests of transparency, it is essential that all formal decisions relating to the project are properly recorded, together with the reasons for those decisions, taking into account any relevant legal advice obtained. In the event that decisions are made that depart from provided recommendations or advice, this should be clearly recorded with supporting reasons. This ensures all decisions come from a strong legal standpoint, and in the case of any that depart from such advice, a strong argument can be found in their favour.

Jon Hainey is a partner at DWF, which advised Leeds City Council on the case. He can be contacted on 0845 165 5456 or byThis email address is being protected from spambots. You need JavaScript enabled to view it..