The better part of valour?

The ability of public bodies to use their discretion when procuring supplies or services is constantly being tested in court. Jenny Beresford-Jones looks at the lessons from recent case law

Contracting authorities often find themselves in a situation where they have a discretion to decide how to act. In the interests of maximizing flexibility, tender documents usually reserve the right to take certain decisions, for example, to reject tenders received after a bid deadline or which are abnormally low. Also, when the contracting authority evaluates bids, it inevitably exercises some discretion even if it uses a previously disclosed evaluation scheme.

This raises the question of whether the contracting authority is at all constrained in how it exercises that discretion. Could the contracting authority exercise a discretion in a manner sufficient to provide grounds for a valid challenge from a bidder? How can contracting authorities manage this risk?

Several recent cases in the High Court have looked at this very question. The answer seems to be that the courts will respect a contracting authority’s discretion to act provided that the decisions taken were proportionate and respected the EC Treaty general principles of equality of treatment, transparency and non-discrimination.

In the 2009 case J B Leadbitter v Devon County Council, there were difficulties around the submission of e-tenders. The e-tendering system went down very close to the deadline, so the Council extended the deadline. The claimant used this extension to do further work on its tender, and then resubmitted it very close to the new deadline. Unfortunately the new version was incomplete. It then resent the full version by email, but this was only sent after the deadline. Devon County Council rejected it on the basis that the ITT had made it very clear that the deadline was a strict deadline. The challenger said this was disproportionate. The court found in favour of Devon County Council and held that the council had not acted disproportionately.

The May 2010 case Azam v Legal Services Commission involved a challenge brought by a firm of solicitors who had missed the deadline for submitting a response to a Law Services Commission (LSC) invitation to tender for a renewed contract for provision of publicly funded asylum and immigration services. The challenger, Azam, was one of the incumbent providers and the contract provided the majority of its fee earning work. It argued LSC had failed to notify it directly and individually of the deadline for submitting a bid, and that it ought to have done so because this had been the practice in previous years and so a “legitimate expectation” had been created that it would do so again this year. Azam argued that, having failed to meet this legitimate expectation, in order to preserve equal treatment, transparency and non-discrimination, the LSC ought to have extended the deadline for all bids in order that Azam would have an opportunity to submit its tender. The court rejected the claim, no “legitimate expectation” of individual notification had been created and the LSC had not acted disproportionately in refusing to extend the deadline.

The 2008 case of Lion Apparel v Firebuy concerned a tender for the supply of firefighting equipment. The public body exercised its discretion to accept the winning bid, even though this supplier had failed to disclose certain minor criminal convictions and therefore it had a discretion to reject these in accordance with Regulation 23(4)(d). There were also arithmetical errors in the marking of tenders. Lion Apparel brought a challenge arguing that these two elements amounted to a breach. The court analyzed the limits of the contracting authority’s discretion and decided it had no powers to intervene save where the contracting authority’s decision was “manifestly wrong”. On that basis, the court accepted that the public body had properly exercised a discretion to accept the winning bid despite the criminal convictions. On the other hand, the marking errors were clear instances where the contracting authority was manifestly wrong, and the court upheld the challenger’s complaint on this ground.

The Devon County Council case usefully pulls together a general statement of the current law on the exercise of discretion by contracting authorities and its relationship to the duty to act proportionately.
In the Devon County Council case, the claimant supplier relied on Lord Hoffman’s previous judgment in Smith Glaziers (Dumfermline) Ltd v Customs and Excise Commissioners to set out the principle of proportionality. The test that previous case was that: first, a measure must be suitable for the purpose for which the power has been conferred; secondly, it must be necessary in the sense that the purpose could not have been achieved by some other means less burdensome to the persons affected and thirdly, it must be proportionate in the narrower sense, that is, the burdens imposed by the exercise of the power must not be disproportionate to the object to be achieved.

Devon County Council attempted to argue that the duty to act proportionately did not apply to procurements and only applied to the interpretation and drafting of legislative measures, on the basis that, although the Recitals to the Public Sector Directive mentions the duty, it is not mentioned at all in the operative Article 2, which imposes the three general duties to act transparently, and ensure equality of treatment and non-discrimination. The judge rejected this argument and usefully confirmed that the duty to act proportionally does exist in the procurement context.

That said, a charge of failing to act proportionately is a tough hurdle to get over for challengers. The judge in Devon County Council noted the earlier European Tideland Signal case, where the court held that there will only be a breach of the principle of proportionality where there is manifest breach. The judge in Devon County Council went on to say that the exercise of discretionary powers necessarily involves judgment on the part of the contracting authority. The court must respect this area for judgment and will not intervene unless the decision is unjustifiable. This, said the judge, was the proper meaning of a "manifest breach" as iterated in Tideland Signal.

The judge in Devon County Council looked at the Lion Apparel v Firebuy case discussed above and noted that, unless there was an evident "manifest error", the court would not get involved in how the public body exercised it discretion. That said, a public body will never be allowed by the court to exercise its discretion in a way that breaches the principles of transparency/equality/non-discrimination.

Practical commentary

This line of cases is good news for contracting authorities as they confirm that the courts are extremely reluctant to tell public bodies how they ought to exercise their discretion. Provided contracting authorities are confident that they have respected the general duties to ensure equality of treatment, non-discrimination and transparency, and there is no “manifest error”, then a decision taken in exercise of discretion is usually likely to be found to be proportionate by the courts.

Jenny Beresford-Jones is a professional support lawyer at Mills & Reeve LLP

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