Termination troubles

The High Court’s recent decision not to strike out a property developer’s claim for breach of procurement regulations will see the spotlight thrown onto the extent of an authority’s right to abandon a procurement process. Jenny Beresford-Jones looks at the background to the case.

The recent case of Montpellier v Leeds City Council [2010] EWHC 1543 (QB) heard at the end of June showcases some of the difficulties a contracting authority might get itself in to if it decides to terminate a procurement process without any award. The Regulations do of course permit a contracting authority to abandon a procurement process as long as it provides reasons to bidders. However this case raises questions of how wide a discretion a contracting authority has to abandon a procurement process, particularly if such a course of action is offensive to the general EC Treaty principles of non-discrimination and transparency.

In this case, Leeds City Council (LCC) was looking to develop an arena for concerts and so on. Three sites were looked at - "City One", owned by the claimant, Montpellier, "Elland Road", owned by LCC, and "Claypit Lane", owned by LCC and a university (which was initially thought unsuitable). The claimant Montpellier was very wary about participating in the competitive dialogue process, fearing that LCC would eventually opt to develop one of its own sites and that any private sector bids would merely be used to demonstrate that the public sector option offered best value for money. However, LCC gave out many assurances that this was not the case and Montpellier entered the competition and duly progressed through the stages.

All was well until the ITCD (invitation to continue in dialogue) stage, at which point LCC issued an addendum document stating that all the bids received to date would require public sector funding which was higher than the target outlined, and that it would compare this funding gap with a "public sector comparator" (PSC) to establish that the private sector would be offering better value than a comparative public sector offering. PSCs are usually hypothetical models but in this case, the PSC was a model based on developments of the sites owned by LCC and so, effectively, the PSC model was a real-life competitor with Montpellier. A few months passed, and LCC then notified all the bidders (with reasons) that it was abandoning the procurement process, and had decided to develop the Claypit Lane site itself.

Montpellier then brought an action in the High Court claiming that the council had breached the Regulations. It considers that the council had provided a false picture and that it had proceeded with an alternative public development option in parallel, without disclosing this. Its claim of breach of the Regulations is based, in particular, on the introduction of the public sector comparator as an evaluation criteria which ought to have been disclosed and was not. Montpellier claims that the council did not act transparently in either the introduction of the public sector comparator test or in its application, and also challenges the council's evaluation methodology and the decision to terminate the contract in favour of the Claypit Lane plan.

This court case was an application by LCC to strike out Montpellier's claim as having no merit, broadly speaking on the grounds that a contracting authority is always entitled to abandon a procurement process provided it complies with the Regulations and gives reasons. Montpellier in turn argued that it should be able to argue at full trial that there is no authority which demonstrates that a contracting authority in the position of the council has an untrammelled right to terminate, without due regard to the general EC principles of transparency and non-discrimination. Unfortunately for LCC, the judge refused to strike out the claim and therefore we can expect to see an application for an injunction and/or a full trial of the issues in due course.

If Montpellier were to succeed, it would call into question the extent of a contracting authority's right to abandon a procurement process and make it much more difficult for options to be kept open while testing the market. We will see how this case develops in due course. In the meantime, it is always advisable to make sure the tender documents contain an explicit statement that the contracting authority is entitled to abandon the procurement process provided that it notifies bidders with reasons.

Jenny Beresford-Jones is a solicitor at Mills & Reeve. She can be contacted on 0121 456 8361 or via This email address is being protected from spambots. You need JavaScript enabled to view it. .