Frozen out

The Ministry of Justice recently applied to have a procurement challenge by an unsuccessful bidder for a contract for frozen food in prisons thrown out. Deborah Ramshaw looks at the High Court's decision.

This article looks at the decision of the High Court in Harry Yearsley Limited v The Secretary of State for  Justice [2011] EWHC 1160 (TCC) which was handed down on 12 May 2011.

The case concerned an application by the Ministry of Justice (MoJ) for summary judgement or to strike out the claim issued by an unsuccessful bidder, Harry Yearsley Limited (HYL). It should be noted that these proceedings relate to the Public Contracts Regulations 2006 (“the Regulations”) before they were amended to reflect the provisions of the new Remedies Directive which came into force in December 2009.

The Facts

On 30 December 2008 a contract notice was published in the Official Journal inviting tenders for the supply of frozen foods to prisons. The prisons are managed by HM Prison Service but the procurement was undertaken on its behalf by the MoJ.  HYL were the incumbent provider of frozen foods to the prison service.

The OJEU notice was advertised under the restricted procedure and included the usual pre-qualification requirements from interested applicants. Those bidders who were successfully shortlisted were sent an invitation to tender (ITT) comprising instructions to tenderers, administrative instructions, a pricing and payment schedule and a specification. Tenders were due for return in March 2009.

Five bidders submitted tenders, including HYL. It was not in dispute in the case before the court that the bids would be assessed in a two-stage process. Firstly, bidders had to meet certain quality thresholds and any bidder not meeting these requirements would be eliminated from the process at this stage. Those bidders successful at this stage would then participate in an electronic auction in respect of price. This process would determine which bidder was the most economically advantageous tenderer.

Only four bidders proceeded to the electronic auction as one bidder failed to meet the necessary quality requirements. The winner of the tender process was a company called 3663, the second placed bidder was DBC Foodservice and HYL were third.

The contract was awarded to 3663 on or around 2 June 2009 and HYL received a written debrief from the MoJ on or around 5 June 2009.

The Proceedings

HYL issued a Claim Form on 1 April 2010 but did not serve this Claim Form and nor did it provide Particulars of Claim.  On 27 July 2010 HYL issued a fresh Claim Form, this time it served the Claim Form on the same day together with the original Claim Form of 1 April 2010, short Particulars of Claim with each claim form and a document entitled Consolidated Particulars of Claim (CPOC).

The MoJ in response filed a Defence in relation to each of the two claims, together with a Consolidated Defence dealing with the matters in the CPOC.

HYL’s Claim

HYL relied on five matters constituting a breach of the Regulations by the MoJ:

1. the use of criteria and weightings that differed from those set out in the ITT;
2. the allegation that the MoJ permitted the winning bidder, 3663 to derogate from a standard set for certain foods (the halal standard);
3. material changes to the contract post award;
4. the way the electronic auction was conducted; and,
5. the nature of the debriefing.

HYL argued that it was not out of time to bring proceedings because it was not until at least mid-February 2011 that the latest criteria and weightings were disclosed, and so it only then became aware of the alleged flaws in the process or of the fact that it had been inadequately debriefed in June 2009.

The MoJ’s Defence

The MoJ submitted that it was an abuse of process to file two claim forms in relation to the same dispute and so one of them should be struck out. The MoJ argued that since no Particulars of Claim were filed until 27 July 2010 and these accompanied the second claim form then the claim form dated 1 April 2010 should be struck out.

On a more material level the MoJ applied for summary judgment or to strike out the CPOC on the merits. The MoJ’s application submitted that the CPOC disclosed no reasonable grounds for bringing the claim and HYL had no real prospect of succeeding on any part of its claim. In particular the MoJ argued that the proceedings were brought out of time and HYL could not have been said to have suffered any loss or damage or to have risked suffering loss or damage as a result of the breaches alleged.

When Were the Proceedings “Brought”?

Prior to the amendment of the Regulations (to implement the Remedies Directive), the Regulations required that proceedings be “brought promptly and in any event within 3 months from the date when grounds for the bringing of the proceedings first arose...” (Regulation47 (7) (b) as was). The issue for the Court was when proceedings are considered to be “brought”. Edwards-Stuart J decided that the Court should simply refer to the domestic court rules; in this case he considered that the CPR made no requirement that service of a claim form constituted any part of the definition of bringing proceedings. The proceedings are “brought” when the claim form is issued by the court or, possibly, on the date when the claim form was received by the court for issue. Therefore in this case the proceedings were brought on 1 April 2010. Whether the claims were made in time is an issue that the Court considered separately in relation to each of HYL’s claims.

Consideration of HYL’s arguments:

Issue One – use of criteria and weightings that differed from those in the ITT

During the course of the hearing the MoJ admitted that it had used the wrong weightings in assessing the tenders. Two weightings matrices were included in the documents and the MoJ had used the wrong one. However, the MoJ went on to argue that despite this error there was no detriment to HYL. This was because HYL had passed the quality stage and it had been the electronic auction on price that had been determinative of the ranking of the bids. The Court was not persuaded by the MoJ’s arguments on the causation issue (see below) and refused to strike out this claim.

Issue Two – Permitting the Successful Bidder to Derogate from the Halal Standard

HYL argued that the requirement for the Halal standard was stated as mandatory in the ITT (the OJEU notice itself also makes several references to this requirement). A failure to meet this requirement should therefore have resulted in a bidder being eliminated from the process. It was clear from the documentation available to the Court that 3663 had indeed qualified their tender in respect of the Halal standard and that other bidders also failed to comply with the standard.

Again, as with Issue One, the MoJ sought to argue the causation point: as HYL had successfully passed the quality evaluation then it could not have suffered any loss as a result of the alleged derogation.

The Court concluded that this issue raised detailed issues of fact which could not be sensibly determined on an application for summary judgment.  Edwards-Stuart J noted that “the MoJ has come nowhere near satisfying me that the allegations in relation to the breach of the Halal standard have no prospect of success. Accordingly, they must proceed to trial”.

The Court weren’t necessarily convinced by the causation argument either. The Court certainly considered it raised a triable issue since, as HYL argued, had one or more of the other bidders been deemed to be non-compliant and excluded from the process the electronic auction would have had a different dynamic and HYL could or might have won it.

Issue Three – Material Changes to the Contract Post-Award

HYL argued that, having awarded the contract to 3663, the MoJ permitted and/or made various material changes to the contract. Four changes were pleaded by HYL in the CPOC. The Court was not convinced as to the materiality of three of the changes in the overall context of the contract: a change in the weight of muffins; the provision of a substitute fish for Pollock; and, an increase in the price of frozen chops. However, the Court saw more merit in the change which allowed 3663 to provide machine slaughtered beef in breach or variation of the Halal standard.

However, the Court indicated that there was a problem with this claim in that it had been pleaded by way of example. The Court therefore made a direction that if HYL wish to pursue this claim then it must set out all the facts upon which it relies and then apply to the Court for permission to amend its CPOC to advance the claim. Given the manner in which the claim was pleaded in the present proceedings the Court was unable to reach a decision on whether or not the claim should be properly stuck out.

Issue Four – Conduct of the Electronic Auction

HYL argued that it was contrary to the Regulations for the MoJ to use the quality evaluation as a “threshold” before the evaluation of bids on price only took place during the electronic auction. HYL argued that this was also inconsistent with what was said in the ITT and the fact that the overall award criterion was the most economically advantageous tender. The Court was persuaded that “this argument has some force and cannot be said to have no real prospect of success” and so the point should be allowed to proceed to trial.

However, the MoJ argued that HYL’s arguments on this issue were out of time as HYL knew about the alleged breaches three months before it brought the proceedings. The approach to be used, argued the MoJ, was clear in the separate instructions that were provided to bidders prior to the electronic auction. The Court considered that this claim was indeed out of time. By early October 2009 (and indeed certainly by November 2009 following correspondence on the issue) the Court found that HYL had knowledge of the facts that the auction may not comply with the Regulations. HYL therefore failed to raise its complaints about the electronic auction within three months of having the relevant knowledge of those complaints.

The Court did conclude, however, that although this ground of claim was out of time, this was no bar to the other claims that HYL wished to pursue.

Issue Five – The Nature of the Debriefing

HYL argued that the MoJ debrief in June 2009 was unfair, not transparent, discriminatory and/or inadequate. In particular, HYL argued that the MoJ failed to provide information requested pursuant to Regulation 32 (prior to amendment) at various stages from 21 October 2009 onwards. HYL relied on the failure of the MoJ to provide the scores awarded to it and the scores awarded to 3663, as well as the criteria and weightings (albeit the true position on the weightings did not emerge until the court proceedings themselves).  The Court did not find this to be a particularly strong ground of claim but did not consider HYL’s prospects of success so poor that it should be struck out – either because of lack of merit or because it is out of time.

The Conclusion of the Court

The Court therefore struck out those aspects of the CPOC which related to the electronic auction procedure on the basis that they were out of time. However, the Court declined to strike out any other parts of the CPOC which could proceed to trial.

Comments

Some aspects of this judgment are of academic interest only given that they relate to a procurement commenced before 20 December 2009 and so the “old” remedies regime applies. In particular in relation to the bringing of proceedings it is clear that the Regulations as currently drafted require that a claimant must now both file and serve a claim form (Regulation 47F).  The grounds advanced under Issue Five are also somewhat academic since Regulation 32 now provides that all the relevant debrief information (including scores and criteria) must be disclosed in the relevant standstill letter.

That said there are a number of issues which contracting authorities should take care with. In particular, the need to ensure that the evaluation is carried out in accordance with what is set out in the tender documents; to ensure that “minimum” standards, such as the requirement for Halal meat in this case, are applied in a transparent and equal manner to all bidders; ensuring that no material changes are made to the contract post-award which could infringe the principles set out in the Pressetext case (C-454/06) and finally, ensuring that electronic auctions are conducted in accordance with the Regulation 21 of the Regulations.

Deborah Ramshaw is head of procurement at Dickinson Dees. She can be contacted on 0191 279 9836 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it..