Meeting the transparency principle

A recent Court of Appeal ruling in a case involving the procurement of waste management services and the application of the transparency principle should be welcomed by contracting authorities, writes Matthew Mo.

The Court of Appeal judgment in J Varney & Sons Waste Management Ltd v Hertfordshire CC marks a shift in judicial thinking by adopting a narrower approach in applying the transparency principle to evaluation methodology in contrast to the more “forensic” standard established in 2008 by the case of Letting International v Newham LBC. A more pragmatic approach has been the trend in the recent case law which brings a much welcome dose of commercial realism back into the public procurement process for the benefit of procurement professionals in public bodies.

J Varney & Sons Waste Management Ltd v Hertfordshire CC [2011] EWCA Civ 708

The Council conducted a procurement for waste management services having identified two criteria with weightings for “Price” and “Customer Satisfaction”. The Council requested responses for 17 “Return Schedules” as part of the tender return. Fifteen of these method statements covered different topics that were assessed as part of the evaluation of Customer Satisfaction. The Council allotted separate marks for each of them but did not disclose that to the bidders. However, the bidders did not seek clarification as to what marks would be attached to each Return Schedule.

The unsuccessful bidder, J Varney & Sons Waste Management Ltd (“J Varney”), sought damages in relation to the award decision for breach of the Public Contracts Regulations 2006. The lack of transparency of the award criteria (in terms of undisclosed criteria, sub-criteria and weightings) was a key complaint amongst an array of arguments (which are not explored further below).

The High Court ruled that the Return Schedules were not new criteria but rather sub-criteria and concluded there to be no transparency breach in not disclosing their weightings. The court applied a three-stage test set out ATI EAC v ACTV Venezia (C-331/04) (see below) in reaching its conclusions. The court was also influenced by the lack of clarification being sought by bidders as an indication that the bidders themselves did not consider the withheld information could have affected their offers.

The court also concluded that the claim was not brought within the three-month limitation period, since on these particular facts, the breach occurred at the issue of the Invitation of Tender documents and the bidder was deemed to have sufficient knowledge at that point to raise a challenge.

J Varney appealed the decision of the High Court. The Court of Appeal affirmed the High Court’s decision in relation to the sub-criteria and dismissed the appeal. Having done so, it considered it was unnecessary to address the limitation period point.

Mears Ltd v Leeds City Council [2011] EWHC 1031 (TCC)

Similar issues were dealt with by the High Court in a case heard early this year.

The Council conducted a competitive dialogue for the award of a contract for the improvement and refurbishment of social housing. The unsuccessful bidder (Mears Ltd) was eliminated in the first stage of the dialogue process and was not invited to participate in the second stage. It challenged this decision for a number of reasons, amongst which was that the Council had:

1. failed to disclose weightings for certain questions;
2. applied undisclosed scoring guidance; and
3. also incorporated additional undisclosed criteria in the form of model answers.

The court found that the weightings for those questions ought to have been disclosed since a bidder’s enquiry about how they would be marked provided strong evidence that it could have affected tender preparation.

It accepted on the evidence that the scoring guidance was not part of the formal evaluation methodology.

However, the court found that the model answers were intended to be and were used as formal standards by which the tenders were assessed. It then systematically applied a predictability test to each of the model answers as to whether its contents were reasonably foreseeable to a reasonably well-informed and normally diligent tenderer. If they were, then the court was satisfied that no new and previously undisclosed criteria (or sub-criteria) were being introduced.

In essence, the court considered whether the model answer reflected the question posed, or whether it was in substance a different question than what it appeared to be on the surface because of the hidden qualities or emphasis sought.

The court concluded that only two out of eight of the model answers constituted new criteria that should have been disclosed.

In contrast to Varney, the court held that the time limit ran from disclosure of the model answers (which was granted as a result of an earlier judgment). Only at this time, when Mears Ltd was aware of the content of the model answers, did it have sufficient knowledge of the purported breach.

Commentary

The 2008 judgment in Letting International v Newham LBC [2008] EWHC 1583 (QB) (“Newham”) marked a watershed in increasing the risk of legal challenge for contracting authorities. In that case, the UK court adopted a broad dictionary definition of criterion to mean a “principle, standard or test by which a thing is judged, assessed or identified” and in applying that definition then held that detailed information ought to be disclosed as “criteria” under reg.30 of the Public Contracts Regulations 2006.

Earlier that year, the ECJ ruled that the obligation of transparency required that potential tenderers should be aware of “all the elements to be taken into account” in identifying the most economically advantageous offer so that bidders were in an informed position when preparing their bids (Lianakis (C-543/06)). The Newham judgment adopted this principle in a literal way and set an onerous and high standard for meeting the transparency obligation. It ruled that the issue was whether non-disclosure could (and not would) have made a difference to the preparation of the claimant’s tender.

This meant that any undisclosed top-level criteria (“criteria”), sub-criteria, weighting and evaluation methodology would be susceptible to a risk of challenge since it was open to the argument that it could to some degree have affected a bidder’s behaviour in preparing their tender. The case blurred the practical distinction between criteria and sub-criteria bringing more information within the realm of the disclosure requirement.

In particular, it left grey areas in relation to model answers, directions, guidance and standards adopted to promote consistency in the evaluation outcome as to whether these would be construed as part of the formal machinery of the evaluation methodology and challengeable for non-disclosure.

The effect of this, experienced by many contracting authorities, was an immediate growth in procurement complaints and challenges with unsuccessful bidders applying far more scrutiny to award decisions with these sharpened principles at their disposal.

However, a series of UK cases this year paved the way for a more pragmatic approach by referring back to principles embedded in an earlier ECJ case of ATI EAC v ACTV Venezia (C-331/04) (“ATI”). In ATI, the ECJ stated in principle that the weighting of sub-criteria could be introduced without breaching the principle of transparency if three conditions were satisfied that it:

• does not alter the criteria for the award of the contract set out in the contract documents or the contract notice;
• does not contain elements which, if they had been known at the time the tenders were prepared, could have affected that preparation; and
• was not adopted on the basis of matters likely to give rise to discrimination against one of the tenderers.

Given the broad approach adopted in Newham, many practitioners thought that these principles (particularly the second principle) would be applied too narrowly in order to provide a viable line of defence for contracting authorities.

However, earlier this year in Mears, whilst the court accepted that the model answers determined by the Council were applied as a formal standard to assess the bids, the court went on to systematically consider whether they introduced new criteria, sub-criteria or weightings by asking whether those factors were reasonably foreseeable to a reasonably well-informed and normally diligent tenderer. In the majority of cases of the methodology examined, the court was convinced on the evidence that those factors were foreseeable (and therefore their non-disclosure would not have affected tender preparation) and so were not new criteria (or sub-criteria) and so did not have to be disclosed in advance to tenderers. It held in a few instances that the Council should have expressly requested that requirement or quality for assessment if those were the qualities it was seeking in the tender responses.

In Varney, the Court of Appeal, criticised the Newham test as being impractical and in its opinion going beyond what Community law required. It applied the ATI test and accepted that the 15 method statements were sub-criteria dealing with “different aspects” of the main award criteria of “Customer Satisfaction” and also that knowledge of the sub-weightings could not have affected the preparation of the tenders. Whilst top-level award criteria are subject to heightened disclosure obligations, there is probably now more flexibility as to whether it is necessary to disclose the weighting of sub-criteria.

Conclusions and Tips for Procurement Professionals

Weightings disclosure

While these two cases mark what could be seen as a more lenient approach to transparency, the best practice is still to adopt the cautious approach of disclosing sub-criteria, weightings and methodology to be applied to tenders.

This is because there remains a degree of inconsistency and uncertainty in drawing the distinction between top-level award criteria and sub-criteria. In Varney, it was accepted that the rather vague category of “Customer Satisfaction” constituted award criteria and the more distinct topics beneath it were sub-criteria. In Newham, it was held that “Compliance with Specification”, which the Council had intended to be criteria, were too vague and that the top-level criteria vested in the next level of description in the form of the distinct method statements. It is therefore possible for the courts to be at odds with contracting authorities as to where the first layer of criteria lies, particularly if they are very general in subject matter.

It is also difficult to predict when a distinct criterion or sub-criterion will come into being from a background of guiding factors and standards in application of the Mears “predictability” test.

Finally, where sub-criteria are recognised, there is uncertainty whether they would withstand the ATI test if weighting information is withheld.

Bidders’ enquiries concerning sub-weightings

Bidders’ interest and enquiries concerning sub-weightings / evaluation emphasis seem to have the effect of making that information (if it exists) more likely to be held to be of importance in tender preparation. This could be seen as a poor objective test since some bidders may now be motivated to make enquiries for tactical reasons to increase the scope of challenge later.

However, bidders should not miss the opportunity to enquire or query – or they risk losing a legitimate argument later about the importance of that information to them in their tender preparation. Equally, contracting authorities should take all enquiries very seriously and respond to them.

Positioning of model answers or guidance

Whether model answers and consistency guidance are construed as forming (and being applied as) part of the formal evaluation methodology is a matter determined by the court on the evidence.

So, for example, if contracting authorities intend their model answers to form non-prescriptive guidance for evaluators in identifying suggested qualities to enable a consistent approach to scoring, then this should be made clear on the face of the document and instructions given to the evaluation team.

Furthermore, contracting authorities should review the qualities and emphasis sought in the model answers as to whether they are predictable from the question presented to the bidders. If, contrary to the contracting authority’s intentions, the courts held that the model answers were in fact applied as a comparative standard (and therefore part of the formal evaluation machinery), the procuring body may still be able to resist an argument that the information ought to have been disclosed on the grounds that its contents were reasonably predictable.

A line of defence

Contracting authorities facing legal challenges on these issues may now have broader grounds of defence available to them than thought possible in the earlier cases. Whilst the requirement to provide “all the elements to be taken into account” is still in place, the courts now appear to be prepared to take a more pragmatic and industry sector driven approach (informed by the context of the procurement documents) in determining what they are prepared to accept as undisclosed factors underlying the evaluation question that are capable of distorting competition.

With the Varney judgment, the courts rejected the more remote and fanciful arguments that it could have affected a bidder’s tender preparation bringing it closer in essence to a more realistic test of whether it would have had that effect.

Matthew Mo is a solicitor in the Commercial & Infrastructure team at Bevan Brittan. He can be contacted on 0870 194 7815 or my email at This email address is being protected from spambots. You need JavaScript enabled to view it..