High Court rejects challenge by council to decision by MHCLG to claw back £2.1m in EU funding

Mrs Justice Steyn found in the High Court against Cornwall’s attempt to judicially review the Secretary of State for Housing, Communities and Local Government’s decision to claw back £2,121,431.66 awarded to Cornwall under the European Regional Development Funding (ERDF) framework.

The Secretary of State acts as managing authority for the ERDF in the United Kingdom.

Clawback was applied to £2,110,882.18 paid by Cornwall to Costain Jacobs Partnership (CJP) for building a bridge over the A30, a contract it won without this being advertised.

It also applied to £10,549.48 which Cornwall paid to contractor MWJV for a project management services contract, which the Government said improperly contained a clause that required Cornish sub-consultants. The Secretary of State determined this was breached the principle of equal treatment.

Officials of the Government Internal Audit Agency found irregularities arising from these breaches of procurement rules.

Six grounds were advanced for the judicial review. The first was that the Secretary of State’s decision contained a material error of law in stating that the value of the CJP procurement was above the relevant threshold, when Cornwall argued it was below and so not susceptible to EU procurement rules.

A further three grounds concerned the award to CJP. The council argued the Secretary of State had wrongly concluded that Cornwall had not established that CJP was the only supplier capable of providing the relevant works due to genuine technical reasons, and this was not an adequate justification for the direct award.

Another ground concerned a claim that the Secretary of State erred in law in concluding that the Cornish sub-contractors requirement, breached the principle of non-discrimination.

The final ground was that the Secretary of State acted unlawfully in proceeding on the basis that the contract for construction of A30 bridge had cross-border interest, and therefore EU Treaty principles applied.

Following an investigation, the Government Internal Audit Agency (GIAA) concluded that the direct award to CJP was not justified.

Its report stated Cornwall has claimed CJP was the only supplier capable of providing the relevant goods, and works and legal advice supported this.

But the GIAA said: “However, the supporting documentation does not fully justify there is only [one] supplier.”

It also concluded that restrictive criteria were unjustifiably used in the MWJV procurement.

David Read, the head of programme delivery at the Ministry of Housing Communities and Local Government (MHCLG), told the court: “The Public Services (Social Value) Act 2012 does not override procurement rules. Instead it requires contracting authorities to consider how their procurement could improve the economic, social and environmental well-being of the area pre-procurement. The Act works in conjunction with procurement legislation, not in opposition to it. It does not affect the requirement for public bodies to comply with public procurement legislation and treat all contract bidders equally.”

The requirement for at least one Cornish sub-contractor “could be considered to violate the principles of non-discrimination and equal treatment”, he said.

On the threshold issue, Steyn J said: “This is a paradigm example of a case in which the error – wrongly believing the contract was above threshold – was immaterial.

“The decision expressly addressed the below threshold position. This was not a case where the reasons were intertwined and so an error undermining one reason infected the other.”

She said Cornwall’s contention that it had not needed to advertise contracts below the threshold “ignores the applicability and effect of the principles of non-discrimination, equal treatment and transparency, as established by the case-law of the CJEU and summarised in the Interpretative Communication.”

Steyn J said Cornwall had made “a clear and obvious misreading” of the relevant regulations.

She said on the cross-border issue: “I reject the council's contention that, in these circumstances, the Secretary of State was nonetheless required to address the question of cross-border interest, and that the decision is unlawful for failure to do so.”

Nothing required the Secretary of State to raise unilaterally whether a contract has cross-border interest.

This concerns whether a contract is sufficiently large to be likely to attract interest from contractors in other member states.

Steyn J added: “The council cannot sensibly contend that the decision was unlawful for failure to address an issue it never raised, never relied on, and in respect of which it never adduced evidence despite the obligation to do so before awarding the contract.”

The MVJW procurement showed no error of law by the Secretary of State in concluding that a requirement for tenderers to identify at least one Cornish sub-contractor for each of seven disciplines breached the principles of equal treatment and non-discrimination.

Bidders with existing local networks, “who would have been overwhelmingly likely to be based in the UK, were in a superior position to identify appropriate local sub-consultants, make contact with them and negotiate the terms necessary to make a competitive bid”.

This had been “a classic example of a discriminatory criterion in an invitation to tender and the Secretary of State made no error in so concluding”, Steyn J said.

Mark Smulian