Procurement Pulse - March 2017

Procurement Pulse Series


This month's issue looks at some recent case law on evaluation methodologies, perhaps the highest risk area when it comes to running a procurement process. The Energy Solutions case (first reported in Procurement Pulse in September 2016) is one of few cases where a court has pronounced that a contracting authority made a number of manifest errors in evaluating submitted bids. A contracting authority has a broad discretion in designing and managing its procurement process, and a court will only intervene where things have gone obviously wrong. To that end, the Dimarso case held that a contracting authority is not obliged to disclose its evaluation methodology to bidders. The lawfulness of the method used to evaluate bids is of increasing concern to bidders, but the European Dynamics case below shows that even where the methodology has been disclosed, further information is often required to facilitate a real understanding of whether an authority has complied with its obligation to identify the most economically advantageous bid. We also report on the statutory review of the Single Source Regulations for defence contracts, and the EU Commission's review of the effectiveness of the Remedies Directive.

Failing to properly apply "pass/fail" evaluation criteria: Judgement no. 3 of the dispute between Energy Solutions (ES) and NDA was published on 20 December 2016. The ultimate issue (expected to be heard by the Supreme Court in May 2017), is whether ES is entitled to damages for NDA's manifest errors in operating the evaluation methodology for award of certain decommissioning contracts. The Supreme Court will be asked to rule on whether the so-called "Francovich conditions" apply to determine whether damages should be paid out. One of those conditions is that the breach must be "sufficiently serious". In preparation for the Supreme Court proceedings, the High Court considered whether manifest errors identified in earlier proceedings, might be considered "sufficiently serious". It held that taken as a whole, they constituted breach of the Evaluation Framework set out in the procurement documents, and of regulation 18(27) of the Public Contracts Regulations, 2006 which required the NDA to “… assess the tenders received on the basis of the award criteria specified in the contract notice or descriptive document and … award the contract to the participant which submits the most economically advantageous tender…”

The court acknowledged that a single manifest error in operating the evaluation methodology or a number of manifest errors could lead to the same conclusion. The court commented that:

  • Breach of an obligation to apply a threshold requirement (ie a scored answer, which could lead to a bidder's disqualification from the procurement process, if it scored below a defined threshold) would constitute a "sufficiently serious" breach
  • Breach of an obligation to properly apply a "pass/fail" score, where failure to meet certain requirements should have lead to elimination of a tenderer from the process, was a "sufficiently serious" breach
  • Any other breach of the NDA evaluation methodology would be "sufficiently serious" to warrant an award of damages if it would have affected, either individually or cumulatively, the outcome of the competition, and the decision as to which tenderer had submitted the most economically advantageous tender

Energy Solutions EU Limited v Nuclear Decommissioning Authority [2016] EWHC 3326

When should an evaluation methodology be disclosed?: During the award phase of a procurement process, a contracting authority must determine which is the most economically advantageous tender, using award criteria and weightings which offer a sufficient degree of precision and certainty. Art 53(2) Dir 2004/18 does not explicitly impose an obligation to disclose the evaluation method in addition to disclosure of award criteria and their weightings, and in the context of a competitive dialogue procedure, the courts have held that an evaluation committee must have some leeway in the way in which it carries out its tasks; provided that contract award criteria set out in the tender specifications or the contract notice are not affected, it can structure its approach to examining and analysing submitted tenders as it sees fit. In this case, the court held, that to eliminate favouritism, the methodology should not be developed after opening of tenders, unless there are "demonstrable reasons" for doing so, and the subsequently developed rules do not alter award criteria and weightings set out in the contract notice. It further held that, an authority is not required to bring to the attention of potential tenderers, in the contract notice or the tender specifications the method of evaluation it intends to use to evaluate and rank the tenders. This judgement was made pursuant to Directive 2004/18/EC. Would a court approaching the same issues in connection with a procurement let pursuant to Directive 2014/24/EU take into account the new logic in article 53 - that all procurement documents should be available electronically by the date of the Contract Notice - and require the evaluation methodology to be disclosed at the same time?

Case C-6/15 TNS Dimarso

Impact of abnormally low tenders on scoring methodologies: In this case the evaluation methodology was set out in a technical annex to the procurement documents. The annex provided a formula to determine the most economically advantageous tender "taking as a basis the lowest tender that had not been rejected after the technical evaluation". In its debriefing, European Dynamics (ED) asked for the rank of its tender after the technical evaluation, as well as its final ranking. It also complained that the successful tenderer's bid was too low to satisfy the contract technical requirements. Whilst the Commission provided ED rankings, ED complained that it did not adequately answer their request for information relating to the successful abnormally low tender. The court reiterated the principle that a contracting authority must provide adequate reasons for its decisions. ED had provided calculations which raised doubts as to the trustworthiness of the successful tenderer at an early stage in the procurement process , and the court held that in those circumstances it was not acceptable for the Commission simply to state that the tender was not abnormally low. The court stated that "requiring the contracting authority to present the grounds on the basis of which an offer was not considered to be abnormally low does not require it to disclose precise information on the technical and financial aspects of that tender, such as the prices offered or the resources that the successful bidder proposes to use in order to provide the services that it offers. In order to provide a sufficient statement of reasons for that aspect of the selected tender, the contracting authority must set out the reasoning on the basis of which, on the one hand, it concluded that, because of its principally financial characteristics, such an offer complied with the national legislation of the country in which the services were to be carried out in respect of the remuneration of staff, contribution to the social security scheme and compliance with occupational safety and health standards and, on the other, it determined that the proposed price included all the costs arising from the technical aspects of the selected tender (see, to that effect, European Dynamics Belgium and Others v EMA, T-638/11, not published)."

Whilst the facts are not set out explicitly in the court's decision, ED's information requests indicate that it was aware of the effect that abnormally low tenders can have on relative scoring formulae, and how they can effect a tenderer's ranking in a contracting authority's final decision. Some (not all) formulae have the effect that the outcome turns on the price of the lowest bid - an irrelevant factor not related to the subject matter of the contract - which directly affects the scores and potentially the ranking of other tenderers, with the impact that it may be argued that the Authority has failed to comply with its obligation to determine which is the most economically advantageous bid. This effect/impact will be greater on procurements where price forms a higher proportion of the overall evaluation and also on procurements where the lowest price is notably lower than the other bids. This may place particular pressure on a contracting authority's ability to: (i) spot and eliminate abnormally low tenders and (ii) (as demonstrated in the European Dynamics case) provide adeuqtae reasons for any decision taken not to disqualify a tender for being abnormally low when chellenged to do so by an unsuccessful tenderer.

European Dynamics Luxembourg v European Commission T-74/15

Single Source Regulations Office publishes consultation on recommendations for review of single source defence contracts regulatory framework - 30 January 2017: The Single Source Contract Regulations 2014 aim to ensure that in the absence of competition, the government obtains good value for money in its expenditure on qualifying defence contracts; and contractors are paid a fair and reasonable price under those contracts. The Secretary of State is required to complete periodic reviews of the framework, with the first review to be completed by December 2017.

Remedies Directive review: After evaluation of the performance of the Remedies Directive, the EU Commission has concluded that it meets its objectives in an effective and efficient way in its current form, and therefore does not propose any amendments subject to certain weaknesses which should be further investigated:

  • There is currently no EU-wide monitoring and evaluation system of remedies available in each Member State. The Commission therefore intends to collect information on key indicators such as number of successful complaints, costs and length of procedures, and publish them on the Single Market Scoreboard to enable a direct comparison of the efficiency of the remedies system across Member States
  • First instance administrative review bodies tend to be more effective than the courts at determining applicable remedies oin public procurement and the Commission will encourage sharing of best practices from such administrative review bodies across Member States
  • The Commission will issue guidance on the interplay between the Remedies Directive and the 2014 Procurement Directives, as well as on the criteria to be applied to lift automatic suspension to concluding a contract, following legal challenge.

Report on the effectiveness of Directive 89/665/EEC and public procurement review procedures