Breach of public procurement rules: Henry Brothers (Magherafelt) Ltd & Ors vs Department of Education for Northern Ireland

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This case shows that framework agreements can be set aside as a remedy for breach of procurement rules

The Court of Appeal in Northern Ireland decided that the High Court was correct in setting aside a framework agreement entered into by the Department of Education for Northern Ireland following breaches of the public procurement rules.

The Facts

The appellant government department commenced a competition under the restricted procedure in Regulation 12 of the Public Contract Regulations 2006 (“the 2006 Regulations”) for contractors to be placed on a framework agreement for the Northern Ireland Schools Modernisation Programme (the primary competition stage) whereby they could then tender for individual works contracts (the secondary competition stage).

Following their failure to be placed on the framework agreement the respondents, a consortium of building contractors, commenced proceedings under the 2006 Regulations claiming breach of statutory duty, breach of obligations under the EC Treaty and breach of contract.

The High Court found for the building contractors on the issue of liability and ordered that the framework agreement be set aside as the remedy for the breach. The government department appealed against those decisions on the grounds that the judge erred in finding (1) that price was a mandatory criterion in the selection process for the most economically advantageous tender, (2) that the building contractors’ claim was not statute barred and (3) that the judge had the power to set aside the framework agreement.

The Issues

Was the High Court correct in deciding:

1 That the government department had made a manifest error in the pricing mechanism used to assess tenders;
2 That the claim was not time barred; and
3 That the framework agreements could be set aside as a remedy for breach of the procurement rules.

The Decision

The Court of Appeal held that the High Court was correct in finding that the government department had made a manifest error in the pricing mechanism used to assess tenders and that the claim had not been time barred.

The Court of Appeal also held that the High Court was correct in deciding that the framework agreement could be set aside as a remedy for breach of the procurement rules. In reaching that decision, the Court of Appeal held that a framework agreement was not a contract for the purposes of regulation 47(9) of the 2006 Regulations.

Comment

This decision confirms that government departments must be very careful in the way they structure their tender assessment process. The government department had used fee percentages as the basis of the pricing mechanism on the basis that since costs were the same or broadly the same between contractors, the fee percentage would be a clear indication of the most economically advantageous offer. This was an unreliable indicator because the fee percentage could not predict the outturn cost without the addition of other information, for instance different contractors might be in a position to provide discounts or structure their project management in such a way as to reduce the costs involved and therefore offer more advantageous prices.

In relation to the second issue, before the Public Procurement (Miscellaneous Amendments) Regulations 2011 were implemented on 1 October 2011, Regulation 47(7)(b) of the 2006 Regulations provided that proceedings may not be brought under Regulation 47 unless those proceedings were brought promptly and in any event within three months from the date when grounds for the bringing of the proceedings first arose unless the court considered that there was good reason for extending the period. In finding on the facts that the building contractors’ challenge was not time barred under the 2006 Regulations (prior to their amendment), the Court of Appeal drew three propositions of law from recent court decisions which were relevant to this case:

(i) the cause of action only arises where a breach of the 2006 Regulations is alleged. Anticipation of a breach is not sufficient;
(ii) the breach can consist of any infringement of the 2006 Regulations which gives rise to the risk of loss or damage; and
(iii) time runs from the date on which the claimant has the requisite knowledge that a breach of sufficient magnitude to justify proceedings has occurred.

The key change introduced by the Public Procurement (Miscellaneous Amendments) Regulations 2011 is that the time limit for bringing a claim has been reduced to 30 days from the date of knowledge, i.e. the date on which the tendering party first knew, or ought to have known, that grounds for starting proceedings had arisen. The court still has discretion to extend that period where there is a good reason for doing so, subject to an absolute maximum period of three months. Tendering parties would still be well advised to start proceedings within the 30 day time limit.

With regard to the appropriate remedy for the breach, regulation 47(9) of the 2006 Regulations prevented the court from ordering any remedy other than damages once a contract had been entered into. If the court had found that a framework agreement was a contract for the purpose of the 2006 Regulations, that would have prevented the court from setting aside the framework agreement and meant that the building contractors had lost the opportunity to participate under that agreement. It is difficult to assess damages in such circumstances and the renewed opportunity to tender and participate in the framework agreement was likely to be a more satisfactory remedy for the contractor.

It is however important to note that the Public Contracts (Amendment) Regulations 2009 amended regulation 47 and a definition of “contract” was added which provides that, except in regulation 47O, a contract means a public contract or a framework agreement. The 2009 amendment applies to contract award procedures commenced on or after 20 December 2009 and therefore did not apply to the Henry Brothers case.

Finally, it is worth noting that similar issues were addressed by the same justices of the Court of Appeal in Northern Ireland in McLaughlin & Harvey Ltd v Department of Finance and Personnel [2011] NICA 60. The Court of Appeal held that the High Court was correct in deciding that the government department had not sufficiently brought details of the weightings of pricing sub-criteria to the attention of the tenderers so as to satisfy the requirements of transparency and this could have affected preparation of the tender.