Hell hath no fury: public sector frameworks

In September, the High Court in Northern Ireland decided that the Department of Finance and Personnel breached public procurement rules in awarding places on a framework agreement for works worth up to £800m. The department failed to disclose the full sub-criteria by which tenders were ultimately assessed (see Tony Bingham, 21 November, page 64).

Last month, the same court held that the Department of Education for Northern Ireland breached the rules over a framework agreement that allocated up to £650m for modernising schools. Ironically, the case arose from the government’s efforts to reduce the claims that successful bidders make when awarded contracts on a lowest price basis. The tender competition for places on the framework compared the fee percentages bidders would add to the cost of carrying out any call-off contract. The department wrongly assumed construction costs would be the same whoever did the work – and so assessed bidders’ prices on fee percentages only.

The department compounded its error because contractors on the framework were not exposed to full price competition when call-off contracts were awarded. After contracts were awarded, the job’s costs manager was to negotiate the price down yet further with the chosen contractor, but without competition from others.

The court said that, under the rules, price could not be omitted entirely from assessing bids for publicly procured projects. It is not necessary to require tenderers for framework places (when the details of later call-offs may be unknown) to price sample jobs, but if only part of the build-up of tenderers’ prices is considered when deciding framework places, there must be full competitive pricing when awarding call-offs.

You may have noticed that these cases have two things in common: frameworks and Northern Ireland. As to the latter, it is not that authorities there are likelier to breach public procurement rules than elsewhere in the UK. Challenges in the province seem to be disproportionately commoner because of the smaller market and the relatively greater loss of business for unsuccessful tenderers.

In mainland UK, contractors seem to fear putting themselves at a disadvantage for later opportunities if they dispute a tender. There have been high-profile challenges, though. In 1999 a foreign-owned contractor successfully sued the House of Commons for picking a pricier UK rival to clad Portcullis House. In 2004 Sir Robert McAlpine sued after it lost out on the construction manager contract for the Scottish parliament building despite reportedly tendering the lowest bid. The parties apparently settled without any compensation changing hands.

Some may see challenges to decisions on tender competitions as a way for contractors to make money without carrying out the works.

In this economic climate, short-term financial need may soon outweigh the fear of disputing tenders. With warnings that the government’s accelerated spending on projects risks breaching public procurement rules, we may see more challenges.

Some may see challenges as a way for contractors to make money without carrying out the works. The aggrieved bidder’s usual remedy is damages based on its loss of a chance of successfully tendering, had the rules been followed, and later making a profit (plus its wasted tender costs). In fact, the rules make damages the only remedy where the invalidly tendered contract has been entered into between the contracting authority and the successful tenderers.

However, we now know from the case I first mentioned, that this limitation does not apply to framework agreements but only to the call-off contracts issued under them. The framework in question was set aside even though it was concluded six months earlier. It may now be retendered or dispensed with. The court was influenced by the difficulty of otherwise assessing damages and the public interest of having the best contractors on the framework. These are factors common to most framework agreements where they are incorrectly tendered.

Therefore, if framework agreements are incorrectly tendered, they may be set aside even if the agreement is concluded before the court gives judgment – at least if call-off contracts are yet to be awarded. This gives publicly procured framework agreements a second-class status compared with other publicly procured contracts. It also emphasises how vital it is for aggrieved tenderers to act quickly.

So, it is not just aggrieved tenderers and taxpayers who suffer when public procurement rules are breached. If the framework is set aside, tenderers who were told they had won a place may face an invidious choice between retendering and claiming their wasted tendering costs. Something to bear in mind, perhaps, when popping those champagne corks.