Public procurement decisions and EC rules

The decisions in Sidey vs Clackmannanshire council in Scotland at the end of last year and early this year are a timely reminder that:

• even public sector building contracts “below threshold” may be subject to the principles of European Community (EC) law as to the fairness and transparency of the tendering process;
• public bodies have certain obligations to tenderers regardless of whether EC rules apply;
• the right to damages does not arise in every situation.

By way of a reminder, the threshold for the application of the public procurement regulations to construction contracts for works (as opposed to services) is currently £4.6m.

In this case, a contractor, Sidey, had tendered for a £2.5m kitchen and bathroom replacement programme in over 350 council houses. The information given to tenderers referred to the EC rules and the public procurement regulations. Due to an error in scoring the tenders, Sidey was not awarded the contract and nor was it advised of this or who was the successful tenderer by way of “standstill letter” (because the letter was faxed to the wrong number). By the time the council acknowledged it should have awarded the contract to Sidey, it was too late and a contract had been entered into with another firm, Pyramid.

Due to an error in scoring the tenders, Sidey was not awarded the contract and nor was it advised of this, or who the successful tenderer was (because the letter was faxed to the wrong number)

Sidey sought a judicial review of the council’s decision, seeking various declarations that the council had acted in breach of its community obligations and its obligations at common law, as well as findings that the council was in breach of an implied contract and/or duty of care. Sidey claimed damages arising from breach of these duties.

The judge confirmed that:

• EC law would apply to “below threshold contracts” to the extent of application of general principles of fairness, transparency and non-discrimination;
• this did not mean they had the full protection of the public procurement legislation but could insist on certain practices;
• but for this to be the case the contract had to be of interest beyond the UK.

In determining whether such “cross-border interest” existed, the judge in this case considered:

• what was stated in the tender documents - for example, there were references to submitting documents in the English language and reference to UK sterling;
• the council’s standing orders, which referred to the EC treaty applying to all procurement activities, regardless of value;
• whether the relevant council employees at tender stage considered whether the tender would be of interest to companies outside the UK.

In rejecting any cross-border interest in the tender, the judge was not swayed by statements in the tender documents, which he thought were probably part of a standard template, but focused primarily on (i) the value of the contract, (ii) the nature of the work - an extensive local infrastructure would be needed to service it, and (iii) that the council’s own employees did not consider at the time of tendering that it would generate interest outside the UK.

Separately, Sidey argued that it had a legitimate expectation, as did all the tenderers, that equal treatment and transparency would be applied in the tender process. This concept has been part of public law since 1969 and allows a party that can show it had a legitimate expectation that the actings of a public body would be fair in procedure or in substance, to seek judicial review. This stood separately from any EC procurement rules or remedies.

The judge found that Sidey did have a legitimate expectation that it would be treated equally with the successful tenderer and that it had not been. He also found that the council was in breach of its obligation to apply its tendering procedures rationally and correctly.

He rejected Sidey’s arguments that, on the basis of the tender document, an implied contract was created whereby the council agreed to consider all tenders fairly and equally and to award the contract to the most economically advantageous party, or alternatively that the council owed a duty to take reasonable care to this extent.
As the judge rejected any concept of implied contract or duty of care, no right to damages arose. So Sidey won the principle but lost out on a monetary award, and in a later judgment early this year, it was found liable for the bulk of the legal costs.

Had the public procurement regulations applied, a right to damages would have been available.

Lindy Patterson is a partner in Dundas & Wilson