The general principles that apply to evaluating a bid as part of a public procurement competition regulated under the EU Public Contracts Directive and the implementing Public Contract Regulations ("PCRs") are easily summarised: bidders must be treated equally, in a non-discriminatory manner and the bid evaluation must be carried out transparently. On the face of it, these general principles seem straightforward enough. But the application of these principles in practice in high-value and complex procurement competitions has proved notoriously problematic for contracting authorities. Over the last few years, several major UK procurement competitions have run into problems at the bid evaluations stage or even earlier (the West Coast Mainline competition being perhaps the most high-profile example, and more recently the procurement of the HS2 construction contract).
Joining those projects in the hall of procurement infamy is the Magnox procurement competition. It is now almost a year since the settlement of the claim for damages brought by EnergySolutions EU Limited (now called ATK Energy EU Limited) against the Nuclear Decommissioning Authority arising from its decision to award the contract for decommissioning 12 Magnox nuclear reactors to a rival bidder was announced by the then Energy Secretary Greg Clark via a Written Ministerial Statement on 27 March 2017.
The settlement was in the region of £100m, and was announced along with the early termination of the contract awarded to Cavendish Fluor and the commencement of an independent inquiry into what went wrong (the interim report by Steven Holliday was published on 11 October 2017 and the final report is still awaited). The failed procurement process has been estimated to have cost the taxpayer at least £122m in total according to the National Audit Office report issued in October 2017.
The litigation gave rise to 3 High Court judgments, two Court of Appeal judgments and the Supreme Court judgment issued on 11 April 2017. The Supreme Court’s decision established that the Francovich test for damages (i.e that the breach of EU law must be sufficiently serious) applies to a claim for damages under the Public Contract Regulations (“PCRS”) and also established that the failure to issue proceedings within the standstill period does not affect a claimant’s entitlement to damages. But it is the High Court’s judgment on liability for breach of the PCRs (EnergySolutions EU Limited v Nuclear Decommissioning Authority [2016] EWHC 1988 (TCC) issued in July 2016 that is of real practical value for procurement teams and lawyers involved in advising on procurement competitions.
Some of those practical lessons are considered in this article. It seeks to distil from the lengthy judgment – it runs to over 320 pages – a number of practical points that may of be of use to bid teams (whether for contracting authorities or economic operators). It looks in particular at the following four areas: the test of manifest error and whether an authority is bound by the reasons it gives at the time for particular scores, note-taking and evaluation documentation, the role of legal review, and the use of pass/fail thresholds.
What was the case about?
The Nuclear Decommissioning Authority is a non-departmental public body established under the Energy Act 2004, responsible to DECC as it then was (now DBEIS). It is responsible for the clean-up and decommissioning of the UK’s civil public sector nuclear sites. The claims brought by Energy Solutions related to a public procurement competition undertaken by the NDA for the award of contract for the decommissioning of 12 former nuclear sites, including Bradwell, Sizewell A and Hinkley Point A. EnergySolutions EU Limited (“Energy Solutions”) was the incumbent Parent Body Organisation for the Site Licence Companies which managed and operated the ten Magnox power stations (the other two sites were research sites under separate control).
The contract that was subject to the tender process was to be for a 14 year duration. The expected profit for Energy Solutions was calculated to be approximately £100 million over the duration of the contract. The competition commenced in 2012 and was conducted via the competitive dialogue procedure under the then PCRS 2006 (now replaced by the 2015 PCRs).
The contract was ultimately awarded to a rival consortium led by Cavendish Nuclear (referred to as CFP in the judgment). Energy Solutions was notified of this on 31 March 2014. Unusually, Energy Solutions decided not to issue proceedings during the standstill period and so no automatic suspension was triggered. It only sought damages in its claim rather than an application to set aside the contract. The fact that it only issued proceedings after the contract was entered into gave rise to a preliminary issue as to whether or not Energy Solutions had caused its own loss and therefore was not entitled to damages (the NDA were unsuccessful in striking out the claim on that basis in first instance, a decision confirmed by the Supreme Court in April 2017).
Following the dialogue phase, an Invitation to Submit Final Tenders (“ITSFT”) was issued on 2 October 2013. This contained the Statement of Response Requirements and the scoring criteria against which the different tenders were to be evaluated. The way in which the scoring was carried out was, in summary, as follows. Each separate part of the tender bid was called a Node, and contained a number of Requirements that had to be satisfied by bidders. Each Requirement was given a particular score by the team of evaluators responsible, which was comprised of 3 evaluators who were Subject Matter Experts (“SMEs”), under the overall management of NDA’s Core Competition Team and the NDA’s Head of Competition.
One of the key Nodes was described as “Key Enablers” which were particular areas where the NDA wishes to establish that the bidders were competent to be the relevant sites operators (for example, Health, Safety, Security and Environmental safeguards). Some of these Key Enablers were to be evaluated on a purely “threshold” (i.e pass/fail basis), whereas others were scored and had a percentage weighting applied to those scores. The scoring scheme An electronic software system was used for the bid evaluation, called the AWARD system. The individual SMEs were expected to input electronically onto this system any notes in respect of how each bid met any particular requirement. They would then meet to reach a consensus view on any score, and a consensus award entry was entered into the system by the lead SME showing the score and any comments reached by consensus. That particular requirement was then “closed down” on the system, although it could be re-opened if expressly authorised by the NDA’s Head of Competition (a matter which became the focus of many of the criticisms made by Energy Solutions). The SMEs were not allowed to e-mail each other or record any other notes except on the electronic system There were 4 bidders total. At the end of the bid evaluation phase, the winning bidder scored 1.06% than Energy Solutions. Energy Solutions brought proceedings against the NDA seeking damages for a breach of the PCRs.
Lessons learnt No 1: Manifest error and reasons
Three issues of principles arose in this case: first, whether or not evaluative judgments made in the course of a scoring exercise are indeed capable of constituting a manifest error; secondly the material upon which the court could rely when determining whether if the NDA had made a manifest error; and third, the correct approach to determine materiality of any manifest error.
Evaluative judgments and manifest error
The NDA sought to argue that as a matter of principle an evaluative judgment made as part of the scoring process during a bid evaluation was not capable of constituting a manifest error. Fraser J referred to a number of earlier cases which emphasised the limited function of the court when assessing whether or not a public body’s evaluation of a bid was carried out lawfully, in particular Coulson J’s summary in BY Development Ltd and Others v Covent Garden Market Authority [2012] EWHC 2546 (TCC): “…the court’s function is a limited one. It is reviewing the decision solely to see whether or not there was a manifest error and/or whether the process was in some way unfair. The court is not undertaking a comprehensive review of the tender evaluation process; neither is it substituting its own view as to the merits or otherwise of the rival bids for that already reached by the public body”.
Unsurprisingly in light of those earlier authorities, and in particular the clear confirmation in Lion Apparel Systems v Firebuy Ltd [2007] EWHC 2179 (Ch) that the principles that apply to procurement competitions entail that there should be “no manifest error of assessment” (at [35]), the Court held that there is no prohibition upon finding manifest error where an evaluative judgment has been applied (at [274]).
Reasons that can be relied on when manifest error is alleged.
Energy Solutions argued that the validity of the contract award decision fell to be assessed on the basis of information provided to the economic operator at the date when the claim was brought, not any subsequent information or reasons relied on by the defendant contracting authority (relying by analogy on the approach in domestic UK judicial review in cases such as R v Westminster City Council ex parte Ermakov [1996] 2 All ER 302). The NDA sought to draw a distinction between an application to set aside a contract award decision on the basis of a failure to give reasons, and a claim for damages based on a challenge to the substance of the decision as to the identity of the successful bidder. The Court accepted the NDA’s submissions and drew a distinction between the material that can be relied upon for the purposes of determining liability on the one hand, and the material that can be relied on when considering causation in a claim for damages on the other. It made the following clear statements of principle, which makes that distinction clear:
“1. The lawfulness of the decision by the contracting authority to award the contract to a competing tenderer rather than to the Claimant, will be considered by reference to the reasons made available from the contracting authority to the Claimant prior to the issuing of proceedings. 2. In a claim for damages, the court will take proper regard of other reasons relied upon by the contracting authority when considering causation. A finding as to unlawfulness at the first stage will not automatically and of itself entitle the Claimant to damages”. (at [296]).
Therefore the judgment confirms that a defendant contracting authority is not “shut out” from relying upon other reasons that post-date the issue of proceedings - but only when challenging causation. From a practical perspective, this confirms that there may be some benefit in defendant authorities submitting further evidence in the course of proceedings that might justify a particular score reached even if it differs to the original reasons supplied to the bidder. However, defendant contracting authorities should carefully consider the pros and cons of submitting such evidence: the greater the reliance on such evidence, the greater the damage will be to the credibility of any evidence given by the defendant’s own bid evaluation team to explain the scores and the reasons for them.
Lesson learnt No.2: Note-taking and documentation or "Don't shoot yourself in the foot"
Perhaps the most emphatic lesson to be learnt from this judgment is how self-defeating any attempt to limit the production and recording of internal note-taking by evaluation team by a contracting authority can be. The judgment is replete with criticisms by the judge of the NDA’s systematic attempts from the very outset of the evaluation exercise to limit the amount of material produced by the particular SMEs concerned. The following areas in particular were considered in the judgment: document destruction, scoring notes and dialogue meeting minutes.
Document retention
The NDA were faced with an uphill battle after it became clear through the documents obtained through disclosure that there was a version of training slides used to train the SMEs prior to the evaluation exercise commencing that referred to shredding of notes by the individual SMEs. The NDA sought to explain in its evidence at trial that this was directly contrary to NDA policy on record-keeping, and that the final version of the slides that was actually used in training to the SMEs did not contain this reference to shredding. But the fact that such training material had been in existence was considered by the judge to be symptomatic of an overly defensive approach subsequently adopted by the NDA during the evaluation exercise. The judgment’s criticism of any approach involving an attempt to destroy such documents was in unequivocal terms: “I find it extremely worrying that any public authority or its advisers on procurement could contemplate any policy that would involve the routine destruction of such important documents [i.e an audit trail of the the NDA’s collective decision-making]. Public authorities have express obligations of transparency under the Regulations. It is difficult to see how the proposed or intended destruction of contemporaneous documents could ever been consistent with those obligations” (at [270]).
Note-taking by bid evaluation team
The NDA also came unstuck by restricting the use of e-mail by the SMEs and restricting their note–taking during closed evaluation sessions. The SMEs were only allowed to record electronically notes on the AWARD system itself. That meant that when scores were changed, even after being “closed down” on the system, the lack of any record of oral conversations that led to these scores being changed was all the more stark and led to a finding of a lack of transparency. Fraser J concluded that very important aspects of the evaluation process were “wholly lacking in transparency…decisions about what to about scoring that could lead to a bidder being disqualified were made “off stage” and consciously so in my judgment” (at [132]). He also said that: “the whole approach of the NDA to restricting notes in this way seems to have been designed to minimise the degree of scrutiny to which the SMEs thought processes could be subject, in the event of a challenge. A simple method of ensuring that such notes were retained – for example, by issuing numbered notebooks, and collecting them – would easily have dealt with any difficulties, real or imagined, with potential disclosure” (at [217]).
Notes of dialogue meetings
NDA personnel also kept no record of the dialogue meetings, and this lead to inconsistencies between feedback given to bidders and the evaluation carried out. The judge set out what as a minimum should have been recorded in meetings that took place during the dialogue phase of the competition: “A summary should not have been too difficult to prepare, and there would not necessarily have been any need to have such a summary formally agreed with each bidder…digital recording devices are widely available and inexpensive. Simply recording what was said would not have been too difficult” (at [188]).
Lesson Learnt No.3: Role of legal review or "Don't hide behind your lawyers"
One feature of this case which is typical of most if not all high-value procurement competitions was the use of an external law firm to review the procurement competition whilst it was underway. However, the judgment is a reminder that legal review is not a surrogate or proxy for actual decision-making. Burges Salmon was instructed by the NDA and carried out a legal review of all the scores awarded, in several instances before the consensus award record sheets had been signed off by the bid evaluation team.
However, when Energy Solutions’ lawyers sought disclosure of the outcome of the review exercise carried out by Burges Salmon, the NDA refused to disclose the relevant documents on the grounds of legal professional privilege. The Court upheld the NDA’s refusal to waive privilege and said that no adverse inferences would be drawn from that. However, the refusal to disclose the outcome of that legal review meant that there were instances of omissions in the chain of decision making that led to particular scores being finally awarded. This was compounded by witnesses at the trial referring to the Burges Salmon review by way of explanation for certain changed scores. As the judge described it: “transparent reasoning was therefore not always provided by the NDA for why a particular requirement merited a particular score”.
Lesson Learnt No. 4 : Use of threshold criteria – or “Don’t set yourself up for a fall’
The judgment is a stark reminder that the use of threshold criteria in any ITT or ITSFT should be very carefully considered at the stage at which the competition designed: once set in the tender documents, there is very little scope if any to row back on their strict application if their criticality is only subsequently realised during the bid evaluation.
Fraser J expressly confirmed that once disqualification criteria have been employed there is no principle that these should be construed generously or leniently in favour of the bidder in question. He made it clear that although there is a margin of appreciation that is applied at the point of assessing whether there is manifest error, there is no separate stage of “reluctance to interfere” if there is a manifest error such that the score is reconsidered, and the lower score would constitute or lead to a failure to achieve threshold (at [898]).
In particular, he held that whilst in certain instances the principle of disproportionality may in exceptional circumstances provide some scope to depart from the rules of a procurement competition, it does not provide grounds to re-write a SORR or scoring matrix simply because a tenderer has failed to meet the relevant criteria. Those exceptional circumstances were confined to situations beyond the tenderer’s control which resulted in a qualification criteria not being met.
Conclusion
The High Court’s judgment does not lay down any particularly novel, unexpected or seismic changes in the principles that apply to procurement competitions. But its real practical value is in the way it re-emphasises in clear terms certain key points about how a contracting authority should conduct the evaluation stage of a procurement competition. As such, it serves as a very stark reminder to advisers to contracting authorities of certain key pitfalls, particularly the perils of an overly defensive approach to documentation and record-keeping and over-reliance on external legal review.
James Neill
Landmark Chambers
8 March 2018