Public procurement gone wrong: High Court finds public authority "manipulated" the tender process for its £4 billion contract
In a landmark ruling in the context of procurement litigation, the High Court has held that the Nuclear Decommissioning Authority ("NDA") "manipulated" and "fudged" its tender process for a nuclear clean up contract worth in excess of £4 billion. The finding may cost the government millions.
EnergySolutions EU Limited ("ES"), who had bid for the contract as part of a consortium, challenged the decision by NDA to award the contract to Cavendish Fluor Partnership ("CFP") who was awarded the contract by a very small margin of 1.06%. ES was the only part of the unsuccessful consortium to challenge and did so after standstill period had expired with the result that, if successful, ES's only remedy would lie in damages as the NDA had already entered into the contract with CFP.
The highly detailed judgment which runs to over 200 pages and 948 paragraphs, contains many important points of note for public authorities, organisations who bid for their work, public procurement professionals and lawyers. In particular, the judgment contains important guidance on what the Courts will expect from public authorities when they evaluate tenders pursuant to the Public Contracts Regulations 2006 which applied to this procurement ("the Regulations") and the Public Contracts Regulations 2015 ("the 2015 Regulations").
Whilst this case is relevant in terms of the ultimate Judgment given by the High Court, there were a number of additional applications made within the proceedings which the Court also had to determine and which will be relevant for future procurement challenges in terms of general principles.
One of the first applications made by the NDA at the outset of the claim was to ask the Court to declare that because ES had not issued its claim within the standstill period, ES had failed to mitigate its loss or had otherwise broken the chain of causation. It also sought a declaration that the Court has a discretion to award damages for breach of the Regulations. This application failed in the High Court and on appeal to the Court of Appeal where it was held that issuing a claim outside of standstill did not affect causation nor was it a failure to mitigate loss. It also held that once there had been a breach of the Regulations, a Court has no discretion in relation to the award of damages. However, this Judgment is now on further appeal to the Supreme Court and will affect the second part of the main claim.
A second application came bizarrely after the conclusion of the trial and just before the Judgment was formally handed down by the Court. It transpired that ES had offered many of its witnesses financial incentives ("win bonuses") if it won the litigation, something which it had failed to disclose to its solicitors or to the Court during the litigation. NDA, after being permitted to cross examine those witnesses further on the point, then applied to have ES's claim struck out in its entirety and retried on the basis that such agreements were against public policy. The Court dealt with this application when it handed down the main Judgment.
For those without the time to digest the case in detail, we have set out below the key points of note.
Issues and decision of the Court
The key issues before the Court were:
- Whether NDA had committed "manifest errors" with the result that ES should have received a higher score and/or CFP should have received a lower score and whether this affected the overall outcome of the procurement;
- Whether CFP should have been excluded from the process or should otherwise have received a lower overall score to that which it had been awarded; and
- The impact (if any) of the "win bonuses" to be paid to ES's witnesses in the event that its challenge was successful.
In respect of issue 1, the Court concluded NDA had made manifest errors in the evaluation of bids and had the evaluation been carried out in accordance with the Regulations, ES would have been the most economically advantageous tenderer (ie. It would have won the contract). In respect of issue 2, the Court concluded that had NDA applied its own scoring methodology correctly, CFP would properly have been excluded from the process and the contract should have been awarded to ES. In respect of issue 3, the Court concluded that the credibility of the witnesses who had been offered "win bonuses" was unaffected and, in any event, their evidence did not affect the overall outcome of the case.
Key points to take away
1. Public authorities will rarely have a discretion to waive mandatory minimum requirements
In its judgment, the Court was highly critical of the approach taken by NDA to evaluating and scoring the bids it had received, which it described as "fudging" or "choosing an outcome and manipulating the evaluation to reach that outcome".
In its scoring criteria the NDA established a series of mandatory minimum requirements. Where a bidder failed to meet such a requirement (or threshold) that bidder would be excluded from the procurement process. CFP failed to meet certain of those mandatory requirements but was not excluded from the process. The NDA tried to argue that it retained discretion to waive the mandatory requirements, in particular, where exclusion of the bidder would have been – in its view – disproportionate, because the failures were trivial or had no real impact.
The judge disagreed and instead found that, in taking that approach, the NDA had manipulated the evaluation process to avoid having to disqualify CFP. The Court considered the circumstances in which a public authority might have such discretion and concluded that, where a public authority's duty of transparency conflicts with proportionality, the Court concluded transparency must prevail. This is interesting given that proportionality is a new requirement brought in by the 2015 Regulations and has been judicially held not to be as important as the obligation of transparency.
In light of that finding, the Court concluded that the winning bidder, CFP, should properly have been disqualified under NDA's own criteria and, on that basis, ES should have been awarded the contract.
2. Factors to be considered in assessing manifest error
All public authorities are bound by duties to act transparently, to treat bidders equally and to evaluate tenders without manifest error, as set out in the case of Woods Building Services v Milton Keynes Council  EWHC 2011 (TCC) and as discussed in our recent article. The Court will only interfere with a decision arrived at by a public authority where it has committed a manifest error, and will afford the public authority "a margin of appreciation", which is effectively an element of discretion, when it considers issues involving individual judgement or assessment.
In this case, the Court considered whether the NDA had made manifest errors in its evaluation of the bids received. The Court concluded that it had and that, but for those errors and notwithstanding that CFP should have been disqualified for failing to achieve minimum mandatory requirements, ES would have scored the highest and should have been awarded the contract.
Importantly, the Court held that the reasons given by a public authority in its debrief document provided to bidders following the evaluation process will form the basis for the Court's assessment as to whether there has been a manifest error. In carrying out that assessment, the Court will consider the application of the scoring criteria, the reasons provided to bidders for reaching the score, and the score itself. To avoid a conclusion that there has been a manifest error, all three must agree.
The Court concluded that a public authority could not rely on other reasons not provided to bidders prior to the litigation to argue that the scoring was correct. However, it accepted that such further reasons might be a relevant factor when considering causation.
3. Keep a transparent and clear audit trail of the procurement: a policy of minimising or destroying records is not compatible with the duty of transparency
Public authorities carrying out a procurement exercise are required to operate in a transparent manner and to treat bidders equally. This case highlights the importance of keeping a proper audit trail to support the evaluations made of bids received and the judgment is important reading for any public authority considering what records should be kept as part of its procurement process so that they can avoid falling foul of the law and attracting judicial criticism in the future.
The Court was critical of the lack of evaluative notes taken or kept by NDA and the approach taken by NDA to effectively minimise the availability of material relevant to NDA's evaluation of the bids. In what, it seems, was a bid to minimise the risk of criticism and challenge by an unsuccessful bidder, NDA adopted a process which sought to minimise the evaluative notes that were recorded. However, the judge concluded that the absence of a clear audit trail had the opposite effect and only harmed NDA's defence as it was left relying on very limited contemporaneous records to support its evaluation process.
In particular, the judge was critical of versions of a training pack for NDA's evaluators which contained evidence of an intention to delete notes from NDA's electronic system and a shredding policy for any non-electronic notes. Whilst it appears that this approach changed to a policy of having minimal records, the judge made it clear that a policy of shredding all scoring records other than the final agreed reasoning and score would be "wholly unacceptable". Likewise, a policy that prohibited the making of any notes other than the final agreed reasoning and score would be inconsistent with a public authority's duty to act transparently.
There were further issues around the fact that NDA appeared to have changed certain scores after the "final" scores had been agreed following either internal discussions or the receipt of legal advice, but nothing was recorded to explain the basis for the changes. The Court was critical of unrecorded reasons or discussions and suggested that the absence of records made it more likely a manifest error had occurred.
It is vitally important that public authorities ensure that, where scores are changed, the reasons for the changes are recorded. The judgment also criticised the fact that NDA kept no records of the dialogue with bidders, which was said to have lasted several months, and which would have been relevant to complaints made by ES concerning an alleged lack of consistency and potential unequal treatment.
Keeping sufficient records is now an explicit requirement under regulation 84(8) of the 2015 Regulations. Deciding what records must be kept is a highly important decision and public authorities must be mindful of their duties of transparency and equal treatment, as well as the specific requirement in the 2015 Regulations in arriving at that decision.
4. A warning to witnesses
As the NDA was criticised for its defensive approach to record keeping, many of the NDA's witnesses were similarly criticised for their defensive style when questioned in Court.
The Court was critical of the style adopted by many of the NDA's witnesses which it considered to be highly defensive. Comments were made by the Judge that much of their evidence centred on a refusal to accept that the NDA had made any mistakes or errors, with the result that logic was often a casualty and which rendered much of their evidence as being of limited assistance only. The judge also criticised the approach adopted by many of ES's witnesses which it noted "to avoid the question and embark upon something of a corporate presentation" and became increasingly unhelpful. The court commented that if the purpose of witness preparation involved refining an approach to keep witnesses' oral testimony as close to a pre-ordained script as possible, this would be detrimental.
For anyone who may be called as a witness in procurement cases, the sections in the judgment about the style and credibility of the witnesses in this case is recommended reading.
5. Legal privilege: deciding whether to waive
The final key point to highlight relates to the involvement of solicitors in a public authority's evaluation process.
In evaluating the bids received, the NDA employed external solicitors to conduct a review of requests for clarification, the redacted responses, the scores and consensus comments. The review focused on the score and comments and, in particular, whether they were consistent with the evaluation and scoring methodology. When ES subsequently made an application for disclosure of the correspondence and documents produced by those solicitors, that application was opposed by the NDA on the basis of legal privilege and the Court dismissed the application accordingly.
Whilst the judge did not criticise the NDA's reliance on legal professional privilege (on which it was entitled to rely) he nonetheless observed that by failing to disclose the review, this created a further gap in the contemporaneous documentation to support the decisions made by NDA in the evaluation process.
Public authorities who chose to involve their legal advisors in this way, may, if faced with a challenge, have to decide whether they wish to waive legal privilege in respect of such documents or accept the potential effect of such a gap on their defence to any claim. The easiest way to deal with such issues is to ensure that there is a contemporaneous record, which can be disclosed, to explain why scores were changed. However, legal advice should firstly be taken on what can be included in any such record to avoid legal privilege from being inadvertently waived.
Given the difficulties that economic operators can sometimes face in bringing procurement challenges before the Courts, this decision will be a welcome confirmation that a claim for damages in a procurement context may indeed be sustainable and worthwhile pursuing. It also provides further clarification and guidance to public authorities in terms of their obligations during the evaluation process to ensure that they comply with the Regulations (and the 2015 Regulations going forward).
The next stage in the litigation is for the Court to make a ruling on the damages which should be awarded to ES. This stage has been stayed pending the decision of the Supreme Court on whether the Court has any discretion as to such an award as set out above. It has been reported that ES previously indicated it would seek up to £200 million and given there have been very few procurement decisions on the level of damages that can be awarded in such cases, this litigation will continue to be watched with interest.