Construction firm fails to establish council’s breach of transparency obligations in tender process

A construction company that unsuccessfully tendered for a local authority contract has failed to establish that the local authority was in breach of transparency obligations imposed on it by the Public Contracts (Scotland) Regulations 2015

AC Whyte & Company Ltd raised the action against Renfrewshire Council on the grounds that the contract ultimately awarded to another company did not comply with the terms of the invitation to tender (ITT). 

The case was heard in the Outer House of the Court of Session by Lord Tyre

Minimum turnover requirement 

The relevant ITT was issued on 2 November 2018, and stated that the defenders wished to appoint a contractor to carry out improvement works to properties in the area. The contract was said to be for 1 year with opportunities for a further 12-month extension.  

Candidates were also required to have a minimum annual turnover of £10 million for the past three years in the business area covered by the contract. Where a candidate was a group of organisations, the ITT provided for the council to have a discretion to consider alternative proposals equivalent to the minimum requirement for one candidate. 

Tenders were submitted by nine candidates, including the pursuer and another company, Procast, which submitted a tender as part of a consortium with two other companies. The contract was awarded to Procast, who had achieved the best score on evaluation of quality and price. 

Following correspondence between the defender and Procast in which it sought to clarify matters relating to the average turnover of the three companies and the structure of the proposed contract, a contract was concluded with Procast alone, which entered a partnership agreement with the other companies to create the consortium. 

In the meantime, the pursuer wrote to the defender on 20 February 2019 asserting that it was in breach of its obligations under the 2015 Regulations. Three alleged breaches were identified, including a failure to exclude Procast’s tender from the competition on the ground that Procast failed to meet the minimum annual turnover requirement. The council’s solicitor responded, explaining that Procast’s tender had been submitted on behalf of a consortium which met the minimum turnover requirement.  

Upon application to the court, the pursuer claimed that the defender had failed to take into account any inter-company trading between Procast and the two other companies, with the consequence that when the council awarded the contract to Procast it did so without the information necessary to satisfy it that the minimum turnover requirement specified in the ITT had been met. Further, the contract had not been entered into with all the companies in the consortium, only with Procast, and thus it had breached its own selection criteria due to Procast not being able to meet the minimum turnover on its own. 

Clear intentions 

In his decision, Lord Tyre evaluated the evidence of the defender in respect of their dealings with Procast, saying: “Procast’s intentions had been clearly explained by the time of the board meeting on 30 January 2019. The council had had a discretion in terms of the ITT to award a contract to a tenderer who did not meet the minimum turnover requirement, but the question of exercising the discretion did not arise because of Procast’s self-certification that it met the requirement. It would have made no difference if supporting documentation had been sought in advance of the board meeting.” 

He continued: “The information and documentation supplied made clear that Procast was relying upon the combined turnover of itself and the two JR companies in order to meet the requirement. In terms of the ITT that amounted to an alternative proposal, which the council was entitled, if it so chose, to regard as sufficient. By the time the council intimated its intention to award the contract to Procast, it was fully informed as to the means by which Procast claimed to meet the requirement; a fortiori it was in possession of that information at the time when the tender was formally accepted and the contract entered into.” 

On whether the defender had taken into account inter-company trading, he said: “In my opinion it is a sufficient answer to this point that the ITT did not provide for any such adjustment, and accordingly there was no obligation on the council to investigate the matter.” 

He continued: “Although the expert witnesses agreed that inter-company trading could provide an opportunity for fraudulent inflation of aggregate turnover, it was not suggested that any such thing had occurred in the present case, and I must consider the comparison between a consortium tenderer and a single company tenderer on the assumption that no improper conduct has taken place. Any potential unfairness was removed by the discretion retained by the council to award the contract, whether to a consortium or a single company, even if the minimum turnover requirement was not met.” 

Of the pursuer’s other submissions, he said: “I do not consider that any of three respects in which the pursuer contends that the contract was awarded otherwise than according to the terms of the ITT amounts to a breach of the obligation of transparency.“ 

He concluded: “The fact that the contract was ultimately entered into with Procast alone was […] not a failure to assess the competing bids in accordance with the terms of the ITT. The same may be said about any failure to secure the joint and several liability of the [other consortium members]. If indeed there was such a failure (a matter on which I need make no finding), it had no impact on the assessment of tenders which is the substance of the pursuer’s case.” 

For these reasons, decree of absolvitor was granted in favour of the defender. 

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