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Procurement case update – Owens v Kildare County Council – Recent decisions of the High Court and Court of Appeal


Friday, January 15, 2021

Summary:

On 21 December 2020, the Court of Appeal refused an application to stay a procurement process pending the appeal of a High Court decision to refuse the reliefs sought by the applicant in respect of a decision by Kildare County Council (“KCC”) to eliminate the applicant from the tender process. The High Court judgment addressed whether KCC fell into manifest error when making the decision to eliminate the applicant from the tender process, whether engagement with other tenderers was discriminatory or unfair to the applicant, whether KCC had failed to provide reasons for their decision as required by the Procurement Regulations[1] and whether failure to provide an external review was contrary to the principle of fair procedures.

High Court Decision – Owens v Kildare County Council [2020] IEHC 435

KCC commenced a tender competition in 2018 for the establishment of a Multi-Party Framework Agreement for Planned Building Maintenance Works (the “Framework Agreement”) divided by two lots using the restricted procedure. The applicant was one of the candidates shortlisted to proceed to stage 2 of the process. At stage 2 of the process, each tenderer was required to submit a Quality Assessment Submission, a completed form of tender and schedule and a completed Pricing Document. The applicant submitted a tender but failed to submit a Quality Submission. KCC wrote to the applicant drawing his attention to this failure and to the large number of pricing abnormalities in his Pricing Document, giving him the opportunity to submit a revised Pricing Document (while reserving the right to reject the tender if it was of the view that the rates did not reflect a fair allowance of the notional tender total). The applicant responded making a number of submissions but did not enclose with his reply a Quality Submission or a revised Pricing Document.

On the basis of the absence of a Quality Submission and the pricing abnormalities, the applicant was eliminated from further participation in the competition and KCC notified the applicant of this in a standstill letter in December 2018. The applicant responded to KCC on two occasions stating that he was disputing his elimination, requesting that they reconsider their position and re-instate him to “the shortlist of compliant companies” and that he was “disputing the decision of the employer in accordance with Section 9.4 of the instructions to tenderers”.

Section 9.4 of the Instructions to Tenderers (“ITT”) for Lot 1 contained a provision that a tenderer, who disputes a decision of the employer (KCC) about whether a tender complies with the ITT, can request that the employer refer their decision to the Sanctioning Authority for external review and recommendation, in this case to the Society of Chartered Surveyors. The employer should then refer the request within seven days with a statement of reasons for their decision, with the tenderer being given a further opportunity to make a further written submission within seven days. Section 9.4 of the ITT also stated that “any review or recommendation by the Sanctioning Authority will not be binding on the Employer or the Tenderer, and will not affect their rights or obligations”.  KCC responded to the applicant in January 2019 repeating the reasons for their decision but failed to refer the matter to the Society of Chartered Surveyors in accordance with Section 9.4 of the ITT.

The applicant issued legal proceedings in February 2019. He claimed that the decision to eliminate his tender was outside of the discretion of KCC, and arrived at on foot of a flawed, unequal decision-making process that afforded unfair advantages to his competitors.  He further argued that KCC had failed to provide reasons for their decision as required by the Procurement Regulations and had breached his right to fair procedures by failing to facilitate an external review in accordance with Section 9.4 of the ITT.

Key Issues Addressed

Mr Justice Quinn dismissed the application, thereby refusing the reliefs sought by the applicant on all grounds.

Manifest Error

When considering whether the decision to eliminate the applicant amounted to manifest error, the Court cited SIAC[2], namely that where the Court is applying a test of manifest error it must concede a “wide margin of discretion” to the awarding authority.

The Court held that where the applicant’s tender did not meet stated requirements and where the applicant had failed to avail of an opportunity and time extension to remedy those omissions, the decision taken to eliminate the applicant from the competition was clearly within the scope of KCC’s discretion conferred on it by the ITT.

Equal treatment

The applicant argued that the decision to eliminate him and engage with other tenderers in relation to pricing abnormalities amounted to a breach of the principle of equal treatment and constituted an unfair advantage.

Citing Fabricom SA v Belgium[3], the Court held that the principle of equal treatment does not require all participants in a tender process to be treated identically. Whereas KCC had provided specific guidance in relation to the pricing abnormalities to other tenderers, all of those submissions had less than 10 pricing abnormalities. In contrast, KCC identified 439 pricing abnormalities in the applicant’s tender. The Court found that the scale and nature of the pricing abnormalities, which he was given an opportunity to remedy, placed the applicant in a “radically different position” to other tenderers so the engagement with the other tenderers did not constitute unequal treatment or unfair discrimination against the applicant.

Furthermore, the specific guidance provided to other tenderers was issued after KCC had made the decision to eliminate the applicant. In light of the finding that the elimination was valid, the Court held that the applicant had no further right to enquire about the manner in which other tenderers were treated after his elimination.

Duty to Give Reasons

The applicant argued that KCC had failed to fulfil its duty to give both general reasons and reasons as to the relative advantages of other tenderers. The Court held that the standstill letters clearly identified the reasons for the elimination of the tender. As regards relative advantages, the Court referred to Regulation 55(2)(c) of the Procurement Regulations which states that the awarding authority has a duty to inform a tenderer that has made an admissible tender of “the characteristics and relative advantages of the tender selected”.[4] It pointed out that this provision only applies to tenderers who have submitted an admissible tender. No such obligation arose in the present circumstances where KCC had made a determination of non-compliance with regard to the applicant’s tender.

Right to External Review

The Court dismissed the argument that the failure to provide an external review was contrary to fair procedures. It placed emphasis on the caveat contained in Section 9.4 of the ITT in Lot 1 that “any review or recommendation by the Sanctioning Authority will not be binding on the Employer or the Tenderer and will not affect their rights or obligations” and concluded that the applicant had not demonstrated that he suffered prejudice by reason of the failure to provide such review. The Court added that it would be unjust to make an order of certiorari for this failure alone. It is worth noting that the Court stated that as a general rule it would be desirable for a contracting authority to avail of such a process – not least because of the possibility that participation in such a process could avoid litigation.

Summary of High Court Decision

The key message from the High Court decision is that awarding authorities continue to be allowed a wide margin of discretion in relation to decisions to eliminate tenderers where the requirements of the tender documents have not been met and such a power is clearly conferred on it by the tender documents. Furthermore, the Courts will not require authorities to treat tenderers identically if they are not in the same position, and the duty to give reasons as to the relative advantages of other tenderers under the Procurement Regulations only applies to admissible tenders and not those eliminated for non-compliance.

Of interest also is that the Court dismissed the possibility of the applicant having a legal right to external review under Section 9.4 of the ITT. Section 9.4 of the ITT is a standard provision in tender documents for public sector construction contracts which allows contracting authorities to designate a body for the purposes of external review. However, it is clear from this decision that the provision offers little material protection to tenderers seeking to dispute a decision of the employer about whether its tender complies with the tender documents outside of the court system.

The Court of Appeal Decision

The applicant appealed the decision of the High Court in November 2020. He also sought interim relief in the form of an order granting a stay in respect of the High Court judgment and the implementation of the Framework Agreement or conclusion of contracts thereto pending the outcome of the appeal.

The Court of Appeal refused the application for interim relief and the judgment was delivered by Ms Justice Costello on 21 December 2020. The judgment gives a useful overview of the principles applicable to interim relief in procurement proceedings.

In the first instance, the Court considered it necessary to adopt a flexible approach to the Campus Oil principles, citing Merck Sharpe & Dohme[5], Krikke[6] and Okundade[7].  Ms Justice Costello referred to the limited entitlement to damages for breach of EU law in light of Wordperfect[8] and accepted that damages would not adequately compensate the applicant if a stay was refused and he ultimately succeeded on appeal. However she also noted that the availability and adequacy of damages was not a standalone requirement to be considered in isolation, but rather “part of a broader analysis”. She stated that although it was an important factor to be weighed, the availability of and entitlement to damages was ultimately not as decisive a factor as it was found to be in Wordperfect and “must be assessed as one factor, albeit a weighty one, amongst many to be balanced by the court”.

Above all Ms Justice Costello sought to balance the “overall justice of the case based on a broad, flexible analysis of all relevant factors at play”. In this respect she gave weight to the fact that the grant of a stay would have the effect of disapplying a decision arrived at on foot of a process which the High Court found to be valid. She cited the judgment of O’Donnell J in Krikke, which emphasised the significance of the distinction between an application for an interlocutory injunction pending trial and an application for a stay pending an appeal, and cautioned the potential irremediable damage that even a temporary disapplication of the law can cause in the event that the claim does not succeed.

Secondly, a stay would prevent the operation of the Framework Agreement and this could “seriously undermine the Council’s ability to maintain much needed public housing stock when there are 6,500 people on its housing waiting list” and would prevent “the successful tenderers who were not on the old framework from carrying out work for the council and thereby deprive them of the benefit of their successful tenders”.

Overall Costello J considered the risk of injustice to the applicant if the stay was refused to be “out of all proportion” to the risk of damage to the public interest and third parties if the stay was granted. She noted that due weight must be given to the fact that there is no remedy to this damage should it transpire that the challenge was not justified, and that weight is “perhaps even greater where the application is for a stay pending appeal.”

The Court found it appropriate to weigh the relative weaknesses of the appeal when deciding whether to grant interim relief. Costello J gave weight to the fact that the trial judge had decided that the applicant’s elimination was not made in manifest error, regarding the applicant’s argument in this respect as “flimsy”.

She also considered relevant the delay of the applicant in seeking the stay. As a result of his inaction there had been a “critical” change in circumstances. KCC had adopted the Framework Agreement, the contract had been awarded, and the old framework could not be reactivated. A stay would have “significant detrimental impacts on the successful tenders”. KCC was under no obligation to wait for the time to appeal to elapse before concluding the agreement and indeed it was incumbent on them to proceed with due expedition subject to alerting the applicant (as it did) of such an intention. Moreover, Costello J took a dim view of evidence that the applicant was prepared to delay acting in order to try to extract an advantage from the serious implications for KCC if they were prevented from proceeding with the Framework Agreement pending his appeal.

The Court of Appeal concluded that the justice of the case required that it refuse the application to stay the order of the High Court and implementation of the Framework Agreement or conclusion of contracts in relation thereto.

Submissions on the costs of the application are due to be heard on 22 January 2021. The full appeal is listed for 26 March 2021.

[1] European Union (Award of Public Authority Contracts) Regulations 2016 S.I. No. 284/2016

[2] SIAC v Mayo County Council [2002] 3 IR 148 para 176.

[3] Fabricom SA v Belgium C-21/03 [2005] CMLR 25.

[4] European Union (Award of Public Authority Contracts) Regulations 2016 S.I. No. 284/2016.

[5] Merck Sharp & Dohme Corporation v Clonmel Healthcare Limited [2019] IESC 65

[6] Krikke v Barranafaddock Sustainable Electricity Limited [2002] IESC 42

[7] Okunade v Minister for Justice [2012] IESC 49 [2012] 3 IR 152

[8] Wordperfect Translation Services Limited v Minister for Public Expenditure and Reform [2018] IECA 35

 

For further information in relation to the above article, please contact Kerri Crossen or Laura Mullen.

Article written with the assistance of Charlotte Bowen and Sallie Shipsey.


Author

Kerri Crossen

PARTNER


Laura Mullen

SENIOR ASSOCIATE

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