This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its October 1999 judgment in Harmon CFEM Facades (UK) Ltd. v. The Corporate Office of the House of Commons, the England and Wales High Court (Technology and Construction Court) found that the Corporate Office of the House of Commons breached the tendering rules by applying an undisclosed “Buy British” policy to the evaluation of competing bids. The case involved a tender call to build the New Parliamentary Building for the House of Commons in Bridge Street, Westminster, to create new offices for 210 Members of Parliament and their staff. The initial projected project costs were set at £250 million, making it one of the most expensive buildings ever built in London to that point.
There were two bidding teams vying for the contract award. The first team, led by the plaintiff, Harmon CFEM Facades (UK) Ltd., a consortium of foreign suppliers referred to as Harmon, submitted the low bid. The second team, a consortium referred to as Seele-Alvis that included a major domestic contractor, submitted a higher bid. The House of Commons bypassed Harmon’s low bid in favour of Seele-Alvis’s higher bid. Harmon sued, alleging that the evaluation breached the applicable procurement rules. The Court agreed.
The Court’s lengthy decision documented a complex series of events, including aggressive lobbying and political pressure in favour of Seele-Alvis, which culminated in the bypass of the low bid on purported “best value for money” considerations. As detailed below, the Court found that this “best value for money” evaluation process was “a charade”:
The events leading to the preparation of the task force report leave no doubt that the objective or “game” as understood and endorsed by Mr Quick, MHP and AFE was to ensure that Seele/Alvis was presented as the preferred tenderer largely by “fudging the figures”, both by introducing elements of “soft costs” which had previously not been considered either at all or as material and by the substitution of figures where they could or would not be supported by G & T or which were highly subjective. The effect was marked as the difference between Harmon and Seele/Alvis widened to about –2.4 million. Mr Quick obviously wanted the task force to recommend the acceptance of Seele/Alvis and when faced with the prospect of lack of unanimity sought clearance from Mr Makepeace to produce a majority report. It is clear to me that Mr Quick had been appointed for this very purpose. Mr Quick was the only member of the task force who Mr Mumford thought might possibly be in favour of a British contractor. He maintained that otherwise the project team had no such bias, although that is not a view that I share. MHP was plainly biased towards a UK contractor and towards Alvis (see for example Mr Pringle’s evidence and the opposition to a shift to a performance specification) and AFE wanted Alvis for its skills. In my view Mr Fernyhough was entirely right to have put to Mr Mumford that Mr Quick’s original draft was “a travesty of the truth”, and to describe this part of the tender process in November 1995 as “a charade”. Both descriptions are apt and accurate. I accept Harmon’s case that the final report was slanted towards Seele/Alvis and I also accept that on the evidence before me Mr Quick was determined that the tender of Seele/Alvis would be recommended. The defendant did not call Mr Quick to explain what he did or why he did it. Thus the project team recommended Seele/Alvis even though its tender was about –2.4 million higher than the Harmon’s price of –31,370,996 without any calculation to support its conclusion that it represented “best value for money”.
According to the Court, rather than representing the “best value for money,” the selection process represented a flawed procurement conducted in contravention of the applicable procurement rules. In fact, the then-applicable regulations required that the low bid rule be applied to determine the winning bidder unless the additional non-price criteria were disclosed in the tender call document. The Court found that the tender call failed to disclose the non-price-related criteria:
Article 20 of the 1971 Directive states that “contracts shall be awarded on the basis of the criteria laid down in chapter 2…”. This word clearly imposes an obligation in relation to the actual award of any contract. Chapter 2, Article 29, provides:
The criteria on which the authorities awarding contracts shall base the award of contracts shall be:
– either the lowest price only
– or, when the award is made to the most economically advantageous tender, various criteria according to the contract: e.g. price, period for completion, running costs, profitability, technical merit.
In the latter instance, the authorities awarding contracts shall state in the contract documents or in the contract notice all the criteria they intend to apply to the award, where possible in descending order of importance.
Regulation 20(1) to (4) of the 1991 Regulations repeats these provisions. In my judgment they impose the obligation upon the awarding authority to award the contract only by reference to certain criteria. The authority is at liberty to award the contract on the basis of which is most economically advantageous only if the criteria it is going to use have been stated beforehand. It follows that, unless the authority has in advance stated other criteria, it can only use the criterion the lowest price and that if it should do anything else it will be in breach of the Directive and the Regulation. This was the submission of Miss Boswell and it was in my judgment correct.
The Court determined that the contract award decision was made on the basis of an improper hidden “Buy British” preference that drove the evaluators to bypass the low bidder.
The Court also found that the tendering process placed a duty of fairness on the House of Commons that regulated the manner in which the House should conduct its tender evaluations:
These contractual obligations derive from a contract to be implied from the procurement regime required by the European directives, as interpreted by the European Court, whereby the principles of fairness and equality form part of a preliminary contract of the kind that I have indicated. Emery shows that such a contract may exist at common law against a statutory background which might otherwise provide the exclusive remedy. I consider that it is now clear in English law that in the public sector where competitive tenders are sought and responded to, a contract comes into existence whereby the prospective employer impliedly agrees to consider all tenderers fairly: see Blackpool and Fairclough.
The Court determined that the House of Commons breached these implied duties by conducting a flawed evaluation process based on improper hidden criteria, and awarded the plaintiff its lost profits. As this case illustrates, to protect the integrity of the tendering process and better ensure the defensibility of contract award decisions, purchasing institutions should make sure they properly disclose their bid evaluation criteria and refrain from applying hidden preferences to their bid-selection decisions. As evidenced by this and many other cases, relying on improper hidden evaluation factors can result in significant legal liability.
