This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its December 2012 decision in Bayline Group Ltd v. Secretary of Education, the High Court of New Zealand rejected a bid challenge for lack of public interest after finding that the government’s low bid bypass was made for valid commercial reasons. The case dealt with a tender call for school bus services. The plaintiff low bidder was rejected after the government determined that the competing incumbent bidder could abandon the marketplace and undermine future competition if it was denied the contract award:
Turning to pricing and economy, the Bayline bid was the most competitive. Under the former Guidelines there was a 2% price differential recognised as the threshold for making a change in provider worthwhile. The present Guidelines do not have an express figure, but Bayline’s bid was, in general terms, 5% cheaper. In the ordinary course of events Bayline would have succeeded. However, Mr Tribe, from his general knowledge of the bidders, was concerned that if Bethlehem lost the contract it would pull out of the school bus market. This would leave Bayline as the only competitor when it came to the 2008 National Tender Round. The Committee’s recommendation, therefore, was that the short-term financial gains of giving the two-year contract to Bayline were outweighed by the longer-term advantages in maintaining competition. The Ministry accepted the advice and renewed Bethlehem’s contract for two years.
The low bidder launched a legal challenge, claiming that it had been treated unfairly and maintaining that if “the published criteria were followed they would have been successful.” In its defence, the government argued that in the absence of fraud, corruption, or bad faith, this type of procurement decision was not judicially reviewable due to a lack of applicable statutory rules or public interest elements:
The essential argument is that the decision had no public component at all; if reviewable, it would only be so in the limited Mercury Energy sense of “fraud, corruption or bad faith”. The respondent pointed to the absence of any analysis by the applicant of the statutory scheme: this is said to reflect a reality that, apart from the fact that s139D says the Secretary, if she wishes, may “arrange transport providers”, there is nothing to suggest the provision falls at all within core functions of the Ministry or the Act. The provision is situated within a Miscellaneous Provisions Part and contains no accompanying direction or powers.
A recent article by Professor Stephen Bailey (“Judicial Review of Contracting Decisions” [2007] Public Law 444), establishes that the situation in the United Kingdom is the same as exists in my view in New Zealand. The article observes (at 444):
“The extent to which judicial review is available as a remedy in respect of the contracting decisions of public authorities has caused difficulty for as long as judicial review has existed in its modern form … The case law tends to support the proposition that for contracting decisions taken in the exercise of statutory power to be subject to judicial review, there must be some specific public law element beyond the mere fact that the body is exercising a statutory power to contract.”
The Court agreed with the government on the issue of reviewability:
The present case involves a decision containing no public consequences at all. The two bidders were tendering to provide the exact same services at the exact same times. Both proffered comparable levels in terms of buses and quality of service. There is no wider policy content; indeed the tender involves a one-off contract for a short term ahead of a national tender round. The tender involves no issues as to when, if and how school buses should operate or the Ministry’s role in them. It is quintessentially a low level contracting decision, and the fact that the statute says that the Secretary “may arrange for transport providers to provide school transport” does not alter this essential characterization.
However, the Court also considered the merits of the complaint and ultimately concluded that the government had bypassed the low bidder for valid reasons with a view to sustaining future market competition for an upcoming nationally tendered contract:
Enhancement of competition is a legitimate and relevant factor to take into account – it is neither improper nor irrational to do so. In the present case the Secretary was entitled to take account of the short- term nature of the contract, the consequently reduced overall savings from a cheaper bid, the fact that there was a National Tender Round coming up, and the desire to keep more players in the market. These considerations are aspects of decision- making, and need not be the subject to specific consultation with bidding parties.
It is incorrect to characterise the Ministry’s concern as being the viability of Bethlehem. If there had been several bids, the concerns over competition would not have arisen. Bethlehem’s continued involvement in that market only became relevant because the same two players were again the only bidders.
The legal challenge was therefore rejected. However, as this case illustrates, public bodies remain subject to review by the courts for their tendering decisions and should therefore ensure that the factors they rely on can be justified on fairness grounds in case of legal challenge.
