Over-reliance? Court upholds authority’s discretion when assessing reliance on third parties to satisfy minimum turnover requirements

United Kingdom

Earlier this month, Lord Tyre handed down a judgment in the Outer House of the Court of Session dismissing a procurement challenge against a local authority for allowing a tenderer to rely on the capacity of third parties to satisfy the prescribed minimum turnover requirements for economic and financial standing: A C Whyte & Company Limited v Renfrewshire Council [2020] CSOH 82.

In doing so, Lord Tyre held that the authority: (1) had assessed the winning tender in accordance with the procurement documents, and thereby in accordance with the general principle of transparency; and (2) could not be said to have committed a manifest error by accepting at face-value the winning tenderer’s submissions in respect of economic and financial standing. This was despite inconsistencies in the information provided by the winning tenderer during the process and the apparent failure of the authority to contract with the winning tenderer on terms that secured joint and several liability against the entities on which the tenderer had relied in order to meet the minimum turnover requirements.

The judgment highlights the discretion afforded to authorities when evaluating tenders, provided that discretion is exercised in accordance with the principles of equal treatment, non-discrimination and transparency.

The invitation to tender

On 2 November 2018, Renfrewshire Council had issued an invitation to tender (“ITT”) under an open procedure procurement. Under Part 4B of the European Single Procurement Document (Scotland) (“ESPD”) the candidates were required to have a minimum annual turnover of £15 million for the past three years in the business area covered by the contract. Before the deadline for submission of tenders, the minimum turnover figure was reduced to £10 million.

The ITT had stated that “where a Candidate is part of a [consortium] and particular members of the group do not meet the minimum turnover stated above in their own right, the candidate may provide an alternative proposal to meet the minimum requirements. The Council will consider whether any alternative proposal can be considered equivalent to the minimum requirements. Acceptance of alternative proof and progress to the award stage will be at the Council's sole discretion.”

At para 1.18 of the ITT it was stated that, “where the Tenderer is a consortium, the Contract will be entered into with the nominated lead organisation and all members of the consortium, who will in these circumstances each be required to execute the Contract, together with all ancillary documentation, evidencing their joint and several liability in respect of their obligations and liabilities arising out of or in connection with the Contract. It will be for members of the consortium to sort out their respective duties and liabilities amongst each other.”

Winning tenderer’s submission

In its submission, the winning tenderer, Procast Building Contractors Limited (“Procast”) had stated that it was not seeking to rely on the capacities of other entities. They had however submitted three ESPDs, in respect of itself and two other companies. Procast confirmed that their average yearly turnover over the last three years was £12,347,947 (presumably meeting the requirement for Part 4B.1.2 of the ESPD).

Clarification

During its evaluation process, the Council asked Procast to confirm if it was bidding as part of a consortium or proposing to sub-contract. Procast had replied, to say it was tendering as a consortium, based on “the 'Lead Provider' model”. The Council confirmed that Procast was to be the Lead Provider.

Prior to contract award, the Council sought a further clarification requesting Procast to provide evidence that its annual turnover for the last three years was more than £10 million (presumably referring to the requirement in Part B.1.1 of the ESPD). Procast had replied that the combined annual turnover of the three entities met that requirement, submitting evidence in the form of unaudited financial statements for each of three companies.

Having announced the award decision, the Council then requested further information from Procast as to how it proposed to approach the contractual arrangements. The response from Procast included an explanation that it was in the process of formally creating the consortium agreement, which would provide for joint and several responsibility for performance of the contract. Procast also provided supporting letters from the other two entities confirming their agreement to the formation of a consortium and to the assumption of joint and several liability.

The proceedings

It would appear that the Pursuer had sought to issue an earlier set of proceedings challenging the contract award, but had those dismissed for failure to comply with pre-action notice requirements under the Public Contracts (Scotland) Regulations 2015 (the “PCSR 2015”). A subsequent set of proceedings had then been raised once the Pursuer had obtained details as to the basis on which Procast had submitted its tender.

The Pursuer’s key arguments were that:

  1. The Council had awarded the contract despite the fact that no member of the consortium met the minimum turnover requirement in its own right;
  2. Contrary to para 1.18 of the ITT, the contract had been entered into with Procast alone and not with all members of the consortium;
  3. The Council had awarded the contract at a time when it had inadequate information to assess whether or not Procast had met the conditions in the ITT; and
  4. The Council did not take into account inter-company trading when assessing the combined set of accounts for Procast and the other two entities (which they alleged had artificially inflated their respective turnover figures).

The judgment

Dismissing points two and three, Lord Tyre held that despite the fact there were some discrepancies in the different answers provided by Procast during the tender process, there was no material departure from the terms of the ITT. In any case, the Council was allowed to rely on the self-certification of the minimum annual turnover. 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.

Lord Tyre found there to be no unfairness in the comparison between a consortium and a single company tenderer and, in any event, 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.

Finally, his Lordship concluded that the fact that the contract was ultimately entered into with Procast alone was, putting it at its highest, a failure by the Council to secure an advantage to which para. 1.18 might have entitled it, and not a failure to assess the competing bids in accordance with the terms of the ITT. His Lordship continued that the same could be said about any failure to secure the joint and several liability.

Comment

It is a little unclear from the judgment whether the Court was upholding the Council’s assessment of an alternative proposal for meeting the minimum requirements for economic and financial standing or whether it was accepting that the Council had not committed a manifest error in its face-value assessment of Procast’s statements that it met the minimum turnover requirement.

In any event, Lord Tyre concludes that the Council was entitled to proceed on the basis that it did and that there was no failure to assess the competing tenders in accordance with the terms of the ITT, and accordingly no breach of the obligation of transparency.

It is also interesting that Lord Tyre seems to have accepted that the inclusion of para. 1.18 of the ITT on the requirement as to how consortia would be expected to enter into the contract with the Council was a mistake. It was accepted that para. 1.18 ought to have been deleted from the conditions of contract by a “Z” clause, but that this had inadvertently not been done.