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Procurement Casenote (NI): Assessing the resources of a successful tenderer to perform multiple contracts – Northstone (NI) v Department for Regional Development

  • Northern Ireland

    03-02-2021

    To view a PDF version of this article, click here.

    Background

    In July 2020, the Northern Ireland High Court (Horner J) gave judgment in a case involving a procurement claim by Northstone (NI) Limited (“Northstone”), a civil engineering contractor and asphalt producer, against the Department for Regional Development (the “Department”), a Department of the Northern Ireland Executive1 .

    The case concerned a situation in which another bidder was successful in winning multiple contracts tendered as part of a public procurement process. It was not clear from the competition rules how the authority would verify that tenderer’s ability to resource all of the contracts that it had won. This is not an infrequent scenario. Awarding authorities and central purchasing bodies often conduct competitions for multiple contracts or lots simultaneously and tenderers will often compete for such multiple contracts/lots in the hope of being successful in at least one and in the knowledge that they would not have the capacity to service all contracts. The present case offers a salutary lesson to contracting authorities who do not contemplate and clarify in advance how they will deal with the possibility of a tenderer winning multiple contracts in circumstances where it does not have the resources to perform them all.

    The Facts

    The Department set out to award eight separate road resurfacing contracts for various geographic areas under the Public Contract Regulations 2006. The tender documents provided that the successful economic operator would be expected to have a sufficient number of skilled and available resources to work at more than one location at any one time. Furthermore, the economic operator would be expected to price in the inevitable “peaks and troughs that will be inherent in any such programme.” The tender documents also indicated that contracts would be awarded separately, in an order specified in the documents. Northstone submitted separate tenders for all eight contracts; another contractor, McQuillan, submitted separate tenders for seven of the eight contracts. McQuillan was placed first for six of the contracts and Northstone was placed first for one contract. In its submissions for each of the seven contracts it tendered for, McQuillan provided an identical organisational chart in response to Section 2-01 of the tender document in which it allocated 100% of its time to specified members of staff. It also duplicated resources in its response to Section 2-03 which dealt with plant, equipment and other resources. McQuillan was awarded top marks (5 out of 5) for its responses to Sections 2-01 and 2-03 in each of the six tenders that it won.

    No allowance was made for the total number of competitions McQuillan had entered despite the fact that identical submissions had been made in respect of each of them and there was an obvious duplication of personnel and plant to be used under each contract. The Department held an internal meeting at which the award of multiple contracts and possible duplication of resources was discussed, however no minutes were kept. The Court found this difficult to understand and described it as a “telling omission”. The Court concluded that no thought or planning had been given to what would happen if a bidder tendered successfully for more contracts than it had resources for or if thought had been given to such a scenario, then it had been “particularly shallow and superficial”.

    The Department engaged with McQuillan and sought confirmation as to what resources would be used for each contract. McQuillan withdrew its tenders for two contracts (one of which it accepted was abnormally low) and the Department resolved to award four contracts to McQuillan. The Court was of the view that McQuillan only ever had the resources to perform four contracts. Northstone did not benefit from McQuillan withdrawing two of its tenders (as it was not the next-ranked bidder) and it initiated legal proceedings.

    Two key issues were considered by the Court:

    (a) Did the Department commit a manifest error when marking McQuillan’s tender responses?

    (b) Did the Department breach its duty to adhere to the principles of equal treatment and transparency in attempting to resolve concerns about the capacity of McQuillan to perform multiple contracts? 1 Northstone (NI) Limited and Department for Regional Development (Transport NI) (unreported).

    Arguments

    Northstone claimed as follows:

    (a) It understood that the Department would evaluate contracts separately and in the order specified in the tender documents; once a tenderer’s resources had been exhausted on contracts it was successful in tendering for, it would no longer be eligible for further contracts which would be awarded to next preferred bidder. According to Northstone, each contract could be assessed separately for quality and price and an award made before the Department moved on to the assessment of the next contract, in accordance with the order set out in the tender documents.

    (b) The Department had made a manifest error, firstly, in awarding McQuillan 5 marks out of 5 for their responses to Sections 2.10 and 2.03 in each of their seven tenders and, secondly, for failing to revise the marks given once it became clear that McQuillan could never have fulfilled the requirements for the six contracts it came out top in.

    (c) The Department breached its duties to act transparently and to treat tenderers equally by not having clear rules to resolve the problem of duplication of resources across multiple tenders.

    The Department defended its position, arguing as follows:

    (a) The Department considered that it was open to it to evaluate the tenders for all contracts and only then verify if McQuillan had the resources to complete each contract it had won.

    (b) The Department was entitled to mark a tender response on the basis that the operator proposed to perform the contract by deploying precisely the same resources and personnel or by deploying alternatives of an equivalent standard.

    (c) The marks of 5 out of 5 given by the evaluation panel to McQuillan reflected the Department’s assessment of the quality and organisational structure of the personnel and resources proposed for each contract in question.

    (d) The Department also denied that it was obliged to revisit or revise its evaluation of McQuillan’s tender responses or that the failure to do so amounted to a manifest error. McQuillan’s decision to withdraw two tenders did not give rise to any breach by the Department of any duty to act transparently and treat each tenderer equally.

    Decision

    The Court determined both issues identified above in favour of Northstone. According to the Court:

    (a) It should have been obvious that the competition might have to deal with the situation where a tenderer won multiple contracts but did not have the resources to carry them all out and had to give up a contract which it had won but could not perform.

    (b) Instead of being clear, precise and unequivocal, the competition rules were said to be “opaque, imprecise, equivocal and lacking in detail”.

    (c) There were fundamental differences between the Department and the Northstone as to how the tender process would work.

    (d) While the rules of the tender documents were by no means clear, the Court was satisfied that a reasonably well-informed and diligent (RWIND) tenderer would have construed the rules as permitting contracts to be assessed separately (and not concurrently); this would have permitted the Department to consider if the successful contractor had the resources to carry the contracts sequentially. In other words, the Department could have evaluated the tenders for one contract and verified the resources proposed for it, before moving on to evaluate tenders for the next contract.

    (e) The decision to award McQuillan top marks for its answers to Sections 2-01 and 2-03 in respect of the contracts it was unable to perform and/or its failure to revise the marks awarded for those sections on those contracts was an obvious and manifest error.

    (f) McQuillan was permitted by the Department to select which contracts it wished to withdraw from before the awards were made; it was not restricted by any of the competition rules as to what contracts it should discard. The runners-up in the competitions that McQuilllan withdrew from became successful, whereas the runners up for the contracts it chose to retain lost out: The Court considered that:

    “[88]… McQuillans was given an untrammelled discretion which necessarily meant that runners-up were not treated equally and transparently. … [89] … The runners-up [...for the four contracts McQuillan retained] were treated different and in an unequal way to the runners-up […for the contracts that McQullan withdrew from]. The process was opaque and most certainly not transparent. The treatment of the unsuccessful runners-up was unequal and discriminatory. Further no satisfactory explanation has been provided by the [Department] as to why McQuillans should have been invested with an unlimited discretion in 6 Contracts to advantage some runners up and disadvantage others. The principle of equal treatment, which requires that comparable situations must not be treated differently and that different situations must not be treated the same unless such treatment is objectively justified, was obviously infringed. No objective justification has been provided as to why McQuillans should have been invested with the discretion to prefer one runner-up in one Contract over another runner-up in another Contract…. [90]…Each second ranked tenderer was entitled to be able to verify that it had been treated equally to other second ranked tenderers in the Department’s attempt to resolve the eminently foreseeable problem of duplicated resources. This palpably did not happen.”

    The Court concluded that there was a lack of transparency, unequal treatment and breach of the principle of non-discrimination in circumstances where McQuillan was able to select which contracts it would perform and not perform and a lack of transparency in failing to make a record of the key meeting of the Department at which resourcing was discussed, which prevented Northstone from understanding or verifying the nature of the mechanism the Department used to permit one runnerup to be preferred over another runner-up.

    Comment

    This is an interesting decision which will cause many authorities to consider how they manage the process of awarding multiple lots. It is often the case that insufficient attention and forethought is given by awarding authorities to how multiple lots will be resourced by successful tenderers. This decision illustrates the perils of not dealing with the possibility in the tender documents by devising a clear, precise and unequivocal mechanism for addressing the issue.

    In this case, the Court found that the RWIND tenderer would have understood the tender documents to envisage contracts being awarded one at a time, following a resource assessment prior to each award. The failure of the Department to adhere to this methodology was fatal to its defence. However, the Court went further in determining that the Department had breached the principles of equal treatment and transparency by permitting McQuillan to select the contracts it had resources for. In doing so the Court seems to suggest that contracts should be selected according to a more objective methodology or at least be constrained by rules set out in the tender documents which do not give “untrammelled discretion” to the successful tenderer in question.

    It is notable that the decision also emphasises the need for evaluation teams to create and maintain adequate records of the decision making process. The Court found “[t]he [Department] should be accountable to the tax payer and its decision should be transparent and lawful. The records of its meetings, especially where they relate to the award of contracts worth millions of pounds, should be accurately minuted as a matter of course.” This has been a common theme in procurement cases in recent years. Awarding authorities will frequently attract criticism in the Courts where there is a paucity of written records to substantiate the consideration of issues by evaluators.2

    For more information, please contact:

    Peter Curran, Partner and Head of Procurement - PeterCurran@eversheds-sutherland.ie

    Áine Smith, Consultant, Procurement - AineSmith@eversheds-sutherland.ie

    ___________________________________________

    1 Northstone (NI) Limited and Department for Regional Development (Transport NI) (unreported)

    2 This case note was first published in the Public Procurement Law Review, Issue 1/2021, by Thomson Reuters.

    This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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