Does "fail" always mean fail? An important decision on the duties of transparency and equal treatment in public procurement

By Stuart Cairns, Chris Murray

12-2017

In MLS (Overseas) Ltd v The Secretary of State for Defence the High Court (O'Farrell J, available here) has delivered an important judgment on the duties of transparency and equal treatment in a rare procurement challenge to proceed to trial, and an even rarer decision against the Ministry of Defence.  Importantly, the court has concluded that finding a bidder had 'failed' an evaluation criterion did not give the MOD the right to exclude that bidder, because the MOD had not specified that exclusion would be the consequence of failing for that particular criterion.

Background

The claimant, MLS, had been the Ministry of Defence's incumbent provider of global port, maritime and logistical support services to naval vessels across the world since 2009. The MOD re-procured those services in 2015 as part of a 6-10 year proposed contract valued at around £385m in a procurement process conducted under the Defence and Security Public Contracts Regulations 2011 (the Defence Regulations). MLS was one of the organisations to bid for the new contract but ultimately lost out to its competitor, Shipping Consultants Associated Ltd or SCA. This was despite the fact that in the standstill letter sent to MLS notifying it of the award of the contract to SCA, the MOD made it clear that MLS had offered both the highest quality solution and the lowest price of all the bidders, and therefore would have been the most economically advantageous tenderer in accordance with the evaluation criteria set by the MOD. However, MLS had not been awarded the contract because it had failed one of the pass/fail criteria relating to safety and quality management in the supply chain (the Safety Question).

MLS raised proceedings against the MOD principally on the basis that the Invitation to Tender (ITT) had not explained fully what "fail" meant in the context of the Safety Question. In other parts of the ITT, the MOD had clearly set out that failing to meet a certain requirement or scoring a particularly low score for certain questions would lead to automatic rejection. However, in respect of the Safety Question, it was not clear to MLS that scoring a fail would have meant being eliminated from the procurement process. The MOD was therefore in breach of the fundamental principles in public procurement of transparency and equal treatment, according to MLS. Additionally, MLS claimed that the decision to reject it from the competition was a manifest error on the MOD's part and that, if the MOD had a discretion to reject MLS on the basis of its response to the Safety Question, it had acted unlawfully in exercising that discretion.

The judgment

The case ultimately proceeded to a trial in the High Court, which in itself is a rare occurrence for procurement challenges, particularly those brought under the Defence Regulations. In an important decision, O'Farrell J found that the MOD was in breach of the duties of transparency and equal treatment because the ITT did not make it clear to the reasonably well informed and normally diligent tenderer (Reasonable Tenderer), expressly or implicitly, that a fail score for the Safety Question would or could result in disqualification from the competition. The Court gave a number of reasons for this finding, including:

  • the ITT set out in some detail the process by which the most economically advantageous tenderer would be identified, which did not include reference to the Safety Question;
  • ·other parts of the ITT had explained very clearly, in bold type, that failing to meet a certain level would result in disqualification, but this was not the case for the Safety Question; and
  • the ITT did not indicate that a "pass" score for the Safety Question was a minimum standard that had to be met to make a tender technically compliant.

O'Farrell J therefore concluded that "Without knowing whether a "fail" score would lead to mandatory or discretionary rejection, the Reasonable Tenderer would not know whether, or how, that particular criterion would be weighted in the evaluation…Accordingly, the MOD acted unlawfully, in breach of its obligations of transparency and equal treatment, in applying criteria that were arbitrary or not sufficiently clear from the ITT and in rejecting MLS's tender on that ground".

The judge did, however, conclude that the MOD had not made a manifest error in the way it evaluated MLS's response to the Safety Question. The Court also ruled in the MOD's favour on the exercise of discretion, although it acknowledged that this element of the case was no longer relevant after finding that the MOD was in breach of the transparency and equal treatment obligations.  

The decision means that the MOD is unable to proceed with its intended contract award to SCA and will now have to decide between awarding the contract to MLS and re-running the whole procurement process again.

Conclusion

This is an important decision for authorities and bidders alike.

In many procurement processes, tender documents are not as clear as they should be. In most cases this will be because of an administrative oversight, but on occasions authorities are purposely vague in setting the rules of a procurement in the hope that this will give more flexibility and scope for exercising discretion. This recent judgment is clear that where there is ambiguity in tender documents, far from giving an authority more flexibility, it could lead to the authority being in breach of procurement law with very serious consequences.

For bidders, this is a useful decision because it should lead to improvements in the clarity of tender documents. Where ambiguity remains, bidders may be able to rely on this decision to persuade an authority to change course; although, where there is a lack of clarity, it will still remain the best course of action for the bidder to clarify this through the formal process.