Council acted irrationally and in error of law in awarding a contract

Tuesday December 6th, 2011

By Daradjeet Jagpal, Solicitor, Harper Macleod LLP

In Sidey Limited v Clackmannanshire Council, the Court of Session in Scotland held that Clackmannanshire Council acted irrationally and in error of law in awarding a contract.

The Council issued an invitation to tender in relation to a contract to replace kitchens and bathrooms in council houses. Four tenderers, including Sidey Limited, pre-qualified and submitted tenders. Sidey was unsuccessful in the tender process and sought judicial review of the Council’s award decision on the basis that the Council’s evaluation of its tender was flawed.

The key issues considered by the Court were as follows:

  • Sidey argued that, while the contract was not above threshold to trigger the application of the procurement rules, there was likely to be cross-border interest in the contract, as a result of which the award procedure would need to comply with the EU Treaty principles, particularly equal treatment and non-discrimination. The Court was of the view that there was no such cross-border interest because the Council’s employees, who were responsible for procuring the contract and who would be familiar with the nature and scope of the contract, did not consider the issue of cross-border interest. This was supported by the low value of the contract.
  • Sidey also argued that the Council’s behaviour had given rise to an expectation on its part that the Council would apply the principles of equal treatment and transparency during tender evaluation. The Court noted that, in order to establish a legitimate expectation, Sidey required to demonstrate that the Council had made a clear representation to Sidey, which Sidey had relied upon and the said reliance was to its detriment. The Court found that the tender documents set out the tender evaluation process and, applying the latter three tests, Sidey had a legitimate expectation that the Council would apply the aforementioned principles at the tender evaluation stage. The Council had failed to apply these procedures correctly.
  • Sidey contended that the Council had impliedly agreed to review tender responses in line with the fairness and equality principles and to award the contract to the most economically advantageous tender. The Court noted that contracts are not to be implied lightly. While it may be implied that the parties had agreed that tender responses would be assessed in line with the fairness and equality principles, it could not be implied that the parties would have agreed that the Council would be bound to award the contract to the tenderer who submitted the most economically advantageous tender, given the inevitable subjectivity associated with deciding which of the tender responses was in fact the most economically advantageous for the Council.
  • Finally, Sidey claimed that the Council owed it a duty of care to ensure that tender responses were assessed in accordance with the procedure set out in the tender documents. The Court found that the Council was not sufficiently proximate to tenderers to give rise to such a duty of care. This was an arm’s-length commercial relationship.

The above decision contains some useful lessons for contracting authorities when framing their tender documents. In particular, while it is important that the tender evaluation process is defined clearly and unambiguously, contracting authorities need to balance this with the risk of framing the tender documents in such a manner as to give rise to the clear representation that Sidey was able to rely on in this case. However, contracting authorities can rest easy (to an extent) in that courts are highly unlikely to imply terms into contracts lightly and that, in practice, very few tenderers will seek judicial review of contract award decisions due to the expense involved and the possible damage that may result to the commercial relationship between the aggrieved tenderer and the contracting authority going forward.

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