Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION

[2016] CSOH 41

 

CA48/12

OPINION OF LORD DOHERTY

In the cause

SHETLAND LINE (1984) LIMITED

Pursuers;

against

THE SCOTTISH MINISTERS

Defenders:

Pursuers:  Sandison Q.C, Watt;  Maclay Murray & Spens LLP

Defenders:  Clark Q.C, C O’Neill, solicitor advocate;  SGLD

11 March 2016

Introduction

[1]        In 2012 the pursuers were unsuccessful bidders in a competition for the award by the defenders of a contract for the provision of ferry services between the Northern Isles and the mainland of Scotland.  The contract was to run from 5 July 2012 until 31 March 2018.  In May 2012 the defenders awarded the contract to the successful bidder, Serco Limited (“Serco”).  The Public Contracts (Scotland) Regulations 2006 (“the 2006 Regulations”) were the regulations in force at the time of the procurement exercise.  (Procurement exercises commenced on or after 1 May 2012 are governed by the Public Contracts (Scotland) Regulations 2012). 

[2]        The pursuers were dissatisfied with the public procurement process which resulted in the award.  The present commercial action was raised during the standstill period following the award.  The summons was served upon the defenders on 11 May 2012. On 29 May 2012 Lord Malcolm granted an interim order in terms of regulation 47(10)(b) of the 2006 Regulations ending the prohibition on the defenders entering into a contract with Serco.

[3]        The pursuers now seek damages.  They claim that the defenders breached regulation 4(3) of the 2006 Regulations;  that in doing so they breached the duty owed to the pursuers under reg 47(1);  and that the breach is actionable in terms of reg 47(5) because they have suffered or risk suffering loss or damage.  The sum sued for is £12,730,275.

[4]        The matter came before me for a proof before answer on the commercial roll.  I heard evidence on 1, 2, 3, 4 and 8 December 2015 from nine witnesses called by the pursuers.  Some of those witnesses were officials of Transport Scotland (an agency of the defenders) who had also been on the defenders’ list of witnesses.  In relation to each witness a signed witness statement (and in some cases also a supplementary witness statement) had been lodged and the witness adopted it as the substance of his/her evidence-in-chief.  Where the witness had also prepared a witness statement for the defenders he or she also adopted that statement during cross-examination.  When the evidence had been completed counsel prepared written closing submissions.  Those written submissions were supplemented by oral submissions, which I heard on 10 and 11 December 2015.

[5]        I set out first my findings on matters in relation to which there was little or no real dispute.  Thereafter I shall set out the salient parts of the evidence which bear on more contentious issues.  

 

Background
[6]        Goods may be transported by sea in several different ways.  RoRo freight is freight which can be transferred on and off a vessel on a trailer.  A vessel which carries RoRo freight is known as a RoRo vessel.  Containers can be transported on RoRo vessels if they are put on Mafi trailers.  A RoPax vessel is a vessel which takes both RoRo traffic and passengers.  With a LoLo vessel goods are loaded into containers which are lifted on and off the vessel by crane.  A LoRo vessel is a vessel which can carry RoRo and LoLo traffic.

[7]        In 2002 the defenders awarded NorthLink Orkney and Shetland Ferries Limited a four year contract for the provision of ferry services to and from the Northern Isles.  Following a retendering exercise in 2006 NorthLink Ferries Limited (“NorthLink”) was awarded a contract for the provision of those services until 5 July 2012.  In each case the defenders agreed to subsidise the services provided under the contracts.  The services were provided using three RoPax vessels (the MV Hamnavoe, MV Hjaitland and MV Hrossey) and two RoRo freighter vessels (the MV Helliar and the MV Hildasay).  The MV Hamnavoe ran mainly on the Scrabster-Stromness route while the other vessels operated mainly on the Aberdeen-Kirkwall-Lerwick route.  NorthLink was a subsidiary of David McBrayne Ltd, and the defenders were the sole shareholder of the latter company. 

[8]        At the time of the 2011/12 procurement exercise Pentland Ferries operated an all year round passenger, car and freight service between Gill’s Bay, Wick and St Margaret’s Hope, Orkney;  John O’Groats Ferries operated a summer passenger service between John O’Groats and Burwick, Orkney;  and the pursuers operated a year round LoLo freight service on the Aberdeen-Kirkwall-Lerwick route using a LoLo freighter, the MV Daroja. 

[9]        The pursuers have operated LoLo freight services to and from the Northern Isles since the early 1980s, at times with the benefit of public subsidy, but at other times on a purely commercial basis.  On 30 May 2008 the pursuers and the defenders entered into a public service contract in terms of which the defenders agreed to subsidise the pursuers’ LoLo service for six years from 31 May 2008 until 30 May 2014.  The subsidy was based on the tonnage carried.  On average, the subsidy paid out during the contract was about £500,000 per annum.  The Pentland Ferries service and the John O’Groats Ferries service were not subsidised services.

[10]      The pursuers are part of the Streamline Group (“Streamline”).  The parent company is Streamline Shipping Group Limited.  The Group provide a general haulage and distribution service throughout the United Kingdom.  A large part of the pursuers’ LoLo business - just over half - comes from Streamline’s haulage and distribution operations.

[11]      Between June and September 2010 the defenders carried out a public consultation on ferry services for the Northern Isles.  62% of respondents were of the view that the freight services currently contained within the bundle of services contracted to NorthLink should remain integrated within that bundle rather than be treated separately.  The general preference was for the continuation of a subsidised service comprising vessels which carry passengers and cargo, and dedicated cargo vessels.  

[12]      At the time of the procurement exercise there was significant overcapacity for sea freight services on the Northern Isles ferry network.  That was apparent from the consultation, from discussions the defenders’ officials had had with stakeholders, and from expert advice which the defenders had received.  The combined capacity of the two RoRo freighters operated by NorthLink on the Aberdeen-Kirkwall-Lerwick route was very considerably in excess of freight carried.  

 

The competition
[13]      By a contract notice in the Official Journal of the European Communities dated 27 September 2011 the defenders advertised a competition for the procurement of a contract for the provision of ferry services to the Northern Isles for the period from 14.00 hours on 5 July 2012 to 14.00 hours on 31 March 2018.  The new contract was intended to follow on from and replace the NorthLink contract.  

[14]      The competition was conducted under the competitive dialogue procedure in terms of reg 18 of the 2006 Regulations.  Bids for two lots were sought:  Lot A - the Pentland Firth route between Scrabster and Stromness;  and Lot B - The Aberdeen-Kirkwall-Lerwick route.  Bidders were invited to bid for either, or both, of the lots.  Six operators applied to be invited to participate in the competition.  On 29 November 2011 all six were invited to take part in the competitive dialogue procedure.  Issue 1 of the Competition Documentation was issued to them, and the dialogue period commenced.  

[15]      In the course of the dialogue period two participants withdrew.  The remaining four participants were the pursuers, Serco, P&O Ferries Holdings Limited (“P&O”) and NorthLink.  As each of them wished to bid for both Lots A and B they elected to proceed by way of a single tender for both Lots.  A new version of the Competition Documentation reflecting that change was issued on 15 January 2012.  Thereafter a number of revised versions of the Competition Documentation were issued.

[16]      During the dialogue period the defenders’ officials had meetings with those proposing to submit bids.  Dialogue Period Bulletins and Clarification Notes responding to competitive dialogue queries were published.  Query QC.021 referred to the expressions “loose freight and parcels” and “bagged cargo” which appeared at the time of the enquiry in the unrevised version of Vol. 5, Sched. 3, paragraphs 1 and 2.1 of the Competition Documentation, and enquired “what volumes by route/week/month/year would the operator be expected to deal with…”.  The defenders’ response was:

“It is for bidders to determine what capacity of freight they will require to carry on the service and how it will be carried.”  (Dialogue Period Bulletin No. 11 - issued 4 January 2012).

 

[17]      The Competition Documentation also made provision for queries to be made during the final tender period - with a cut-off date for queries of 23 February 2012 and a response deadline of noon on 28 February 2012.  Requirement 1.2.3.c on Traffic Resilience gave rise to Queries QF.020a and QF.020b by the pursuers during the final tender period.  Query QF.020a ended: 

“The intention of the above queries is to clarify the actual requirement under this new specification. Perhaps SG [Scottish Government] would prefer to specify the level of daily demand for cars and time sensitive freight that participants are required to guarantee.”

 

The defenders’ response to each of these queries was in the same terms and was published in the Final Tender Period Bulletin No. 3 on 16 February 2012:

“This question seeks to draw a statement of intent from the Participant which shall be marked for quality as part of Package A1 Services.”

 

On 28 February 2012 Transport Scotland answered Query QD340 from P&O:

 

“QD340. Within the ISFT Version Volume 3 there is now a requirement to show an allocation of space between tourist and time sensitive freight. Can you please supply information about the volume of time sensitive freight by sailing and by date?

A. NorthLink does not ask customers to classify whether loads are time sensitive and therefore the data is not available.”

 

[18]      At the second dialogue meeting the pursuers had proposed four different options for their bid.  Options 1 and 2 did not include the pursuers’ LoLo traffic within the freight which had to be carried.  Options 3 and 4 did include that traffic.  Option 3 involved the integration of the existing service as it had been operated by NorthLink with the pursuers’ LoLo service.  Freight on the Aberdeen-Kirkwall-Lerwick route would be carried using one of the existing RoRo freighters and a LoRo vessel which would replace the MV Daroja.  

[19]      In addition to the information contained in the Competition Documentation, Dialogue Period Bulletins and Clarification Notes, data was provided by the defenders to participants by electronic means referred to as the Information Room.  The Information Room included data as to the volumes of freight carried on vessels to, from and between Orkney and Shetland on NorthLink’s ferry services and on the pursuers’ LoLo service.

[20]      The Competition Documentation indicated that the Procurement Information was given for the guidance of participants in making dialogue meeting submissions, outline proposals and final tenders and that it was not warranted as accurate or complete.  It also stated that the Procurement Information did not purport to be comprehensive or to have been verified;  that the Scottish Ministers would not be liable for any errors, omissions or lack of specificity in it;  and that participants were responsible for carrying out their own review and checks to satisfy themselves as to its sufficiency, adequacy and correctness.  The Competition Documentation defined Procurement Information as

“the information contained within and/or referred to within any of the following: the Competition Documentation, the contents of the Information Room, all information provided in written exchanges between the Scottish Ministers and the Participant and any other information provided otherwise by or on behalf of the Scottish Ministers pursuant to the Procurement Process”.  

 

[21]      Participants were required to submit (unpriced) Outline Proposals for comment by the defenders’ officials, and the pursuers did that on 30 January 2012.  Their proposals were based on Option 3.  The Outline Proposals noted (p. 5) that Streamline had “built … a vertically integrated transport business (import/export, freight forwarding, collection, haulage, sea-freight, warehousing and distribution)”;  that an “opportunity now presents itself to bring together for the first time containerised and RoRo traffic streams for Orkney and Shetland; and that “ [i]n pursuing the opportunity Streamline is committed to the integration of its hard earned sea-freight market share within the wider NIFS contract.”  The pursuers stated (p. 22) that the company’s experience was of a twice weekly service carrying high volume (up to 140 trailer equivalents per sailing) less time-sensitive traffic by way of LoLo, while at the same time offering specialised, heavy-lift and out-of-gauge carrying services;  and that alongside this there was a much lower capacity requirement for “express” northbound services which brought together Streamline’s road haulage expertise with the RoRo sea service provided through Northlink.  They observed:

“The current RoRo capacity and schedule is historically driven by south bound demand for high volume, high value perishable export products (for example, white fish, farmed salmon, and albeit at lower volumes, farmed mussels) and more recently by northbound, relatively low volume, mixed value, less perishable retail consumer products (supermarket trailers).” 

 

[22]      On p. 23 of the Outline Proposals the conditional basis of the pursuers’ proposals was made clear: 

“This proposal is … put forward on the basis that agreement can be reached between the Company and the Scottish Government on the requirement for some variation of the current LoLo contract terms to facilitate the introduction of the new vessel and schedule, or indeed for its early termination.”

 

On 13 February 2012 the defenders responded to the Outline Proposals.  On the same date the defenders issued their Invitation to Submit Final Tenders (“ISFT”) to the four bidders.  

[23]      The Competition Documentation envisaged that the Ropax service on the Aberdeen‑Kirkwall-Lerwick route would be maintained substantially as it had been operated under the NorthLink contract.  In relation to freight, bidders were required to state for both the peak (Vol. 5, Sched. 3, Requirement 1.2.1) and off-peak (Vol. 5, Sched. 3, Requirement 1.2.2) seasons

“details of any freight services additional to those provided by the Ropax services that would be required to meet current and anticipated future demand including time sensitive freight.”

 

Requirement 1.2.3.a - Traffic Volumes Predicted - required participants to: 

“indicate the annual volumes of each specified category predicted for each service year and explain the factors which are predicted to generate material changes in each category …”.  

 

The Response Guidance stated that this was to be: 

“specified separately for each  service year for each sea leg and each direction by passenger numbers, sleeping berths booked without exclusive use of a cabin, sleeping cabins booked inclusive of all berths, number of cars, number of coaches, Ro-ro lane length for commercial vehicles, bulk freight tonnage, and non Ro-ro containerised freight”.  

 

The Response Table referred to “Lo-lo containerised freight” rather than non Ro-Ro containerised freight.  Requirement 1.2.3.b - Traffic increase resilience - required participants to indicate the maximum daily volume of traffic that could be accommodated with the proposed vessel fleet.  The Response Guidance indicated that this should be specified separately for each sea leg and each direction over a 24 hour day by passengers, sleeping berths, sleeping cabins, Ro-Ro lane length, bulk freight tonnage, and non Ro-Ro containerised freight.  Requirement 1.2.3.c - Traffic increase resilience - required participants to indicate proposals to ensure that adequate deckspace was allocated to anticipate meeting the demands of car traffic and time sensitive freight traffic.  The Response Guidance stated that this should be specified separately for Ropax and RoRo/LoLo vessels, for each sea leg and each direction, for pricing, and for other volume management arrangements.  The preamble to the contract agreement (Vol. 4 of the Competition Documentation) narrated:

“…C. Life-line ferry services to the Northern Isles are currently provided by NorthLink Ferries Limited in accordance with a Grant Agreement date 6 July 2006:

 

D. NorthLink Ferries Limited will cease to provide these ferry services when that Grant Agreement terminates at 2 pm on 5 July 2012 and thereafter the Services will be provided by the Operator in accordance with this Agreement:

 

E. Following an open, transparent and non-discriminatory public tender process conducted in accordance with the Public Contracts (Scotland) Regulations 2006, the Scottish Ministers have entrusted public service obligations in relation to the provision of ferry services to the Northern Isles to the Operator and agreed to compensate the Operator for the Services on the terms and conditions set out in this Agreement.”

 

In Vol. 5, Sched. 3 “the Services” were defined as follows:

 

 “1. The Services are public transport services by sea (including but not limited to the transport of passengers, cars, coaches, accompanied/unaccompanied trailers, unaccompanied containers, bagged bulk freight, plant and individual items that could not be carried by vehicle or container, livestock containers, hazardous cargoes and time sensitive freight) between the Harbours and delivered from and onto quay … ”

 

In terms of Vol. 5, Sched. 5 no minimum number of freight vessels was specified. No sailing schedule for the additional freight service was specified. The Sched. provided that:

“Sufficient capacity must be available at all times for, and capable of carrying the historic seasonal pattern of, dangerous goods and livestock.”

 

Vol. 5, Sched. 13 provided for revision of the base case financial schedule in the event that the defenders determined to continue to provide a separate subsidy for freight carriage under a separate public service contract following the termination of the existing contract with the pursuers. 

[24]      The Form of Final Tender was to contain four packages.  Package A was to comprise conceptual proposals and a supporting documentation submission.  Package B was to provide information on representatives and key personnel.  Package C was to contain the Tender Price Submission.  Package D was to contain several executed certificates.

[25]      Volume 3 of the Competition Documentation explained the final tender evaluation process.  Tenders were to be evaluated to determine which was the most economically advantageous tender.  The award criteria used to determine the most economically advantageous tender were to be a combination of quality (Packages A and B) (the participant’s approach to conceptual proposals for the provision of services, operational management system, and staffing proposals), and price (Package C) (the participant’s comparative cost of final tender).  Quality was to have a 20% weighting and price an 80% weighting.  Packages A and D also fell to be evaluated against a number of pass/fail requirements.  Paragraph 3.4 of Volume 3 made provision relating to the evaluation of Package A.  The conceptual proposals and the project management system required to obtain pass scores for the bid to be compliant.  The conceptual proposals section was subdivided into eight subcategories viz a. Services;  b. Fares;  c. Vessels and Ports;  d. Start‑up Plan;  e. Marketing Plan;  f. Health and Safety Plan;  g. Environmental Management Plan;  h. Customer Complaints process.  In turn, the Services element comprised bidders’ proposals for passenger services, hotel and catering services, accessibility for disabled persons, fare structure, demand management (including carriage of freight and time sensitive freight), and discount schemes.  The maximum possible marks for Services were 15% of the total maximum marks for Package A.  The maximum marks for Package B were equal to 20% of the maximum marks for Package A.  Different panels carried out separate evaluations.  Panel 1 carried out a General Compliance and Completeness Check.  Panel 2 evaluated Package A.  Panel 3 assessed Package B, Panel 4 assessed Package C, and Panel 5 assessed Package D.  Panel 6 aggregated the quality and price scores.  While individual panel members considered proposed marks in advance of panel meetings the procedure was that at the panel meeting a joint panel view required to be reached on each required mark for a bidder.

[26]      Bids from the pursuers and the other three remaining bidders were duly received.  

The defenders evaluated the bids.  By letter dated 4 May 2012 they advised the pursuers that they had been unsuccessful and that the successful bidder was Serco. 

[27]      NorthLink’s bid obtained a fail score for the conceptual proposals in Package A.  The bid was not evaluated further.  The bid from P&O was fully evaluated but it scored lower than the bids submitted by the pursuers and Serco.  

[28]      Serco’s proposals for the carriage of freight for the Aberdeen-Kirkwall-Lerwick route involved using the two RoRo freighters which had been used on the route by NorthLink, but one of the freighters was to be used to carry freight for only part of the year and kept in hot lay up for the remainder of the year.  During the off‑peak season the freight service was to operate on alternate days, but some priority space would be reserved for time sensitive freight on the RoPax vessels. 

[29]      The pursuers’ proposals for the carriage of freight for the Aberdeen-Kirkwall-Lerwick route involved using one of the two RoRo freighters which had been used by NorthLink (MV Hildasay), and a RoLo vessel (MV Korsoer).  Both vessels would operate throughout the year, providing a daily weekday freight service from Lerwick.  The RoLo vessel would replace the MV Daroja.  The freight capacity the pursuers offered to supply was sufficient to carry not only the freight which had been carried by the NorthLink service but also the freight carried by the pursuers’ LoLo service.  Unlike Serco and the other bidders, the pursuers included the latter freight in their assessment of the current and anticipated future demand which they would meet under the contract.

[30]      The pursuers achieved higher scores than Serco for several of the component parts of Package A (for example, for services and for vessels and ports).  Nonetheless, Serco obtained good scores for each component part of Package A.

[31]      The pursuers’ overall weighted score for quality (Packages A and B) was 16.07, whereas Serco scored 13.99.  However, Serco’s weighted score of 80 for price was much better than then pursuers’ score of 75.51.  In the result Serco’s combined weighted score of 93.99 was significantly higher than the pursuers’ combined weighted score of 91.58.

 

The evidence bearing on the more contentious issues

Gareth Crichton
[32]      The principal witness for the pursuers was Gareth Crichton, the managing director of Streamline.  Mr Crichton indicated that his understanding of the competition documentation had been that the defenders required bidders to include in their bids provision for the LoLo freight which the pursuers had been carrying.  At the first dialogue meeting with the defenders’ officials he had argued (unsuccessfully) that bidders should not be permitted to include LoLo freight within their bids.  At the second dialogue meeting the four options had been proposed.  Transport Scotland officials had talked positively about Option 3.  That had been the option which had been taken forward in the Outline Proposals and in the Final Tender.  One respect in which the Final Tender differed from the Outline Proposals was that it introduced a further return sailing of the LoRo vessel between Lerwick and Aberdeen to meet anticipated demand for time sensitive freight.  The pursuers considered all freight traffic which was booked to travel on a particular day as being time sensitive freight.  Refrigerated (“plugged in”) trailers might or might not be time sensitive freight.  The southbound export of fresh seafood was time sensitive freight: but frozen goods being shipped for storage elsewhere would not be if they could be temperature controlled.  Looking at their growth forecasts for cars and freight the pursuers were concerned that with only a Ropax vessel scheduled to sail south from Lerwick on a Tuesday night it was possible that on occasions demand for time sensive freight and for cars might exceed the vessel’s capacity.  Mr Crichton stated:

 

“We debated the point among our senior team, and concluded that the deck space restriction inherent in having only a Ropax sailing southbound from Lerwick on a Tuesday would not provide what the specification was looking for by asking bidders to provide sufficient capacity to meet demand for time-sensitive freight….Therefore in our final tender we amended our sailing schedule to include an additional rotation of the LoRo vessel providing direct services between Lerwick and Aberdeen southbound on Tuesday.”

 

[33]      Mr Crichton explained that when he received the decision letter from the defenders it was possible to work out that Serco’s tender price must have been £222,841,419.  It was also clear to him from the letter that Serco’s tender had not included capacity for the LoLo freight which was carried by the pursuers; and that Serco’s sailing schedule contained fewer sailings.  He indicated that had it been clear to the pursuers that capacity to carry their LoLo traffic need not be included in the bid they would not have included it.  Additionally, had it been clear to them that the tender requirements in relation to capacity for time sensitive freight could have been met by making adequate provision for refrigerated containers it would not have been necessary to introduce the additional sailing rotation.  He spoke to three scenarios.  Variation 1 was the bid which would have been submitted if the only change was that the LoLo freight capacity was not provided for.  Variation 2 would have been submitted if the only change was that time sensitive freight was treated as being only refrigerated trailers.  Variation 3 was the bid which would have been submitted if LoLo was excluded and time sensitive freight and refrigerated trailers were treated as being one and the same.  Under Variation 1, instead of having a dedicated LoRo vessel for the contract throughout the year the pursuers would have chartered the LoRo for its LoLo business in place of the MV Daroja.  The costs of operating the LoRo would have been borne by that separate business but RoRo space for the contract would have been provided on a pay per use basis.  That would have reduced the bid cost to £224,112,864 (as compared to Serco’s winning bid of £222,841,419).  Variation 2 would have involved the pursuers providing under the contract a LoRo vessel for the peak 17 weeks of the year and a Lolo vessel for the remaining weeks.  That would have sufficed to meet demand for time sensitive freight if that was treated as being refrigerated trailers.  The bid cost would have been £224,125,754.  Under Variation 3 the pursuers would have chartered the LoRo vessel for its LoLo business in place of the MV Daroja for the peak 17 weeks of the year and the Daroja would have been chartered for that business for the remaining 35 weeks.  The costs of operating the LoRo vessel and the Daroja would have been borne by its LoLo business but RoRo space for the contract would have been provided on a pay per use basis.  That would have reduced the bid cost to £221,826,811.  While on variations 1 and 2 the pursuers’ price would have still been higher than Serco’s, the differential would have been much reduced: and once the superior quality of the pursuers’ bids was taken into account the result in each case would have been that the pursuers’ bid achieved a higher combined score.  With variation 3 the pursuers’ would have scored better on price than Serco and would also have achieved a higher combined score.  Even if the variations had been marked down to a score of 4 out of 10 for services, the pursuers’ weighted quality score would still have been 14.97.  In each case the pursuers’ combined weighted score would still have been higher than Serco’s combined weighted score (94.38 for Variation 1 (cf. 93.99), 94.49 for Variation 2 (cf. 93.99), and 94.97 for Variation 3 (cf. 93.62)).  The pursuers’ bid and each of the Variations assumed a total Base Case Operator’s Return of £10,889,500 over the term of the contract.  That figure included investment returns of (i) £77,499.99 on a capital investment of £458,333 in year one for reclining seats on the Ropax vessels (ii) £12,000 on working capital of £200,000 in year one.  In addition the pursuers could have made a profit of £1,619,991 over the course of the contract by providing stevedoring services themselves rather than subcontracting. 

[34]      In cross-examination Mr Crichton accepted that bidders were being asked to come up with their own solutions for the carriage of freight.  At the time of the competition the pursuers carried 30-40% of the freight on the Aberdeen-Kirkwall-Lerwick route.  He confirmed that the pursuers continued to operate the LoLo contract until its expiry in 2014 and that since then the service had been operated by another Streamline company without subsidy.  That operation did not generate a profit, but it was part of Streamline’s point to point delivery service (which included haulage and craneage) and that service was profitable.  He accepted that the specification in the Competition Documentation did not require the provision of a LoLo or LoRo vessel; nor did it say that the pursuers’ LoLo traffic was to be included in the contract.  The pursuers had asked whether LoLo could be excluded from the contract and they had been told no.  He said he had been told by Ms Ainsley “that LoLo was included in the contract”.  When it was put to him that that may have meant that the ability to carry LoLo was to be included he responded that that was not the impression that he had been left with.  He had thought that the volume of LoLo traffic in the information room was to be included.  He accepted that at no time had officials said that it was a requirement of the contract that the LoLo freight carried by the pursuers be included in the contract.  He agreed a bidder could have offered only RoRo vessels as additional vessels for freight because container traffic could be carried on RoRo if it could be put on wheels (e.g. on a Mafi trailer).  He had told the defenders’ officials that if the pursuers’ bid was unsuccessful they might or might not continue their LoLo service after 2014.  Mr Crichton had considered certain scenarios after receiving the decision letter and further work on them had been done in 2014, but the actual costings for Variations 1, 2 and 3 had been prepared in 2015 following a request from the pursuers’ legal team.  He confirmed that the pursuers had not had discussions with the owners of the Korsoer or the owners of the Daroja about chartering each vessel for only part of the year between 2012 and 2018.  At the time of the bid the charter for the Daroja had been a rolling 3 month charter.  At present it was a 25 week charter.

 

John Iles
[35]      Mr Iles is an economist with expertise in the ferries and ports sectors.  He confirmed that on the basis of the data in the Information Room the pursuers had about 34% of the freight to Lerwick and about 44% of the freight to Kirkwall.  With the data in the Information Room, together with other publicly available sources, a person could have arrived at a reasonable, broad view of future demand for freight on the Aberdeen – Northern Isles routes.  It would have taken an economist about a week to analyse and collate the raw material in the Information Room (which took the form of a “data dump”).  A three year history could have been built up from that material.  Forecasts of future demand for RoRo traffic and for LoLo traffic could have been made on the basis of the Information Room material, but the forecasts would have been improved by obtaining historic carryings data for a 10 year period.  After such expert analysis the defenders could have had the material on which to base a reasonable decision as to what level of future demand might be anticipated for each category.  Mr Iles indicated that time sensitive freight was generally understood to be freight which for one reason or another required to travel within a specific timeframe.  The data available to him did not enable ascertainment of current and future demand for time sensitive freight.  If that required to be ascertained it could have been done through dialogue with ferry customers to identify their needs.  Mr Iles accepted that a bidder estimating likely demand would be likely to look at competitors’ market shares and make a realistic assessment of how much, if any, of those shares it might expect to win from them.  Standing that the pursuers had 34% of the freight business to Shetland other bidders would be likely to be advised that they could not expect to win over the freight carried by the pursuers until after May 2014;  and that if the pursuers continued to operate the route after that date the other bidders might or might not win some of that business.  Had he been advising other bidders would have recommended bidding on the basis of NorthLink’s freight.  If the other bidders were required also to include capacity in their bids for the pursuers’ business they would be incurring costs without having a realistic chance of generating revenue.  For that reason it would have been no contest.  The other bidders would not have been able to effectively compete with the pursuers’ bid.

 

George Gillie
[36]      Mr Gillie is a shipbroker based in Newcastle.  He is the managing director of GT Gillie & Blair Limited.  The pursuers are one of his customers.  In December 2011/January 2012 he investigated for the pursuers LoRo vessels which were available for charter.  He prepared a list of available vessels from which the pursuers selected as their first choice the MV Korsoer.  He confirmed with the owners that it would be available for the start of the proposed contract.  He had not made enquiries as to whether the Korsoer could have been chartered for 17 weeks each year;  but if it could not he was confident that another suitable vessel or vessels could have been.  For a 17 week charter each summer an owner might well want a higher rate than the €6,500 euro daily rate quoted for a year long charter.  If the vessel was likely to be working a long way away in the period before the charter payment of a ballast bonus might be sought.  With that rate and the other rates quoted he might have been able to negotiate a discount of perhaps 2.5 to 5%.  He did not envisage that there would have been any difficulty chartering the Daroja or a similar LoLo vessel or vessels for 35 weeks of each year.  He thought that the current charter period for the Daroja was 6 months with a further 3 month option. 

 

Gordon McCarlie
[37]      Mr McCarlie is a chartered accountant and a Corporate Finance Director at Johnston Carmichael.  He assisted in the preparation of the pursuers’ bid. Shortly after the bid he was asked by the pursuers to run two alternative scenarios.  Later he had populated the Base Case on the three hypotheses Variations 1, 2 and 3.  He spoke to the calculations done for each of the Variations.  In making them he had relied on the information provided to him by Mr Crichton.  In particular, Mr Crichton had provided him with the sums to be inserted in respect of pay-per-use of the Korsoer.  He had not performed any audit exercise on any of the figures he had been given. 

 

Judith Ainsley
[38]      At the time of the competition Ms Ainsley was Head of Ferries Policy and Contracts at Transport Scotland.  She was Project Director for the Northern Isles tender process.  She ran the consultation exercise.  She set up the tender team and led the tender exercise.  She chaired the quality evaluation panels.  From dialogue with those involved in the market and from the consultation exercise the defenders were aware of the view that there was overprovision of capacity in the freight market.  One of the places where that had been flagged up had been in expert input provided in 2011 by maritime consultants, Burness Corlett Three Quays.  While the overcapacity had been noted, it seemed there was still need for freight to be subsidised.  The best way of doing that had been unclear.  Having spoken to potential bidders Ms Ainsley and her team realised that there were different ways freight services could be provided.  They were conscious that they were not ferry experts and they did not want to over‑specify what was required.  The decision had been taken to leave the freight services aspect of the tender as open and flexible as possible to allow for innovation, and for each bidder to decide what their service provision was going to be and how they would deliver it. 

[39]      Following policy advice prior to the competition, the defenders had provisionally concluded that they were unlikely to renew the pursuers’ contract when it expired in May 2014.  That had been communicated to each of the bidders by the defenders.  At the outset Mr Crichton had sought to persuade the defenders that all carriage of LoLo should be excluded from the contract.  The defenders had not been agreeable to that.  During the course of the NorthLink contract the pursuers had questioned whether the terms of that contract permitted NorthLink to carry some of the freight which they had in fact been carrying.  With the new contract the defenders had wished to avoid such disputes.  The successful operator was to be permitted to carry any type of freight - including LoLo if it wished.  Mr Crichton had then asked that all bidders be required to include in their bids capacity for all LoLo traffic (including the LoLo carried by the pursuers):  but that they ought not to be permitted to assume within their bid that they would generate any revenue from the LoLo currently carried by the pursuers.  The defenders had regarded that proposal as being completely lop‑sided and had rejected it.  Ms Ainsley’s understanding was that more than 50% of the pursuers’ LoLo freight came from Streamline haulage businesses.  Each of the bidders had been told by the defenders that it was up to them to decide if any of the LoLo freight carried by the pursuers should be included within their bid.  Ms Ainsley was in no doubt that she had told Mr Crichton that.  While she recollected that at one point Mr Crichton had said that the pursuers were “conflicted” because if the contract was won by a lower price bid that might benefit Streamline’s haulage and distribution business, he had also said repeatedly (and had been adamant that) the pursuers intended to continue with their LoLo service come what may. 

[40]      When it came to evaluating the bids Ms Ainsley and her colleagues had a wealth of material from the bidders; very considerable background knowledge acquired, inter alia, from the consultation process and from interaction with interested stakeholders;  and the information and advice provided by Mr Duffy in relation to (i) the provision made in the bids for time sensitive freight and (ii) the average yields inherent in each of the bids.  They examined the bids to see how the proposals met known needs;  whether they appeared to be thoroughly researched and based on market investigations;  and whether they appeared coherent and robust.  The proposals were marked in accordance with the criteria set out in the Competition Documentation.  

[41]      So far as bidders’ assessment of current demand for freight was concerned, all bidders required at least to demonstrate that the freight carried by NorthLink was catered for.  In relation to both current demand and anticipated future demand bidders would only include any of the pursuers’ LoLo freight in their assessment if they believed they could win or retain it.  The pursuers included that freight in their bid.  Serco did not.

[42]      In relation to time sensitive freight it was for bidders to assess the volume and types of freight which they would treat as time sensitive under the service which they proposed.  Everyone - bidders and other stakeholders included - clearly understood that by far the most critical matter was the carriage of fresh fish and seafood from Shetland to Aberdeen.  There were other categories of freight which might be time sensitive but none was anything like as important as the carriage of fresh fish and seafood.  It was for each bidder to identify the demand for time sensitive freight it anticipated it would have to meet and to make proposals as to how that demand was to be met.  The panel had carefully examined each of the bids.  The proposals which were made for time sensitive freight in both the pursuers’ bid and Serco’s bid had been satisfactory.  Both bids had made acceptable provision for the carriage of fresh fish and seafood.  The panel had details of the refrigerated containers carried by NorthLink from Lerwick to Aberdeen and that had provided a good indication of the requirement in relation to fresh fish and seafood.  Mr Duffy had also analysed the contents of each of the bids and was satisfied that the proposals made in the bids by the pursuers and Serco appeared appropriate to meet the demand for time sensitive freight which the bids identified.  While Mr Duffy had indicated that having information about daily carryings would have been even better, Ms Ainsley and her colleagues had considered that to be idealistic rather than necessary.  Serco’s bid accommodated 19% more time sensitive freight than had been carried by NorthLink.  The pursuers’ bid was capable of accommodating even more time sensitive freight, and it proposed more frequent sailings than Serco’s bid.

[43]      On examination of the NorthLink bid it was clear that the provision for freight, including time sensitive freight, was unacceptable.  The independent report submitted with NorthLink’s bid disclosed that there would be a not insignificant number of occasions when demand, and in particular demand for time sensitive freight, would not be met.  The scheduled arrival time of 10.30am in Aberdeen was later than was appropriate to meet the needs of onward distribution.  It was a much later arrival time than under NorthLink’s existing service; and the need for an earlier arrival time was something that stakeholders, and all other bidders, had identified.  

[44]      On the basis of the whole material which they had the panel had been satisfied that both the pursuers’ bid and Serco’s bid made satisfactory provision for demand for freight including time sensitive freight.  The fact that the pursuers’ bid proposed a more comprehensive service than Serco proposed was a factor which was reflected in the pursuers scoring higher than Serco on quality aspects of the bid.  However, Serco’s bid scored much better on price and had the best combined weighted score.  The pursuers’ management and administration costs had been almost double those proposed by Serco. 

[45]      Ms Ainsley indicated that had the pursuers submitted any of Variations 1, 2 or 3 as their bid it would have been assessed and scored.  If the contents had been different from the actual bid the relative quality scores of the pursuers and Serco may have differed.  Variations 1 and 3 involved the pursuers self-funding a vessel outside the contract.  She would have regarded that as odd and assumed it was a mistake.  If assured it was not, the proposal would have raised many questions about its deliverability and sustainability.  If the answers to those questions had not satisfied the panel the bid could have been given a fail score.  If it attained a pass score the quality score might have been lower than the score the actual bid achieved.  Similarly, the different provision for time sensitive freight in Variations 2 and 3 might have resulted in those variations receiving different quality scores from the actual bid.

 

The other members of Panel 2
[46]      Three of the four other members of Panel 2 gave evidence.  Two of them, Douglas Ellis and Alex Mowat, were officials in the Ferries Unit.  The third, Jenna Williamson, is a solicitor who was involved both in the preparation of the Competition Documentation and in the evaluation of the bids.  While there were some differences between the recollections of these witnesses, their accounts of the evaluation process substantially supported Ms Ainsley’s account.

[47]      Mr Mowat and Mrs Williamson also confirmed the background to the procurement exercise and the rational of the decision to use the competitive dialogue procedure.  The defenders were looking for the most cost effective way to meet the needs of users, and they were looking for market expertise to be demonstrated in the bids.  Bidders had welcomed the flexibility of that process.  They were aware that they could come forward with different solutions.  Mrs Williamson was sure that bidders had understood that it was up to them whether or not to include the pursuers’ LoLo freight in their bid.  

 

Liam Duffy
[48]      Mr Duffy has a degree in economics and is a member of the Chartered Institute of Bankers in Scotland.  He first became involved in public procurement projects when working (for seven years) in Corporate Banking at the Bank of Scotland.  Thereafter he worked for KPMG for eleven years, being mainly involved there with public procurement, advising both public bodies and bidders.  He had provided advice to the successful bidders at the time of the 1999 competition for the Northern Isles Ferry Service.  From 2010 to 2013 he was Project Manager for Caledonian Maritime Assets Limited, but for part of that period he was seconded to Transport Scotland to work in the Ferries Unit.  While Mr Duffy had some experience of ferry procurement competitions he is a financial expert rather than a ferry expert. 

[49]      In early 2012 Mr Duffy was asked by the defenders to provide certain advice to assist in the evaluation of the bids.  He examined the bids and extracted revenues/costs by route/vessel, and compared them in order to identify any apparent anomalies.  He calculated the average yields inherent in bids.  Finally, he extracted, summarised and analysed the information in the bids relating to time sensitive freight. 

[50]      In assessing the bidders’ responses in relation to time sensitive freight Mr Duffy looked at the data and supporting documentation provided by them.  He assessed the level of due diligence that had been carried out.  He had read all of the documents in the Information Room.  He was aware that there was not separate information there relating to time sensitive freight or to refrigerated containers.  Mr Barclay of NorthLink provided data for carryings of refrigerated containers from Lerwick to Aberdeen.  Since it was the southbound route which was critical so far as time sensitive freight was concerned it was the southbound data which Mr Duffy analysed.  

[51]      NorthLink had proposed a single RoRo vessel which only sailed on a Wednesday and Friday.  This provided limited capacity. Further, the independent analysis submitted with the bid showed that NorthLink would not meet demand at all times.  On examination of the bid Mr Duffy advised he was concerned that NorthLink would not meet demand for time sensitive freight.

[52]      Serco had provided a day-by-day analysis of their capacity to carry time sensitive freight on that route.  They had allowed for demand 19% greater than the refrigerated units carried by NorthLink.  While the pursuers had estimated demand generally rather than giving separate estimates for time sensitive freight, it was clear that the pursuers were offering an even greater overall capacity to carry freight and a more frequent service.

[53]      More generally, from Mr Duffy’s examination of the material in the bids he was able to satisfy himself that both the pursuers and Serco appeared to have spoken to hauliers and identified the peaks in demand when most time sensitive fright would be required.  He assessed what the bidders were proposing by way of service against their estimates of demand for time sensitive freight.  He was reasonably satisfied that the pursuers and Serco could meet the demand for time sensitive freight that they forecasted.  

[54]      Mr Duffy advised the defenders accordingly.  While he had flagged up that his conclusions might be strengthened by acquiring day-by-day forecasts which broke down freight carryings into time sensitive freight and non-time sensitive freight, he did not consider that it was essential that that information be obtained.  

 

The 2006 Regulations
[55]      At the material time the 2006 Regulations provided:

“4 . -- Economic Operators

…

(3) A contracting authority shall–

       (a) treat economic operators equally and without discrimination; and

       (b) act in a transparent and proportionate manner.

….

47. — Enforcement of obligations

 

(1) The obligation on—

(a) a contracting authority to comply with the provisions of these Regulations, other than regulations 14(2), 30(9), 32(11), 40 and 41(1) , and with any enforceable EU obligation in respect of a contract, framework agreement, dynamic purchasing system or design contest (other than one excluded from the application of these Regulations by regulation 6, 8 or 33); …

(b) …

is a duty owed to an economic operator.

…

(5) A breach of the duty owed under paragraph (1) or (2) is actionable by any economic operator which, in consequence of the breach, suffers, or risks suffering, loss or damage and such proceedings may be brought in either the Sheriff Court or the Court of Session.

(6) Proceedings under this Part shall not be brought unless—

…

(b) the proceedings are brought in accordance with paragraph (7).

(7) For the purposes of paragraph (6)(b), proceedings shall be brought—

 …

(b) … promptly and in any event within 3 months from the date when grounds for the bringing of the proceedings first arose unless the Court considers that there is good reason for extending the period within which proceedings may be brought.”

 

The pursuers’ case
[56]      The essence of the pursuers’ case is that the defenders breached the duty of transparency imposed by Regulation 4(3) of the 2006 Regulations in two respects.  

[57]      First, they failed to define the subject matter of the contract with the clarity required by law.  That was because “current and anticipated future demand” for freight had not been defined, nor had “time sensitive freight”.  It had not been made clear to all reasonably well informed and diligent (“RWIND”) tenderers that the freight carried by the pursuers’ LoLo service did not require to be included within “current and anticipated future demand”.  Neither had it been made clear that only refrigerated containers need be treated as time sensitive freight.  The pursuers say that if they had been informed that they did not require to include within their bid the LoLo freight carried under their existing contract they would not have included it.  Further, had they realised that a less frequent freight service could have sufficed to make proper provision for time sensitive freight their bid would have reflected that.  Their bid would have been different, more price competitive, and would have won the competition.  In developing these submissions the principal authorities which Mr Sandison relied upon were:  Telaustria Verlags GmbH and Telefonadress GmbH v Telekom Austria AG C-324/98, ECR I‑10745, at paras 59-61;  Costa and Cifone C72-10 & C-77/10, 2012 ECR 0, at paras 54-56 and 72-73;  R (Law Society) v Legal Services Commission [2007] EWCA Civ 1264, per Lord Phillips MR at paras 40-43;  Edenred (UK) Group Limited v Her Majesty’s Treasury and others [2015] EWHC 90 (QB), per Andrews J at paras 25-26;  Healthcare at Home Ltd v Common Services Agency 2013 SC 411 (Opinion of the Court at paras 54, 56 and 59 (upheld on appeal to the Supreme Court, 2014 SC (UKSC) 247);  Commission v French Republic  C299/08 [2009] ECR I-11587 at paras 35-38;  Mears Ltd v Leeds City Council [2011] EWHC 1031, at paras 92-122 and 124-128;  Directive 18/2004 of the European Parliament and of the Council on the coordination of procedures for the award of public works contracts, public supply contracts and public services contract (“Directive 2004/18/EC”);  and the 2006 Regulations.  

[58]      Second, the defenders’ evaluation of the freight proposals in the bids which had been submitted had been carried out without reference to any objective criteria.  It had been subjective and arbitrary.  Had the evaluation exercise been carried out properly the pursuers’ bid would have won the competition, or at least it would have had a real prospect of winning it.  In relation to this submission the principal authorities upon which Mr Sandison relied were:  Mears Ltd v Leeds City Council, supra, paras 92-122;  Gebroeders Beentjes BV v Netherlands C31/87, 1988 ECR 4635, at paras 26-27, 36 and 37;  SIAC Construction Ltd v County Council of the County of Mayo (Case C-19/00) [2001] ECR 1-7725, at paras 6, 41-44;  Commission of the European Communities v CAS Succhi di Frutta SpA (Case C‑496/99 P) [2004] ECR 1-3801, at paras 110-111;  Directive 2004/18/EC;  and the 2006 Regulations.

[59]      With regard to the assessment of damages, including the loss of a chance, Mr Sandison referred to Livingston v Rawyards Coal Co (1880) 7 R (HL) 1, per Lord Blackburn at p.7; Kyle v P & J Stormonth Darling 1992 SLT 264, per Lord Prosser at p. 288E; Edenred (UK) Group Limited, supra, per Andrews J at paras 142-160; and Salt International Ltd v The Scottish Ministers 2016 SLT 82, in the Opinion of the Court at para 52.  In relation to timebar Mr Sandison referred to SITA UK Ltd v Greater Manchester Waste Disposal Authority [2011] EWCA Civ 156, [2010] 2 CMLR 32, per Elias LJ at paras 26 and 31; and Corelogic v Bristol City Council [2013] EWHC 2088 (TCC), per Akenhead J at paras 15, 18 and 26; 

 

The defenders’ response
[60]      The defenders maintained that the complaint about lack of clarity in relation to time sensitive freight was time barred (reg 47(6)(b) and reg 47(7) of the 2006 Regulations).  It was not brought within three months from the date when grounds first arose for the bringing of proceedings relating to such a claim.  The principal authorities relied upon by Mr Clark in support of that submission were Uniplex (UK) Ltd v NHS Business Services Authority (Case C‑406/08) [2010] 2 CMLR 47;  SITA UK Ltd v Greater Manchester Waste Disposal Authority, supra;  and Mermec UK Limited v Network Rail Infrastructure Limited [2011] EWHC 1847 (TCC).  

[61]      In any event, the defenders denied any breach.  They maintained that it was clear to RWIND tenderers that it was up to each bidder to assess current and future anticipated demand for freight including time sensitive freight it would have to meet as the operator under the contract;  and that it was for the bidder to decide what, if any, part of the freight carried by the pursuers’ LoLo service should be included within that estimate.  In relation to the approach to be adopted reference was made to Healthcare at Home Ltd v Common Services Agency 2014 SC (UKSC) 247, per Lord Reed at paras 7, 8, 9, 12, 14, 26 and 27; Allpay Limited v Northern Ireland Housing Executive [2015] NIQB 54, per Horner J at paras 30, 32, 33 and 37; and Hastings & Co (Insolvency) Ltd v Accountant in Bankruptcy [2013] CSOH 55, per Lord Hodge at paras 50-51.  The bids were evaluated in accordance with the criteria set out in the Competition Documentation.  Even if a breach were to be established the pursuers had failed to prove that they had suffered or risked suffering loss or damage because of the breach. In that connection reference was made to Nationwide Gritting Services Ltd v The Scottish Ministers [2014] CSOH 151, and (on appeal) Salt International Ltd v The Scottish Ministers, supra. 

 

Timebar
[62]      Mr Sandison clarified that he accepted that the RWIND tenderer test would be determinative of whether the reg 4(3) transparency requirement had been breached in respect of the “current demand” and “future anticipated demand” requirements.  On the strength of that acknowledgement both parties proceeded on the basis that the only live timebar issue concerned time sensitive freight.

 

Decision and reasons

Limitation: the pursuers’ claim that the defenders failed to specify what time sensitive freight meant
[63]      The Competition Documentation contained no definition of time sensitive freight.  The documentation assumed its final form on 24 February 2012.  Question QD340 from P&O was answered on 28 February 2012.  Final tenders were submitted on 5 March 2012.  The decision letter was issued to the pursuers on 4 May 2012. 

[64]      Mr Clark submitted that no claim that the defenders had failed to define time sensitive freight was made in the summons served on 11 May 2012.  He maintained that while the pursuers did aver that the defenders had failed to state their needs and requirements with sufficient precision, that complaint ought to be read as having been directed only to the lack of definition of “current demand” and “anticipated future demand”;  and that the complaint of lack of definition of time sensitive freight was a new and different complaint which was first introduced by way of adjustment on 2 April 2014, long after submission of the pursuers’ bid, and long after the decision letter. 

[65]      In my opinion proceedings in respect of the breach of duty complained of were brought within three months from the date when grounds for bringing such proceedings first arose (reg 47(6) and (7) of the 2006 Regulations).

[66]      In article 8 of the condescendence in the summons the pursuers made reference to the requirements relating to time sensitive freight in the Competition Documentation.  In article 12 the pursuers averred, inter alia, that the defenders “have failed to state their needs and requirements with sufficient precision to enable the pursuers to determine what those needs and requirements were”.  They went on to aver that the defenders were in breach of reg 4(3) of the 2006 Regulations.  

[67]      I am not persuaded by Mr Clark’s submission that the averments in the summons restricted the pursuers’ complaint to the lack of definitions of “current demand” and “anticipated future demand”.  The pursuers’ complaint was general in its terms.  It was not delimited in the way which Mr Clark suggests.  Its ambit was broad enough to encompass the absence of definition of time sensitive freight.  Of course the pursuers’ broad averments were open to the criticism that, as a matter of fair notice, they did not specify the particular respects in which it was said that the defenders failed to state their needs and requirements with sufficient precision:  but in my opinion that is a different issue, which the adjustments of 2014 addressed.

[68]      It is also not without significance - particularly in the context of a commercial action where it is not a given that the parties respective cases will inevitably require to be fully set out in pleadings rather than be disclosed in other ways - that in Mr Crichton’s affidavit of 24 May 2012 (no. 12 of process) (lodged in process on 25 May 2012) he stated that it was very difficult to determine what the defenders were looking for as regards the freight service to be supplied (para. 22);  and the problem of lack of definition of time sensitive freight was flagged up (para. 34).

[69]      Since service of the summons and the lodging of the affidavit both occurred within three months of Question QD340 being answered (28 February 2012) and within three months of the submission of bids (5 March 2012) it matters little which of those dates was the terminus a quo.  In my opinion the better view is that the relevant right of action did not first arise until, at the earliest, 5 March 2012. Until that date it cannot be said that the pursuers had suffered, or risked suffering, loss and damage as a result of the suggested breach.  Even if, contrary to my view, the terminus a quo in respect of that breach was as early as 24 February 2012, in my opinion service of the summons was the timeous bringing of proceedings.   

 

Credibility and reliability
[70]      For reasons which I shall outline below I find myself unable to accept parts of Mr Crichton’s evidence.  I accept the evidence of all of the other witnesses as being credible and reliable in all material respects.  

 

The RWIND tenderer
[71]      It was common ground that an Invitation to Tender (“ITT”) should be formulated in such a way as to allow all RWIND tenderers to interpret its requirements in the same way (SIAC Construction Ltd v County Council of the County of Mayo, supra).  The leading case in the United Kingdom is the decision of the Supreme Court in Healthcare at Home Limited v Common Services Agency 2014 SC (UKSC) 247.  The pursuers in that case contended that a number of central passages in the ITT did not provide the standard of clarity which was required by the law.  The result, they claimed, was that they had answered questions differently from the way they would have answered them had they known what was intended by the language.  Representatives from the pursuers gave evidence as to how they had interpreted the relevant requirements, and how it appeared that the winning tenderer had interpreted those requirements differently.  They argued that both they and the winning tenderer were RWIND tenderers, and that it followed that the relevant requirements had not been formulated in such a way as to allow all RWIND tenderers to interpret them in the same way.  In his judgment (with which the other Justices agreed) Lord Reed explained: 

“[7] It was in order to articulate the standard of clarity required in this context by the principle of transparency that the European Court of Justice invoked the RWIND tenderer. In SIAC Construction Ltd v County Council of the County of Mayo, where there was a disagreement between the parties as to the interpretation of tender documents, the court stated:

 

‘41. Next, the principle of equal treatment implies an obligation of transparency in order to enable compliance with it to be verified (see, by analogy, Case C-275/98 Unitron Scandinavia and 3-S [1999] ECR I-8291, paragraph 31).

42. More specifically, this means that the award criteria must be formulated, in the contract documents or the contract notice, in such a way as to allow all reasonably well-informed and normally diligent tenderers to interpret them in the same way.’

 

[8] In that passage, the court explained what the legal principle of transparency meant in the context of invitations to tender for public contracts: the award criteria must be formulated in such a way as to allow all RWIND tenderers to interpret them in the same way. That requirement set a legal standard: the question was not whether it had been proved that all actual or potential tenderers had in fact interpreted the criteria in the same way, but whether the court considered that the criteria were sufficiently clear to permit of uniform interpretation by all RWIND tenderers.

[9] The objective nature of the standard to be applied also appears from the opinion of Advocate General Jacobs in the same case (para 51):

 

‘The national court should take into consideration not merely the literal terms of the contract documents but also the way in which they may be presumed to be understood by a normally experienced tenderer’ (emphasis added)...

 

[12] …the yardstick of the RWIND tenderer is an objective standard applied by the court. An objective standard of that kind is essential in order to ensure equality of treatment, as the court explained in SIAC Construction Ltd v County Council of the County of Mayo. In addition, as the Advocate General explained, such a standard is consistent with legal certainty: something which would be undermined by a standard which depended on evidence of the actual or subjective ability of particular tenderers to interpret award criteria in a uniform manner. Furthermore, to require proof of the subjective understanding of tenderers would be inconsistent with the need for review to be carried out as rapidly as possible, as required by article 1 of Directive 89/665…

[14] The rationale of the standard of the RWIND tenderer is thus to determine whether the invitation to tender is sufficiently clear to enable tenderers to interpret it in the same way, so ensuring equality of treatment. The application of the standard involves the making of a factual assessment by the national court, taking account of all the circumstances of the particular case...

[26]…I agree with the way in which this issue was dealt with by the Lord Justice-Clerk (para 59):

‘The court’s decision will involve it placing itself in the position of the reasonably informed tenderer, looking at the matter objectively, rather than, as occurred here to a degree, hearing evidence of what such a hypothetical person might think . . . Although different from an orthodox exercise in contractual interpretation, the question of what a reasonably well-informed and normally diligent tenderer might anticipate or understand requires an objective answer, albeit on a properly informed basis. Just like those other juridical creations, such as the man on the Clapham omnibus (delict) or the officious bystander (contract), the court decides what that person would think by making its own evaluation against the background circumstances. It does not hear evidence from a person offered up as a candidate for the role of reasonable tenderer. In a disputed case, the court will, no doubt, need to have explained to it certain technical terms and will have to be informed of some of the particular circumstances of the terms or industry in question, which should have been known to informed tenderers. However, evidence as to what the tenderers themselves thought the criteria required is, essentially, irrelevant.’

[27] As the Lord Justice-Clerk made clear, evidence may be relevant to the question of how a document would be understood by the RWIND tenderer. The court has to be able to put itself into the position of the RWIND tenderer, and evidence may be necessary for that purpose: for example, so as to understand any technical terms, and the context in which the document has to be construed. But the question cannot be determined by evidence, as it depends on the application of a legal test, rather than being a purely empirical enquiry. Although, as counsel for the appellants emphasised, the question is not one of contractual interpretation — the issue is not what the invitation to tender meant, but whether its meaning would be clear to any RWIND tenderer — it is equally suitable for objective determination.”

 

What would RWIND tenderers have understood by the relevant requirements?
[72]      The question is to be approached objectively having regard to the terms of the Contract Documentation and to the relevant surrounding facts and circumstances which would have been known to all RWIND tenderers.  So approaching matters, in light of the surrounding circumstances which I have described, I conclude that the requirements allowed all RWIND tenderers to interpret them in the same way.  All RWIND tenderers would have realised that it was for them to assess current and future anticipated demand, including appropriate provision for time sensitive freight.

[73]      No RWIND tenderer would have concluded that it was obliged to include capacity to carry the LoLo freight carried by the pursuers.  No such tenderer could understandably and plausibly have construed that to be the requirement (and, as I explain below, I do not accept that the pursuers in fact understood that to be a requirement, rather than an option).  Such a requirement would have operated to the advantage of the pursuers and to the disadvantage of other bidders.  It would have required other bidders to include the cost of providing the capacity to carry the pursuers’ LoLo freight although they would have very poor prospects of obtaining that business.  The imposition of the requirement would have restricted the range of possible solutions open to bidders, to the probable detriment of the objectives of the competition process.

[74]      The conclusion that no RWIND tenderer would have concluded that it was obliged to include capacity to carry the pursuers’ Lolo is one I would have reached even if no account was taken of the evidence that all the bidders were told that it was up to them whether or not to include it.  However, that evidence is clearly part of the relevant surrounding circumstances.  Once regard is had to it the conclusion becomes even more compelling. 

[75]      Ms Ainsley impressed me as a witness who was doing her best to assist the court and to recount the relevant facts to the best of her recollection.  On the other hand, I have significant reservations about some of Mr Crichton’s evidence.  At times I formed the impression that he was, perhaps unconsciously, advocating the pursuers’ cause.  He was also prone to placing glosses and slants (favourable to the pursuers’ position in the action) on what Ms Ainsley and her colleagues had said during the competition process.  He refused to accept that certain things were said by Ms Ainsley:  but, as I explain below, I hold that they were said.  Where the evidence of Ms Ainsley and Mr Crichton conflicts I prefer Ms Ainsley’s evidence. 

[76]      I accept Ms Ainsley’s evidence that all bidders were told that it was up to them to decide what, if any, LoLo freight should be included in their bid.  I reject Mr Crichton’s evidence (i) that Ms Ainsley indicated to him that all LoLo freight required to be included;  and (ii) that she did not make it clear to him that it was up to each bidder to decide whether to include capacity to carry the LoLo freight which was being carried by the pursuers.  I find it inherently unlikely that Ms Ainsley would have indicated that all LoLo freight required to be included.  The consequence of that being a requirement would have been that the ITFT would have been skewed in the pursuers’ favour.  They had an established LoLo business, subsidised until May 2014, and which they had operated without subsidy in the past.  Just over half of the custom for that service came from Streamline’s haulage and distribution businesses.  The pursuers could anticipate with a good deal of confidence that they would be likely to continue to generate significant revenue from that LoLo traffic.  Other bidders could have no such confidence.  That was clear from the evidence of Ms Ainsley and from the evidence of Mr Iles, and it accords with common sense.

[77]      Had Ms Ainsley said that all LoLo freight required to be included, and had the pursuers truly thought that they required to include all LoLo traffic in their bid, there would have been no point in the pursuers putting forward for discussion options which did not include that traffic (cf. Options 1 and 2 discussed at the Second Dialogue Meeting).  The fact that those options were tabled by the pursuers strongly suggests that Ms Ainsley’s recollection of the relevant events is reliable and that Mr Crichton’s is unreliable.  

[78]      Moreover, in my view the dialogue which was ongoing between the pursuers and the defenders was eloquent of the inclusion of their LoLo within the bid being an option and an opportunity (see e.g. the language in the pursuers Outline Proposals) rather than a requirement.  

[79]      In my opinion RWIND tenderers would not have had any difficulty in understanding what the expression time sensitive freight meant.  The context was that all the bidders were experienced ferry operators.  As Mr Iles testified, the expression was generally understood to mean freight which for one reason or another required to travel within a specific timeframe;  and the way one could go about determining the level of demand for such freight would be through dialogue with customers.  The meaning of the term would have been clear to all RWIND tenderers;  but such tenderers (and indeed, actual bidders) might well have had differing views as to the level of demand for such freight.  

[80]      For the foregoing reasons I do not consider that the pursuers’ first ground of complaint has any substance.

[81]      Further, I am not satisfied that any of the hypothetical bids spoken to by Mr Crichton would in fact have been submitted.

[82]      Each of the hypothetical bids addresses a situation which did not in fact occur.  They have been prepared after the event, with hindsight and with knowledge of material elements of Serco’s winning bid.  

[83]      Variation 1 proceeds on the basis that capacity to carry the pursuers’ LoLo freight is not included in the bid.  Its premise is that had the pursuers known that LoLo need not be included, they would not have included it. I do not accept that premise.  On the contrary, for the reasons already discussed, I am satisfied that the pursuers were well aware that the inclusion of their LoLo was an option rather than a requirement.  With that knowledge they chose to submit a bid which included their LoLo.  

[84]      That is not the only difficulty I have with Variation 1.  I am not persuaded that it fairly reflects the full costs of providing the LoRo freight service described in it.  It is plain that it depends upon very substantial additional costs being expended outwith the contract to provide and operate the LoRo vessel.  Ordinarily one would expect all the costs of the provision of a service to appear within a bid.  Instead, here very substantial costs have been shifted to another costs centre.  No convincing explanation why the pursuers would have chosen to do that was provided.  I very much doubt whether in the real world a bid in such terms would have been submitted.  Had such a bid been submitted it would have been bound to have raised very real questions about its deliverability and its sustainability.  

[85]      Variation 2 treats refrigerated trailers as being the only time sensitive freight.  However, that is not how the requirements relating to time sensitive freight would have been understood by RWIND tenderers.  RWIND tenderers would have appreciated that southbound fish and seafood was the most important, but not the only, time sensitive freight.  Moreover, the pursuers had consulted with interested parties and it is plain from Mr Crichton’s evidence that they had clear views as to the sorts of freight which were time sensitive and of the level of demand for that freight.  In those circumstances I am not persuaded that they would have submitted a bid which treated refrigerated trailers as being the only time sensitive freight. 

[86]      Variation 3 proceeds on the bases that capacity to carry the pursuers’ LoLo freight is not included in the bid and that only refrigerated trailers are treated as time sensitive freight.  It is subject to the same observations made in relation to Variations 1 and 2. 

 

The attack on the evaluation of the bids
[87]      This ground focussed on the evaluation of bidders’ proposals to meet current and future anticipated demand for freight, including time sensitive freight.  Once again, the claim was that there was a lack of transparency in terms of reg 4(3).  That was, it was contended, because the evaluation was subjective and arbitrary.  The defenders ought to have determined levels of current and anticipated future demand for freight, including time sensitive freight, and used those as benchmarks against which the bidders’ proposals fell to be assessed.  A freight expert could, and should, have been instructed to identify those benchmarks.  

[88]      When considering this challenge it is important to keep in mind (i) that the complaint is that the bids actually submitted were not properly evaluated;  (ii) that it is not contended that the defenders were not entitled to use the competitive dialogue procedure, or that that procedure was anything other than appropriate in the circumstances;  and (iii) that RWIND tenderers understanding of the requirements would have been as described above. 

[89]      In my opinion the defenders were not obliged to carry out the benchmarking exercises which the pursuers posit.  A fortiori it was not incumbent upon them to assess bids against a benchmark which assumed that all bidders must include capacity to carry the pursuers’ LoLo freight.  One of the reasons the defenders used the competitive dialogue procedure was that they recognised that those operating in the ferry market were better placed than they were (i) to assess the levels of freight, including time sensitive freight, which a successful bidder would be likely to require to accommodate; and (ii) to identify appropriate solutions for the carrying of that freight.  That was so both in relation to demand for freight in general, and to demand for time sensitive freight.  The likelihood was that, rather than there being definitive and prescriptive answers, there would be (a) a range of possible conclusions from bidders’ assessment exercises and (b) a variety of acceptable solutions proposed to cater for the demand identified by those exercises.  Some component factors were liable to vary from bidder to bidder.  Thus, for example, the extent to which, if at all, a bidder anticipated obtaining/retaining the pursuers’ LoLo freight was a factor which would affect its assessment of the demand for the freight it would have to accommodate if awarded the contract.  Bidders’ assessments of what was needed to accommodate time sensitive freight might well differ depending upon their determination of the types and volumes of freight which would truly need to sail on the day of presentation at port.  Bidders’ understandings might well be more or less informed depending upon the extent and thoroughness of their investigations with the market prior to submission of their bids.  It was inherent in the procurement process that more than one bid might comply with the tender requirements, but that each compliant bid might contain strengths and weaknesses relative to the other compliant bids. 

[90]      In my view the evaluation process was not arbitrary or subjective without the postulated benchmarking.  Volume 3 of the Competition Documentation set out in some detail how bids were to be evaluated.  As already discussed, there were numerous aspects of quality which were to be scored.  Pass scores for quality assessment could be “Acceptable”(5-6), “Good” (7-8), or “Excellent”(9-10).  The knowledge and material which evaluation panels possessed equipped them well to carry out that assessment process.  While those charged with the task of quality evaluation were not freight experts, by the time they made their assessments they were far from uninformed.  Their collective knowledge included the consultation exercise and its responses;  discussions with stakeholders;  material relating to the existing NorthLink service;  information gleaned during the competitive dialogue procedure;  the data submitted with the bids;  and the information and advice provided by Mr Duffy.  They were well placed to assess whether the assessments and proposals in each of the bids appeared to be coherent and robust.  

[91]      Mr Sandison suggested that the Package A fail mark given to NorthLink was demonstrative of the evaluation of the bids having been arbitrary and subjective.  He submitted that there had been no proper basis for failing NorthLink’s bid.  I disagree.  It is clear that the independent report which NorthLink submitted with their bid disclosed that there would be a not insignificant number of occasions when demand for freight, and in particular demand for time sensitive freight, would not be met.  In addition, it was hardly surprising that Ms Ainsley and her colleagues should conclude that NorthLink’s scheduled arrival time of 10.30am was later than was appropriate to meet the needs of onward distribution.  It was a much later arrival time than under NorthLink’s existing service;  and the need for an earlier arrival time was something that stakeholders, and all other bidders, had identified.  

[92]      In the whole circumstances I am content that the panel carefully examined the demand for freight identified in each of the bids and the proposals which were made to meet that demand.  In the cases of Serco’s bid and the pursuer’s bid they were satisfied that the demand assumed appeared to be based on appropriate investigations and consultations, and that the proposals for services to meet that demand were robust and adequate to meet it.  They duly assessed the bids in accordance with the criteria set out in in Vol 3 of the Contract Documentation.  In my opinion there was no arbitrariness and no lack of transparency in the evaluation process.

[93]      In addition, it is pertinent to note that the maximum possible marks for services were 15% of the total maximum marks for Package A.  Services were only one of the eight subcategories contained within the conceptual proposals evaluated within Package A.  Services relating to freight were only one of several matters which fell to be assessed in relation to services and the services score.  In terms of scoring, the matters the pursuers focus upon were a relatively small part of the bid and of the evaluation process.  The pursuers advance no criticisms of the evaluation of the rest of the services, or of the remainder of Package A, or of Package B, or of the scoring of the pricing in Package C.  The facts are that the pursuers’ bid was given a high score for services, and a high score for quality.  Serco’s bid won because, despite having lower scores than the pursuers for those matters, it scored far better than them on price.  Nothing in the material placed before me persuades me that if benchmarking had been employed (i)  that there would have been a real prospect of Serco’s bid being failed on quality grounds;  or (ii) that there would have been a real prospect that the pursuers’ and Serco‘s scores would have changed so materially as to result in the pursuers bid obtaining a higher combined weighted score than Serco’s bid. 

 

Conclusion
[94]      I am not satisfied that there has been any breach by the defenders of reg 4 (3) of the 2006 Regulations.  The pursuers’ claim fails.

 

Disposal
[95]      I shall sustain the defenders’ fifth and sixth pleas-in-law, repel the pursuers’ pleas-in-law, and pronounce decree of absolvitor.  I shall reserve meantime all questions of expenses.