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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> A C WHYTE & COMPANY LTD AGAINST RENFREWSHIRE COUNCIL [2020] ScotCS CSOH_82 (04 September 2020)
URL: http://www.bailii.org/scot/cases/ScotCS/2020/2020_CSOH_82.html
Cite as: 2020 GWD 31-406, [2020] CSOH 82, [2020] ScotCS CSOH_82
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OUTER HOUSE, COURT OF SESSION
[2020] CSOH 82
CA96/19
OPINION OF LORD TYRE
In the cause
A C WHYTE & COMPANY LIMITED
against
RENFREWSHIRE COUNCIL
Pursuer
Defender
Pursuer: Lindsay QC; Gilson Gray LLP
Defender: Duthie QC; Clyde & Co LLP
4 September 2020
Introduction
[1] On 2 November 2018, the defender (“the council”) issued an invitation to tender
(“ITT”) for external works to residential properties within its local authority area. The
pursuer tendered for the works. On 13 February 2019, the council informed the pursuer that
its tender had been unsuccessful, and that the council intended to award the contract to
Procast Building Contractors Limited (“Procast”). The council subsequently entered into a
contract with Procast. In this action for damages, the pursuer claims that the contract was
awarded to Procast in a manner which did not comply with the terms of the ITT, and
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that the council thereby breached the obligation of transparency imposed upon it by
regulation 19(1) of the Public Contracts (Scotland) Regulations 2015 (“the Regulations”).
[2] The action proceeded to proof, excluding matters related to quantum of loss.
The proof was conducted remotely due to Covid-19 restrictions. Evidence on matters of
fact was given on behalf of the pursuer by Mr Russell Kennedy, the pursuer’s senior
estimator, and on behalf of the council by Mrs Joanna Tannock, an assistant category
manager within the council’s corporate procurement department, and
Mrs Bridget Lambert, the council’s strategic procurement manager. I found all of these
witnesses to be credible and, other than as noted below, reliable. Expert accountancy
evidence was led on behalf of the pursuer from Mr Thomas Hughes, senior consultant
with Gerber Landa & Gee, chartered accountants, and on behalf of the council from
Mr David Bell, assistant director with Ernst & Young LLP. Both were well qualified to
provide expert opinion on the matters on which they prepared written reports and gave
oral evidence.
The invitation to tender
[3] The introduction to the ITT issued on 2 November 2018 stated inter alia as follows:
“…2. Renfrewshire Council wish to appoint a Contractor to manage and carry out
external envelope works to residential (mixed tenure) properties throughout
Renfrewshire Locale.
3. The Contract will be for 1 year with the option to extend for up to a further
12 months on 3 separate occasions, subject to satisfactory operation and performance.
Any extension will be at the sole discretion of Renfrewshire Council. It is anticipated
that the contract will commence on the 29 March 2019. If the contract does not
commence on 29 March 2019, the contract period shall run from the actual date of
commencement as stated in the Letter of Acceptance.
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4. The Conditions of Contract are the core clauses of the NEC3 Term Service Short
Contract April 2013 and the 'Z' clauses contained in section 2.2 of this Invitation to
Tender.
5. This procurement process is being conducted in accordance with the Public
Contracts Scotland Regulations 2015 and the Councils Standing Orders Relating to
Contracts for above EU Threshold Works contracts…”
[4] Section 1 of the ITT contained “Instructions for completing the Tender Submission”.
Tenders were to be submitted electronically. All tenderers were required to complete the
European Single Procurement Document (Scotland) (“ESPD”) contained in the qualification
envelope of the council’s e-tender system. Part 4B of the ESPD required information
regarding the tenderer’s economic and financial standing. The council’s selection criteria in
relation to part 4B were set out in the ITT. Candidates were required to have a minimum
annual turnover of £15 million for the past 3 years in the business area covered by the
contract. Before the deadline for submission of tenders, the minimum turnover figure was
reduced to £10 million. The ITT also stated:
“…Where the Candidate is a group of organisations and particular members of the
group do not meet the minimum turnover stated above in their own right, the
Candidate may provide an alternative proposal to meet the minimum requirements.
The Council will consider whether any alternative proposal can be considered
equivalent to the minimum requirements. Acceptance of alternative proof and
progress to the award stage will be at the Council's sole discretion.
Any Candidate unable to demonstrate the required annual turnover stated, or
provide acceptable alternative proof of its financial standing to the satisfaction of the
Council, may be assessed as a FAIL and will be excluded from the competition.”
[5] The council’s part 4B selection criteria also required confirmation that the tenderer
carried insurance to a certain level, and noted that the council would use data supplied by
Dun & Bradstreet to calculate a failure score to demonstrate financial strength and stability.
The information provided to tenderers regarding the ESPD concluded:
“This ESPD (Scotland) acts as a self-declaration for tenderers. By law, the
recommended Tenderer at the end of the evaluation must provide all requested
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certificates and documentation before being awarded the contract. However,
Renfrewshire Council can ask any tenderer to submit their evidence at any point in
the procurement process, if this is necessary to ensure that the process is carried out
properly.”
[6] Paragraph 1.18 of the instructions for completing the tender submission stated:
“Where the Tenderer is a consortium, the Contract will be entered into with the
nominated lead organisation and all members of the consortium, who will in these
circumstances each be required to execute the Contract, together with all ancillary
documentation, evidencing their joint and several liability in respect of their
obligations and liabilities arising out of or in connection with the Contract. It will be
for members of the consortium to sort out their respective duties and liabilities
amongst each other.”
Mrs Lambert explained that the inclusion of paragraph 1.18 had been a mistake. It ought to
have been deleted from the conditions of contract by a “Z” clause, but this had inadvertently
not been done.
Procast’s tender
[7] The deadline for submission of tenders was 5 December 2018. Tenders were
submitted by nine candidates, including the pursuer and Procast.
[8] A redacted version of Procast’s tender was lodged in process. In response to the
question “Does the bidder rely on the capacities of other entities in order to meet the
selection criteria set out under Part 4…?”, Procast answered “No”. Its tender was, however,
accompanied by three ESPDs in respect of itself and two other companies, namely JR
Scaffold Services Ltd and JR Specialist Services Ltd. Question 4B.1.2 of the ESPD stated “The
bidder should provide its average yearly turnover for the number of years specified in the
relevant Contract Notice”. Procast responded: “We confirm our average yearly turnover for
the last 3 years (2018, 2017 and 2016) figures is £12,347,947”.
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Post-tender correspondence
[9] The council operated an online portal to which messages, including questions and
answers, could be uploaded. On 13 December 2018, the council posted the following
question to Procast:
“As part of your tender submission you have confirmed you will be tendering as
part of a group, can you please confirm if you are bidding as part of a consortium or
if you are sub contracting with JR Group?”
Procast replied:
“This consortium is an association of our two companies Procast Building
Contractors Ltd and JR Group Ltd with the objective of delivering the External
Upgrade Works to Renfrewshire Council.
It allows us to pool our resources, skills and experience to achieve a common goal of
successfully delivering these services to the benefit of Renfrewshire Council and its
communities.
We aim to base our consortium structure on the 'Lead Provider' model. This formal
structure gives our consortium a clear hierarchy, whilst supporting a collaborative
partnership working model with all consortium partners operating on an equal basis.
It is also one of the most common consortium models operated in the construction
industry.
Please let us know if you require any further clarification.”
The council then sought confirmation of who the Lead Provider would be; the response was
that Procast would be the Lead Provider.
Award of contract to Procast
[10] On 30 January 2019, a joint report by the chief executive and the director of planning,
housing and planning services, was presented at a meeting of the council’s finance,
resources and customer services policy board. The report, which was prepared by
Mrs Tannock, sought the board’s approval of the award of the contract to Procast. It stated
that all nine tender submissions complied with the minimum selection criteria of the ESPD.
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On the basis of the council’s evaluation of quality and price, Procast had achieved the best
score and the pursuer the second best.
[11] The minutes of the board meeting included the following entry:
“20 External Upgrade Works
…
Following a procurement exercise conducted in accordance with the Council’s
procedures, nine tenders were submitted and after evaluation the tender submitted
by Procast Building Contractors Limited was found to be the most economically
advantageous.
DECIDED: That the Head of Corporate Services be authorised to award a measured
term contract for external upgrade works to Procast Building Contractors Limited at
a maximum cost of £40,000,000 excluding VAT (£10m annually) for a period of
12 months with the option to extend for up to a further 12 months on three separate
occasions, commencing 29 March 2019 or on the date confirmed in the letter of
acceptance.”
[12] On 4 February 2019, Mrs Tannock uploaded to the portal a further request to Procast:
“As per the minimum requirements, candidates were required to have a minimum
'general' yearly turnover of at least £ 10m for the past three years.
Your ESPD submission confirmed that you met this minimum requirement, could
you please submit evidence to show that your turnover for the last three years is a
minimum of £10m.”
This request may have been prompted by an expression of concern by Mr Kennedy, at a
meeting with the council relating to a different project, that he had heard that the contract
was to be awarded to Procast even though they did not have the required level of turnover.
The following day, Procast responded:
“We have pleasure in returning our Joint Venture Combined Accounts as
documentary evidence that our Joint Venture meets with the minimum 'general'
yearly turnover of at least £10m for the past 3 years as requested. The combined
yearly annual turnover stands at 2018 - £16,070,587, 2017 - £12,180,113 and 2016 -
£10,151,403 which differs slightly from the 'average' turnover figures submitted in
the ESPD due to anticipated account figures…”
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The accounts provided by Procast were unaudited financial statements for itself, JR Scaffold
Services Ltd and JR Specialist Services Ltd respectively, for each of the 3 years requested. In
each year the aggregate turnover of the three companies, as disclosed in the financial
statements, exceeded £10 million. The council confirmed that this was the evidence that it
was looking for. In none of the years did the turnover of any of the three companies, taken
alone, exceed £10 million.
[13] By letter dated 13 February 2019, the council informed Procast that the board had
decided to award the contract to it. On the same day the council advised the pursuer that its
tender had been unsuccessful. The standstill period in terms of regulation 86 began to run.
[14] On 15 February 2019, Mrs Tannock posted another entry on the portal seeking
information, as follows:
“I refer to your tender for the Council's external Upgrade Works dated 5 December
2018. In your message to the Council sent via the messaging system dated
13 December 2018 at 14:39 you affirmed that you were acting as part of a consortium
(consisting of Procast Building Contractors Limited, JR Specialist Services
Ltd SC385973 and JR Scaffold Services limited SC187329) and that the Lead provider
is Procast. Reference is made to the arrangements made with North Lanarkshire
council, however as this is an open tender we need Procast to explain for the purpose
of this contract how the consortium arrangements would work rather than seek that
information from a third party as to how it specifically operates in another area.
As part of this responses [sic], can you specifically address the following (1) who
would this Council be contracting directly with? (2) How would instructions and
orders be issued? (3) Who would be responsible for any works provided? (4) Whose
insurance would be engaged for works provided? and (5) Can you confirm whether
the intention is to create a formal company/joint venture vehicle to perform the
contract, to contract with one consortium member or some other arrangement?”
[15] Procast provided answers to these questions in a letter to the council dated
18 February 2019. The letter stated inter alia that the process for formally creating the
consortium would be through developing a partnership agreement, and that the agreement
would provide for Procast, JR Scaffold Services Ltd and JR Specialist Services Ltd to assume
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joint and several responsibility for performance of the contract. The letter was accompanied
by letters signed on behalf of JR Scaffold Services Ltd and JR Specialist Services Ltd
confirming agreement to the formation of a consortium and to the assumption of joint and
several liability.
[16] The standstill period ended on 25 February 2019. On the following day the council
accepted Procast’s offer to carry out the works in accordance with the terms of its tender,
and thereby concluded the contract with Procast alone.
The pursuer’s challenge
[17] In the meantime, the pursuer’s agents had written to the council on 20 February 2019,
asserting that it was in breach of its obligations under the Regulations. Three alleged
breaches were identified, including a failure to exclude Procast’s tender from the
competition on the ground that Procast failed to meet the minimum annual turnover
requirement. The council’s solicitor responded, explaining that Procast’s tender had been
submitted on behalf of a consortium which met the minimum turnover requirement.
Following further correspondence, the pursuer raised an action in this court. That action
was dismissed on 30 May 2019 on the ground that the pursuer had not complied with the
pre-action notice requirements of the Regulations. Prior to dismissal, however, the council
had on 17 May 2019 produced documentation including redacted accounts of the three
consortium companies. The present action was raised on 13 June 2019. One of the issues
between the parties is whether it was raised timeously in terms of the Regulations. I deal
with that matter later in this opinion.
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[18] The pursuer’s case is founded on regulation 19(1), which states:
“A contracting authority must, in carrying out any procurement or design contest
which is subject to the application of these Regulations—
(a) treat economic operators equally and without discrimination; and
(b) act in a transparent and proportionate manner.”
[19] The pursuer claims that the council breached its obligation to act in a transparent
manner in the following respects:
(i) The council failed to enquire into, and take account of, any inter-company
trading between or among Procast and the two JR companies, with the
consequence that when the council awarded the contract to Procast it did so
without the information necessary to satisfy it that the minimum turnover
requirement specified in the ITT had been met.
(ii) The award of the contract to Procast was not made in accordance with the
terms of the ITT.
(iii) At the time when the contract was awarded to Procast, the council was not in
possession of information and documentation that was essential in order for a
properly informed decision to be made.
Expert evidence
[20] The expert evidence was focused on the question whether it was possible, on the
basis of the documentation disclosed by the council, to determine whether Procast (taking
account of the contribution of the two JR companies) met the minimum annual turnover
requirement in the ITT and, in particular, what adjustment, if any, could or ought to be
made to the figures in the respective companies’ accounts to allow for any inter-company
trading.
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[21] Mr Hughes, in his initial report, expressed the opinion that in order to fully consider
the combined turnover of the three companies, the council would have required to identify
and deduct inter-company transactions between or among any of the three companies
during the years ended 2016, 2017 and 2018. Without details of inter-company transactions,
it was not possible properly to assess the combined turnover figure. In a supplementary
report he commented on Mr Bell’s report and expressed doubt regarding the relevance of
the exercise carried out by Mr Bell in relation to Procast’s contract with North Lanarkshire
Council.
[22] In the course of his oral evidence, Mr Hughes agreed that there was no statutory
obligation on a consortium to produce consolidated accounts; nor were such accounts
required by standard accountancy practice. He accepted that there had been no requirement
in the ITT to make an allowance for inter-company trading among companies bidding as a
consortium, but without that information it was not possible to know whether or not the
minimum turnover requirement had been met because the extent of any double-counting
was not known. It had therefore been incumbent upon the council to obtain the information.
He had seen nothing to indicate that the council had done so.
[23] Mr Bell noted that the ITT was silent on the need for consortium bids to prepare and
submit consolidated accounts with regard to turnover, and that there was no Companies Act
or accountancy practice requirement for consortium companies to prepare consolidated
accounts. He was therefore of the view that there was no requirement for the three
companies to prepare consolidated accounts for the purposes of quantifying their aggregate
annual turnover. Mr Bell’s attention had been drawn to the fact that Procast had carried out
work in 2018 for North Lanarkshire Council, but it was unclear from the publicly available
information whether Procast had been acting on its own or in a consortium with the two JR
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companies. In any event, even if the whole of Procast’s turnover from the North
Lanarkshire Council contracts were to be deducted from the 2018 total, the balance still
exceeded the £10 million minimum requirement.
[24] In his oral evidence, Mr Bell explained that he had not ignored 2016 and 2017, but
there was nothing in the publicly available information to indicate that Procast had carried
out work for North Lanarkshire Council in either of those years. He reiterated that, in his
opinion, where a consortium (as opposed to a group) was tendering, there was no need to
make any adjustment for inter-company trading in order to ascertain the combined turnover
of the consortium companies.
Argument for the pursuer
[25] On behalf of the pursuer it was submitted that the council had breached the
obligation of transparency because it had failed to adhere to the terms of the ITT in three
respects. Firstly, it was in breach of an implicit obligation to take into account
inter-company trading between or among the members of Procast’s consortium. That was
the only way to ensure that Procast met the minimum annual turnover requirement
specified in the ITT. Failure to make an adjustment was unfair to single company tenderers
such as the pursuer who could not benefit from the inflated turnover created by
inter-company trading. Alternatively, if there had been no implicit obligation to identify
and discount inter-company trading, it had been a manifest error for the council to fail to do
so because it had been necessary in order to manage financial risk and meet the statutory
requirements of equal treatment and non-discrimination. It was a matter of admission that
the council had given no consideration to inter-company trading. It had not therefore
exercised a discretion to disregard the turnover requirement, and no question therefore
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arose of whether there had been a reasonable exercise of a discretion. If it were to be argued
that the council’s failure to investigate inter-company trading had made no difference to the
outcome of the procurement, the onus of proof of this rested upon the council and had not
been discharged.
[26] Secondly, the contract had been awarded contrary to the terms of the ITT in three
respects:
(i) Contrary to paragraph 1.18 (above), the contract had been entered into with
Procast alone and not with all of the members of the consortium.
(ii) Contrary to its own part 4B selection criteria, the council had entered into a
contract with Procast despite the fact that none of the members of the
consortium met the minimum turnover requirement in its own right. The
council appeared to have failed to understand the terms of its own document
and could not therefore validly exercise any discretion to disapply them.
(iii) The council had failed to secure joint and several liability in accordance with
paragraph 1.18. Reference had been made to a partnership agreement but no
such agreement had been produced. The letters from the JR companies went
no further than indicating a willingness to undertake joint and several liability.
[27] Thirdly, the council awarded the contract at a time when it had inadequate
information to enable it to assess whether or not Procast met the conditions in the ITT.
Timing had been important: for reasons connected with funding, the work had to
commence on 29 March 2019 and there would not have been another meeting of the board
before then. At the time when the board decision was taken and, in any event, at the time
when the letter awarding the contract to Procast was sent, the council was not in possession
of the critical information sought by Mrs Tannock on 15 February (see above), including the
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identity of the person with whom the council would be contracting. Information previously
supplied by Procast had been incomplete and self-contradictory. For example, in its ESPD
Procast had stated that it was not relying on the capacity of any other entity to meet the
minimum conditions. In the post-tender correspondence reference had been made to an
entity called “JR Group Ltd” as opposed to the two companies subsequently named.
Fairness had required that these critical matters be clarified before and not after the contract
was awarded.
Argument for the council
[28] On behalf of the council it was submitted that no breach of the terms of the ITT, and
hence no breach of the obligation of transparency, had been demonstrated. A distinction fell
to be drawn between breach of the terms of the ITT on the one hand and the exercise of
judgement as to how to apply criteria on the other. The council enjoyed a margin of
appreciation in relation to the latter, and the pursuer’s case amounted to no more than
disagreement as to how the council’s judgement had been exercised.
[29] There had been no obligation incumbent on the council to inquire whether the
turnover disclosed by Procast and the JR companies included inter-company trading. Terms
could not be implied into the ITT in the manner suggested by the pursuer; that would
constitute an undisclosed criterion which could itself have been open to challenge if applied.
The fact that the ITT made no mention of allowing for inter-company trading was
determinative of the matter. Mr Bell’s opinion that there was no need to inquire should be
accepted. Mr Hughes’ opinion was properly to be regarded as a criticism of the terms of the
ITT and not an indication of a failure to comply with it. In any event there was nothing to
suggest that inquiry would have disclosed any inter-company trading between Procast and
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the JR companies. Moreover, annual turnover was only one indicator of financial standing;
the ITT also provided for adequate insurance and the obtaining of a Dun & Bradstreet
report.
[30] As the ITT made clear, the ESPD operated as a self-certification of annual turnover
for the years in question. The council was entitled, if it wished, to rely on Procast’s
self-certification when making the decision to award the contract, and to seek verification
thereafter. Despite the answer given by Procast in its ESPD, the council was fully aware
when making its decision that this was a consortium bid. When it became apparent that
Procast alone did not meet the minimum annual turnover requirement, the council was
entitled in terms of the ITT to consider an alternative proposal, ie to have regard to the
combined turnover of the three companies. It was a matter of admission on record that this
was what the council had done, and this had been confirmed by Mrs Tannock.
[31] As regards the contention that the award had been contrary to the terms of the ITT,
the fact that the contract was entered into with Procast alone did not raise any issue of
unfairness. There was no substance to the suggestion that the council had misunderstood
the terms of the ITT; it was expressly within the council’s discretion to award the contract
even if the minimum turnover requirement was not met. The letters from the JR companies
were sufficient to create joint and several liability, but even if they had been insufficient, that
was a matter separate from compliance with the terms of the ITT.
[32] As regards adequacy of information, the pursuer over-emphasised the importance of
the letter of 13 February 2019 intimating the award of the contract. The contract was not
entered into until 26 February, and the council was entitled to continue to pursue inquiries
during the standstill period. In any event, by 13 February the council was in possession of
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all critical information. Mrs Tannock’s queries on 15 February merely sought confirmation
in more formal terms of matters of which the council was already aware.
Decision
[33] It is common ground that the role of the court in relation to a challenge of a
procurement decision is a restricted one. As Coulson J put it in BY Development Ltd v Covent
Garden Market Authority [2012] EWHC 2546 (TCC) at paragraph 8:
“…The court’s function is a limited one. It is reviewing the decision solely to see
whether or not there was a manifest error and/or whether the process was in some
way unfair. The court is not undertaking a comprehensive review of the tender
evaluation process; neither is it substituting its own view as to the merits or
otherwise of the rival bids for that already reached by the public body.”
As Lord Malcolm emphasised in Glasgow Rent Deposit & Support Scheme v Glasgow City
Council [2012] CSOH 199 at paragraph 15, “…the court must not trespass on the jurisdiction
given to the contracting authority to exercise its own broad and discretionary judgment as to
the identification of the most economically advantageous bid”. However, Lord Malcolm
also observed that the contracting authority enjoys no such margin of discretion where the
basic principles of public procurement have been breached. Where, for example, the
contracting authority acts in breach of the obligations incumbent upon it in terms of
regulation 19(1), the court will intervene.
[34] Nor is it in dispute that the principle of transparency obliges the contracting
authority to assess all tenders received in accordance with the published rules of the
McCloskey J at paragraph 76. If it fails to do so, its decision is open to challenge and no
question of having to demonstrate manifest error arises. The principal issue in the present
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case is whether the pursuer has identified any material failure on the part of the council to
assess the tender received from Procast in accordance with the terms of the ITT.
[35] Mrs Tannock explained that in deciding to award the contract to Procast, the council
had relied upon the self-certification in Procast’s ESPD that they met the minimum turnover
requirement. When assessing the tenders submitted, she had noted that Procast stated in its
ESPD that it was participating in the procurement procedure together with others, that it
had supplied a name for the other bidders (JR Group), and that it had submitted ESPDs for
JR Scaffold Services Ltd and JR Specialist Services Ltd. It was clear to her that Procast was
bidding on behalf of a consortium of companies. She had also, however, noted Procast’s
statement that it was not relying on the capacities of other companies in order to meet the
selection criteria. Because of this, she had posted the query on the portal to which Procast
replied confirming the consortium arrangement. She considered that Procast’s intentions
had been clearly explained by the time of the board meeting on 30 January 2019. The council
had had a discretion in terms of the ITT to award a contract to a tenderer who did not meet
the minimum turnover requirement, but the question of exercising the discretion did not
arise because of Procast’s self-certification that it met the requirement. It would have made
no difference if supporting documentation had been sought in advance of the board
meeting. Mrs Tannock had also obtained Dun & Bradstreet reports on all three companies.
She was not sure whether she had done this in advance of the board meeting but thought
that it was very likely that she had.
[36] In the course of cross-examination, Mrs Tannock was referred to the provision of the
ITT which stated that where members of a consortium did not meet the minimum turnover
requirement in their own right, the council might consider an alternative proposal. She
responded that these were matters falling within the discretion reserved by the council. I
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did not find that response entirely satisfactory, because elsewhere in her evidence she
emphasised that the council had relied on the self-certification and did not require to
exercise any discretion. In this regard, however, I note that it is accepted by the pursuer in
its pleadings that the council was satisfied that acceptable alternative proof of Procast’s
financial standing had been provided (subject to the argument that this conclusion was
unlawful), and I do not consider that it is now open to the pursuer to raise any issue as to
whether a discretion was exercised to accept a bid which did not meet the minimum
turnover requirement.
[37] Mrs Tannock accepted that Procast had provided an incorrect answer in its ESPD to
the question regarding reliance on the capacities of other companies. Her explanation, that
the council had accepted an alternative proposal, was broadly consistent with her evidence
that she had clarified this matter in post-tender correspondence. She was also asked about
the discrepancy between the reference in Procast’s clarification to “JR Group Ltd” -
apparently a single company - and the ESPDs submitted on behalf of two separate JR
companies. She considered that it had been clear that the bid was being submitted on behalf
of Procast and another two companies.
[38] My impression was that some of Mrs Tannock’s reasoning was being applied
retrospectively and did not always reflect the council’s decision-making process at the time
of approval of her recommendation to the board. But the question for the court is whether
the council failed to assess Procast’s tender in accordance with the terms of the ITT. In my
opinion there was no material departure from its terms. The key point, in my view, was that
the ITT expressly provided for self-certification of minimum annual turnover. Procast
certified that it met the requirement and the council was entitled, if it so wished, to take a
decision on the basis of that self-certification. This was not, of course, the end of the matter:
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all that happened on 30 January 2019 was that the council’s head of corporate services was
authorised to accept Procast’s tender. No contract was then entered into. Nor was the
contract entered into on 13 February 2019 when the council informed Procast that its tender
had been successful, but by this time the council had in any event sought and obtained
evidence, in the form of unaudited accounts, to satisfy it that the minimum turnover
requirement had been met. The information and documentation supplied made clear that
Procast was relying upon the combined turnover of itself and the two JR companies in order
to meet the requirement. In terms of the ITT that amounted to an alternative proposal,
which the council was entitled, if it so chose, to regard as sufficient. By the time the council
intimated its intention to award the contract to Procast, it was fully informed as to the means
by which Procast claimed to meet the requirement; a fortiori it was in possession of that
information at the time when the tender was formally accepted and the contract entered
into.
[39] There were undoubtedly inconsistencies in the information submitted by Procast
from time to time: the ESPD wrongly stated that Procast was not relying on the capacities of
other companies, and the post-tender correspondence referred to a single company called JR
Group Ltd whereas ESPDs were submitted in relation to two companies with different
names. However, by the time of conclusion of the contract, the council was entitled to reach
the view that those inconsistencies had been satisfactorily resolved. By at latest 5 February
2019 there was no remaining doubt that Procast was relying upon the combined annual
turnover of itself and the two specified JR companies in order to meet the minimum
turnover requirement.
[40] I reject the submission that the terms of Mrs Tannock’s portal entry dated
15 February 2019 demonstrate that at the time of intimation of the award of the contract the
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council was not in possession of the information necessary to enable it to determine whether
the requirements specified in the ITT had been met. Matters such as the identity of the
person with whom the contract would be entered into were clearly of importance, but there
was nothing in the terms of the ITT to require them to have been finalised before the
decision to award was made. I accept that if at a late stage a problem had arisen in relation
to whether Procast could propose a contractual structure acceptable to the council, this
might have created significant concerns, including funding difficulties, for the council. That,
however, appears to have been a risk that the council was prepared to take: as Mrs Tannock
observed, if Procast had failed to provide satisfactory evidence of its financial stability, the
matter could have gone back to the board or back to tender. However unfortunate that
would have been, it is not relevant to the question whether the terms of the ITT were met.
[41] I turn now to the specific issue of adjustment of turnover for any inter-company
trading among Procast and the two JR companies. In my opinion it is a sufficient answer to
this point that the ITT did not provide for any such adjustment, and accordingly there was
no obligation on the council to investigate the matter. I accept Mr Hughes’ evidence that the
effect of a substantial degree of inter-company trading could have been that the consolidated
turnover of the three companies would be reduced because of double counting. It would
have been open to the council to make provision for such a situation in the terms of the ITT,
but it did not. The only relevant provision of the tender is set out at para [4] above, ie that
where the members of a consortium did not meet the minimum turnover in their own right,
the council would consider whether an alternative proposal by the tenderer could be
considered equivalent to the minimum requirements. In considering Procast’s alternative
proposal, it would in my view have been open to the council to seek information regarding
inter-company trading with a view to making an allowance for it, but it was under no
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obligation to do so, either as a matter of law or in terms of the ITT. Failure to meet the
£10 million minimum turnover requirement would not have led to automatic
disqualification.
[42] I am not persuaded that the approach adopted by the council was unfair to single
company tenderers. Although the expert witnesses agreed that inter-company trading could
provide an opportunity for fraudulent inflation of aggregate turnover, it was not suggested
that any such thing had occurred in the present case, and I must consider the comparison
between a consortium tenderer and a single company tenderer on the assumption that no
improper conduct has taken place. Any potential unfairness was removed by the discretion
retained by the council to award the contract, whether to a consortium or a single company,
even if the minimum turnover requirement was not met.
[43] Nor, in my view, can it be asserted that the council fell into manifest error in failing
to inquire into and make adjustments for any inter-company trading. It was common
ground between the expert witnesses that neither company law nor financial reporting
regulations required a consortium to prepare or submit consolidated accounts. Mr Hughes’s
view was that despite there being no such requirement he would want, if in the council’s
position, to see all the cards on the table, including details of any inter-company trading.
Mr Bell’s opinion was that the appropriate method of presentation of the accounts of a
consortium - as opposed to a group - was not to consolidate, and that the most accurate
means of measuring combined turnover was simply to aggregate the turnover of the
individual companies. Neither of those opinions appears to me to be so unreasonable that I
must reject it as logically unsupportable (cf Bolitho v City and Hackney Health Authority
[1998] AC 232, Lord Browne-Wilkinson at page 243). It cannot therefore be said that the approach
adopted by the council amounted to manifest error in the sense of an error that “almost
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jumps from the page”, as Lord Malcolm put it in Glasgow Rent Deposit & Support Scheme v
Glasgow City Council (above) at paragraph 15. Putting the matter the other way round, it
was within the council’s margin of discretion to proceed on the basis of the figures supplied
and vouched by Procast without inquiring into the existence or extent of inter-company
trading between or among it and the two JR companies. I do not regard the evidence
regarding work carried out by Procast for North Lanarkshire Council as being of any
relevance to the issue in the present case.
[44] Finally, I do not consider that any of three respects in which the pursuer contends
that the contract was awarded otherwise than according to the terms of the ITT amounts to a
breach of the obligation of transparency. I have already addressed the decision to award the
contract to Procast even though none of the consortium members individually met the
minimum annual turnover requirement. The fact that the contract was ultimately entered
into with Procast alone was, putting it at its highest for the pursuer’s case, a failure by the
council to secure an advantage to which the erroneously-included paragraph 1.18 might
have entitled it, and not a failure to assess the competing bids in accordance with the terms
of the ITT. The same may be said about any failure to secure the joint and several liability of
the JR companies. If indeed there was such a failure (a matter on which I need make no
finding), it had no impact on the assessment of tenders which is the substance of the
pursuer’s case.
[45] For these reasons I accept the council’s submission that there was no failure to assess
the competing tenders in accordance with the terms of the ITT, and accordingly that there
was no breach of the obligation of transparency in regulation 19(1). The pursuer’s claim falls
to be refused.
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Time bar
[46] In the light of my conclusion, the question of whether the present proceedings were
raised timeously does not strictly arise for decision, but as the matter was argued I shall
express my view on it. Regulation 88 provides inter alia as follows:
“(3) Proceedings under this regulation may not be brought unless—
…
(b) the proceedings are brought in accordance with paragraph (4).
(4) For the purpose of paragraph (3)(b), proceedings must be brought—
…
(c) in any other case, within 30 days beginning with the date when the economic
operator first knew or ought to have known that grounds for starting the
proceedings had arisen unless the court considers that there is a good reason for
extending the period within which proceedings may be brought, in which case
the court may extend that period up to a maximum of 3 months from that date.”
The pursuer did not seek to argue that there were grounds for exercise of the court’s
discretion to extend the period, and so the matter for determination is when the pursuer first
knew or ought to have known that grounds for starting proceedings had arisen.
[47] On behalf of the council it was submitted that the 30 day period in regulation 88(4)(c)
began to run on 13 February 2019, when the pursuer was informed that the contract was to
be awarded to Procast. Mr Kennedy’s evidence had been that the pursuer took the view that
the council could not have properly applied the applicable rules, because it was clear Procast
did not meet the required economic and financial standing set out in the ITT. Mr Kennedy
had established from publicly available information that Procast’s turnover in recent years
was well below £10 million. Letters challenging the award to Procast had been sent during
the standstill period. The previous action had been raised on this basis. The 30 day period
had accordingly expired before the present action was raised on 13 June 2019.
[48] The pursuer contended that the 30 day period had begun to run on 17 May 2019,
when the council produced documentation which disclosed Procast’s reliance on the
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turnover of the two JR companies in order to meet the minimum turnover requirement.
That documentation had post-dated the board’s decision to authorise the award of the
contract to Procast. Mr Kennedy explained that the pursuer took the view that these
documents had not been, and could not have been, taken into account when Procast’s tender
was evaluated, and that without them Procast had required to be assessed as a fail in terms
of the ITT. Until the pursuer had had sight of these documents, the pursuer was not aware
and could not have been aware of the grounds of challenge relied on in the present
proceedings.
[49] In Johnson & Johnson Medical Ltd v Greater Glasgow Health Board [2016] CSOH 12, the
Lord Ordinary (Lord Jones) referred at paragraph 66 to the decision of the Court of Appeal
had been held in that case that, when deciding whether an unsuccessful tenderer had
sufficient knowledge to bring a claim for infringement of the public procurement rules, the
applicable standard was knowledge of facts which clearly indicated, though they did not
absolutely prove, an infringement. Applying that test to the circumstances of the present
case, I consider that the proceedings were timeously raised. During the period following
intimation of the decision to award the contract to Procast, the pursuer was aware only that
Procast’s turnover was insufficient to meet the minimum turnover requirement. The issue
in the present case is whether the council acted unlawfully in awarding the contract on the
basis of Procast’s reliance on the combined turnover of itself and the two JR companies.
Although the pursuer was made aware in February that Procast’s bid had been a consortium
bid, the critical facts in relation to the consortium’s satisfaction of the minimum turnover
requirement did not come to the pursuer’s knowledge until the relevant documentation was
disclosed on 17 May. That, in my view, was the earliest time at which the pursuer had
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knowledge of the facts that have formed the basis of its assertion that the contract was
awarded in breach of the terms of the ITT.
Disposal
[50] For these reasons I shall repel the pursuer’s pleas in law and also the council’s first
plea in law (that the action is time-barred), sustain the council’s third plea in law, and grant
decree of absolvitor. Questions of expenses are reserved.