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Group M UK Ltd v Cabinet Office

Angelica Gavin

2 - 5

Best value inspection of London Borough of Tower Hamlets

Lynne Rathbone

6 – 8

Cost budgeting – where are we at?

Nichola Evans

9 – 12

State aid modernisation – where we’ve got to now

Sharon Jones

13 – 15

EU Treaty Principles and their application to regulated procurements

Angelica Gavin

16 - 21

Peter Ware | +44 (0)115 976 6242 | Peter.Ware@brownejacobson.com

2

Procurement challenges are relatively rare, but when they become necessary the parties need to act

quickly. A party seeking to challenge a contract award is often in a difficult position, as they will often not

have all of the facts about why they have failed to secure a contract. This is not assisted by the fact that

aside from the obligations placed upon the contracting authority by Regulation 32 of the Public Contracts

Regulations 2006 (the ‘2006 Regulations’) to provide basic information about the reason for the decision,

there is no obligation on the contracting party to provide any further information. Once proceedings have

been issued in a procurement case, applications for specific disclosure are therefore relatively common. In

Group M UK Ltd v Cabinet Office [2014] EWHC 3401 (TCC) an unsuccessful bidder brought an application for

specific disclosure against the Cabinet Office. The case considers the law in relation to specific disclosure

applications and sets out some of the issues which prospective challengers, and authorities seeking to defend

a challenge should be aware of.

Facts

In March 2014 the Cabinet Office published a contract notice in relation to the provision of media planning

and buying services. An invitation to tender was sent out later that month and tenders were submitted by at

least two companies; the claimant, Group M Limited (‘Group M’) and a company called Carat. Carat was the

successful bidder on the basis that its tender was deemed to be the most economically advantageous.

The Cabinet Office had retained an independent company to evaluate the tenders. The claimant’s pleaded

case was that the Cabinet Office had made it clear in its invitation to tender that sustainability of pricing

was important to it in this tender, and that this was to be reviewed and a discretion retained to disallow

tenders which contained unsustainable pricing.

Before issue of proceedings, the claimant made a request for information. However, it felt that insufficient

additional information was provided by the Cabinet Office and therefore issued proceedings, arguing that its

rates and prices were sustainable, whereas Carat’s were not.

Group M then made an application for specific disclosure, in relation to information about the pricing of

Carat’s tender. The Cabinet Office resisted the application, on the basis that it had been made prematurely

and without affording them the opportunity to consider the requests and make voluntary disclosure of the

documents. They added that they intended to disclose certain documents in relation to the evaluation

process, once confidentiality arrangements were in place.

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The Cabinet Office made an application under paragraph 47 of the 2006 Regulations to lift the statutory

suspension on the placing of the contract with Carat. That application had not yet been heard at the date of

the present judgment.

The law

There are specific considerations which the court will take into account in an application for early disclosure

in a procurement case. These were set out by Coulson J in Roche Diagnostics Ltd v The Mid Yorkshire

Hospitals NHS Trust [2013] EWHC 933 (TCC) (‘Roche Diagnostics’) and repeated by the court in the present

case. The key points to note are that:

An unsuccessful bidder challenging a decision of a contracting authority should be promptly provided

with the essential information and documentation relating to the evaluation process which was

carried out by the contracting authority, so that they can take an informed view of its fairness and

legality. This requirement is always subject to issues of proportionality and confidentiality. Coulson J

in Roche Diagnostics felt that this approach was confirmed by the short time limits for bringing

challenges, which are triggered by the knowledge which the claimant has (or should have) of the

potential breach. In Mears Ltd v Leeds City Council [2011] EWHC 40 QB, Ramsey J said that “the

requirement of knowledge is based on the principle that a tenderer should be in a position to make

an informed view as to whether there has been an infringement for which it is appropriate to bring

proceedings”.

Applications for specific disclosure must be considered on their own merits. There will often be a

clear distinction in cases where the claimant has, on the face of it made out their case but requires

further documentation or information (in which a court is more likely to make an order for specific

disclosure), and cases where the claimant appears to have little or no grounds for disputing the

result (in which it is unlikely to make the relevant order).

Requests for specific disclosure must be tightly drawn and properly focussed. It may be appropriate

to make an application for disclosure of information which demonstrates how the evaluation was

actually performed and therefore why the claimant lost, but other information is unlikely to be so

important that it should form the subject of an early disclosure application.

The court will make its final decision by balancing the claimant party’s lack of knowledge with the

need to guard against applications for specific disclosure being used as a fishing exercise which will

put the defendant to unnecessary cost.

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The High Court also considered the case of Pearson Driving Assessments Ltd v The Minister for the Cabinet

and The Secretary of State for Transport [2013] EWHC 2082 (TCC) in which specific disclosure was considered

in the context of pending s.47 application to lift the statutory suspension.

Judgment

The High Court considered that the application for specific disclosure should be adjourned, on the basis that

it was premature. The defence had not yet been served, and until that time it would not be clear what the

grounds for lifting the suspension (the s.47 application), or for defence of the proceedings would be. This

was relevant because if it were the case that the Cabinet Office was going to argue that Carat’s prices were

sustainable, then it would have had to disclose Carat’s pricing under the standard disclosure as this would be

a document the parties would rely on, and would therefore become available to the claimant.

The court also considered that in relation to the s.47 application, the Cabinet Office would argue that there

is no serious issue to be tried. In order to argue that, the defendant would need to rely on facts which could

be supported by uncontroversial, contemporaneous documentation. It therefore followed that there was no

appropriate ground for making disclosure of this documentation at this stage, presumably because it would

need to be disclosed either in support of the s.47 application or in the course of standard disclosure.

The claimant argued that one of the reasons for making the application for specific disclosure was that it

would enable it to plead its case more clearly. This argument was based on the fact that the claimant’s

pleadings had been based on incorrect information which had been given by the defendant’s solicitors,

although this had since been corrected. The court therefore felt that although the disclosure of additional

information would allow some finessing of the claimant’s pleadings, it would not make a difference to the

basic case, that Carat’s pricing was unsustainable. If disclosure identified other material errors which had

not come to light before, an application to amend the claimant’s pleadings could be made then.

A further argument made by the claimant was that it should not be put to the expense of defending the s.47

proceedings without knowing the detailed evidence of Carat’s pricing, which would enable it to assess

whether it was appropriate to defend the suspension proceedings or continue with the overall challenge.

The court found that the suspension proceedings had to be brought within a relatively short period of time

in case there was anything in the argument and evidence that is likely to be deployed by the defendant that

it is urgent that the suspension is lifted and that the contract is placed with the successful bidder. The

court would review the evidence on that when it came in and therefore given the timescales, it was felt

more likely than not that the claimant would be put to the expense of the proceedings whether or not the

order for specific disclosure were made today.

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The application for specific disclosure was therefore adjourned.

Angelica Gavin | +44 (0)115 976 6092 | angelica.gavin@brownejacobson.com

6

London Borough of Tower Hamlets

In April this year PricewaterhouseCoopers LLP (‘PwC’) was appointed by the Secretary of State for

Communities and Local Government to carry out an inspection of the London Borough of Tower Hamlets’

(Council) compliance with its best value duty. The inspection was commissioned following receipt of certain

documents by the Department for Communities and Local Government (‘DCLG’) regarding governance issues

within the Council and also as a result of a BBC Panorama programme that was broadcast on 31 March 2014

which made allegations about governance failures, poor financial management and possible fraud.

On 4 November 2014, DCLG published the resulting report on the inspection (‘Report’) which, as a result of

the nature of the allegations, focuses on four key areas:

the Council’s payment of grants and connected decisions;

the transfer of property by the Council to third parties;

spending and the decisions of the Council in relation to publicity; and

the Council's processes and practices for entering into contracts.

The primary purpose of the inspection was to form a view as to whether the Council was complying with its

obligations under Part 1 of the Local Government Act 1999 (the ‘Act’) in respect of governance, in particular

the obligation to make arrangements to secure continuous improvement in the way in which the Council’s

functions are exercised, having regard to a combination of economy, efficiency and effectiveness, as well as

consulting appropriately on how to do to. This was what the Report referred to as the ‘best value duty.’ The

term ‘arrangements’ is broadly interpreted to include all of the management structures policies, processes

and controls that are put in place to govern the exercise of an authority’s functions.

The Report states that in order to meet the best value duty, “any such arrangements should be designed to

secure continuous improvement in the in the exercise of the organisation’s functions and should also be

operating in a way that substantially meets that objective”.

Although what would constitute ‘continuous improvement’ is not actually defined, either by the Act or in the

Report itself, it is clear that if an organisation has taken steps to make improvements to the way in which its

functions are exercised, but continues to fail to achieve a satisfactory level of economy, efficiency and

effectiveness in the exercise of its duties, then it cannot be said to be fulfilling its best value duty.

The Report concluded that in a number of cases the best value duty had not been complied with. PwC said

"in our view the current governance arrangements do not appear to be capable of preventing or responding

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appropriately to failures of the best value duty of the kind we have identified. This calls into question the

adequacy of these governance arrangements and the extent to which they are sufficiently robust to enable

the Authority to prevent or respond appropriately to other failures of a similar nature."

Some of the areas of failure included:

a lack of transparency generally over the rational for decisions as to grant awards;

grants being awarded to organisations which were ruled ineligible or which did not meet the

required evaluation score when assessed by officers applying the agreed applications evaluation

methodology;

no independent reviews into grant awarding processes, despite recommendations to the contrary;

gaps being evident in the monitoring of performance of grant recipients;

multiple examples of failures to comply with best value duty in respect of transfer of property to

third parties, including: the acceptance on more than one occasion of a late bid from the winning

bidder after other bids had been opened creating a risk of bid manipulation; a winning bidder being

granted changes to the contract it had signed; a winning bidder being connected to a person with

other business interests that had an association with the Mayor which, if it was known at the time,

should have been disclosed; and the highest bid not being accepted; and

with regard to spending and the decisions of the Council in relation to publicity, the clear

implication that Council monies were spent inappropriately on what amounted to political

advertising for the benefit of the Mayor, breaching the Code of Recommended Practice on Local

Authority Publicity, which in itself constitutes a failure to comply with the best value duty in that

instance.

With regard to the Council’s process and practices for entering into contracts, however, although there were

areas highlighted in the Report where the Council could improve, the Report states that PwC “do not

consider that the matters brought to light by our review constitute a failure by the Authority to comply

with its best value duty in relation to contracting”.

In the Report, PwC observed some fundamental governance issues which they felt to be the cause of the

other failures identified in Report. Further, PwC specifically highlighted the Council’s “tendency towards

denial or obfuscation rather than an inclination to investigate concerns raised” as a major hurdle to

identification and rectification of the issues concerned.

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A copy of the Report can be found on the website here.

Following the publication of the Report, press reports have suggested that the Communities Secretary, Eric

Pickles, intends to send commissioners into the Council, who are likely to remain in place until 31 March

2017.

Conclusion

As public scrutiny of local authorities continues to increase, and the spotlight on transparency of working

practices, good governance and financial accountability remains firmly in place, it is imperative that robust

governance structures are not only developed and implemented, but also regularly reviewed and updated,

and that staff are properly trained and adequately supervised to ensure that such governance policies are

properly adhered to at all times across all departments.

Perhaps a key lesson to be learnt from the Report would be for authorities to avoid

taking the route of ‘denial or obfuscation’ and instead to take a more proactive

approach to reviewing their policies and procedures as a matter of course in order to

head off any issues at the pass.

Lynne Rathbone | +44 (0)1392 458739 | lynne.rathbone@brownejacobson.com

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Formal cost management procedures were brought in for multi-track cases with a few exceptions for higher

value cases in April 2013. So how have the courts dealt with this regime to date and is it working?

The provisions

CPR 3.12 to 3.18 introduced the cost budgeting provisions together with Practice Direction 3D. For cases

commenced on or after 22 April 2014, cost budgeting now applies to all multi track County and High Court

cases (including the Commercial Court) where the case has a value of up to £10m.

Parties to litigation have to exchange budgets in the prescribed form (Precedent H). Cases where costs will

not exceed £25,000 only require the first part of the form to be completed. Costs need to be set out in

different phases reflecting the different phases of litigation such as disclosure and witness statements. The

form needs to be completed by the date specified in the notice of proposed allocation or if none is advised

no later than seven days before the first case management conference (CMC). The form has a statement of

truth and it must be signed by a senior legal representative of the party.

The parties are encouraged to discuss the budget and attempt to agree them. This is not an admission that

the costs are all recoverable but rather that they form a reasonable estimate of costs as a ballpark for the

litigation.

The matter then goes before the judge for scrutiny with the budgets being approved, amended or rejected.

The decision of the judges is recorded for future reference.

Budgets can only be revised if there are ‘significant developments’. Going forward the budgets will be used

as part of the case management process to ensure that litigation is managed in the most proportionate way

possible. Those drafting the new provisions anticipated far more robust case management with more issue

based applications and trials.

How have the courts dealt with the introduction of cost management?

The key message seems to be for practitioners to get to know the workings of the court you are dealing with.

There seem to be a number of local practices developing. A few examples:

London – a time estimate of 90 minutes for each cost management hearing, in person and listed

before a full time district judge.

Liverpool – the same approach but with a mini detailed assessment taking place.

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Bradford – any case up to £50k with a one day estimated length of hearing for trial is allocated to the

fast track. Hence a large number of multi-track cases disappear without the need for a cost

management order!

Nottingham – 90 minute hearings with the District Judges there saying that three months of delay has

been added to the District Judges’ lists.

In my local court Manchester by way of comparison judges say that they spend between 12 and 14

minutes analysing a budget, a figure so precise I wonder if they all have egg timers on their desks!

Even when you get past the listing of a cost management hearing, here are some more examples of what

happens next:

At least one county court insists that advocates at the first CMC should have their laptops with them

to record any alterations to cost budgets there and then.

It is reasonably common for solicitors to turn up at the first CMC with a costs lawyer so that the costs

lawyer can deal with any budget enquiries. I have heard stories from some of the London courts that

the costs lawyers are denied a voice at hearings and that their comments have to be channelled

through the solicitor attending the hearing. This clearly increases the time and cost involved in the

first CMC.

There are stories of courts refusing to deal with the cost budget if the person signing the statement

of truth is not there. Does this mean that for the first CMC the senior representative has to be

present?

And then finally I have come across the case of a budget prepared on the assumption of a telephone

CMC. Having ordered attendance, the Judge heard from counsel, thanked him for his assistance and

then refused his costs because they were not in the budget.

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The way forward

So what is ‘best practice’ when looking at cost budgeting?

My advice would be:

Advance planning is key. Do not wait until proceedings have been issued. At an early stage start

scoping out the litigation and anticipate what external resources will be needed. Ask counsel and

experts to provide a full cost estimate for work needed on the litigation. Many barristers’ chambers

have now had external training on how to deal with their cost estimates and are now better able to

provide those estimates.

Think tactically – cost budgeting can be used as a tool in case management. Remember there can be

split trials or issue based applications which deal with key parts of a claim. So if liability on a case is

looking considerably cheaper than the quantum issues think about structuring the budget so that

liability gets dealt with first. In personal injury claims this can be particularly worthwhile given that

it is subject to the Qualified One Way Costs Shifting (‘QOCS’) regime.

The budget should be prepared with care and with as much detail as possible. If possible explanatory

notes should be given. My own view is that cost budgets are best prepared by the solicitor handling

the case with input from a cost lawyer rather than the other way around. It is only the solicitor with

conduct of the case who knows exactly what is going on and the peculiarities of the case.

Know the court that you are litigating in. As I have mentioned before there has been a huge amount

of regional variation so make some enquiries. Will you need the ability to amend the budget on the

day? If you send a representative who hasn’t signed the budget will that court allow that person to

conduct the hearing?

Monitor the costs of litigation on an ongoing basis and if it looks as if an amendment to the budget is

required, the application needs to be made at the earliest point possible. This is also one area where

an eye needs to be kept on legal updates as there is very little legal authority on the issue. Cost

commentators believe that this is an area where we will start to see the cases come through the

courts and then the appeal courts.

We have prepared a guide for the preparation of a cost budget which can be accessed here.

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Conclusion

The courts have made it very clear that cost budgeting is here to stay and may well be extended further. As

recently as the end of October Mr Justice Coulson in the case of CIP Properties (AIPT) v Galliford Try

Infrastructure and others [2014] EWHC (TCC), said there was “no presumption” against ordering costs

budgets in claims above £10m and indeed did so in a case worth £18M.

Parties need to approach claims as they would project management. As Lord Justice Jackson

said in a recent paper “Most civil litigation is a form of business project in which the

parties invest substantial sums in order to achieve a just outcome. Even justice must have a

price… Outside litigation no normal business project is conducted on an open ended basis,

with costs simply being added up at the end.” It pays to be forward thinking and preparing

budgets as early as possible. Andrew Mitchell MP found out what happens when lawyers are

not prepared and fail to file budgets in accordance with deadlines: you are restricted to the

recovery of court fees (but not your costs).

Nichola Evans | +44 (0)161 300 8021 | nichola.evans@brownejacobson.com

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As most readers with an interest in state aid will be aware, the Commission has been engaged in its state aid

modernisation programme (SAM) for the last two and a half years. In May 2012, the Commission launched its

reform programme, with three main objectives:

Foster growth in a strengthened, dynamic and competitive internal market.

Focus enforcement on cases with the biggest impact on the internal market.

Streamlined rules and faster decisions, to cut the red tape and simplify granting ‘good’ state aid.

Implementation of the reforms is nearly at an end (with the final version of the communication on the notion

of state aid still to come). So, it’s a good time to look at the changes and what are the main consequences

for providers and recipients of state aid.

What are the key parts of the reforms?

The Commission has adopted 10 guidelines. These include more or less useful guidelines on research and

development (‘R&D’) and innovation, broadband (still a hot topic), rescue and restructuring, energy and the

environment and on risk financing of small and medium-sized enterprises (‘SME’s).

The new regional aid guidelines (which apply until 2020) are certainly beneficial. They should make it easier

to grant smaller amounts of aid for regional development purposes. There is a marginal overall increase in

the areas where regional aid can be granted. It goes up from 46.1% to 47.2% of the EU population. However,

there is a stricter approach on aid for investments made by large enterprises in more developed assisted

areas. The aim of this is to reduce any distortion of competition within the Single Market.

There are also five new regulations aimed at updating State aid rules and making procedures more efficient

(e.g. De Minimis, which came in at the end of 2013).

One of the key new regulations is, of course, the new General Block Exemption Regulation (GBER), which

came into force on 1 July, six months after it was supposed to have been adopted. As with the other new

regulations, its aim is to simplify aid granting procedures for member states by authorising a host of

measures in a variety of different areas, so that aid can be granted having to notify the Commission in

advance and seek authorisation.

We have previously written about the different areas which the new GBER covers, so won’t repeat these in

any detail, save to say that there are new categories which weren’t previously covered by GBER – these

include innovation aid to large enterprises, media, communications, heritage, literature and broadband –

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together with a new residual category for public sector infrastructure – designed to capture Leipzig-

Halle/German Incubator principles, after a fashion, within GBER.

There are new types of exempted aid which sit within categories which were in the old GBER – these include

wider categories of risk finance aid, investment aid for research infrastructures (haunted by the German

Incubator decision) and new exemptions for energy and environmental aid.

It’s also worth noting that the new GBER applies higher notification thresholds and larger aid intensities in a

number of instances e.g. higher thresholds for notification of R&D and innovation aid. An example of this is

that aid for experimental development of up to €15 million per project and per beneficiary can now be

granted, doubling the previous threshold. The increase in threshold for aid to allow SMEs etc to access risk

finance is particularly striking, no doubt reflecting the need to boost European economies, having risen from

€1.5 million per year to €15 million overall in the development cycle of the recipient. This particular

exemption also covers a wider range of financial instruments, such as equity, quasi-equity, loans and

guarantees.

Aid providers and recipients should really benefit from greater use of GBER, not least because less aid will

have to be notified and there are, on balance, fewer administrative burdens where GBER conditions have

been made simpler.

The Commission estimates that three-quarters of current state aid measures and around two-thirds of aid

amounts in total could be covered by the new GBER. If member states use GBER to its fullest extent

possible, that could increase to 90% of all aid measures. This would mean that only aid with the greatest

potential to distort competition would be notified to the Commission. That is possibly a little optimistic.

What happens now?

Most of the new guidelines and regulations came into force on 1 July and the onus is on member states to

get on with promoting and using them to their best effect. The UK has historically been one of the more

enthusiastic users of GBER (with France, for whatever reason, being at the bottom of the pile). Existing

schemes will have to be adapted to suit new GBER and measures will be implemented by member states

under the new rules.

Member states will also have to ensure that they take steps to ensure transparency and evaluation – and

checks and balances - in accordance with the new rules.

Meanwhile, the Commission will be looking at aid with the biggest impact on competition - as well as acting

as auditor – and imposing audit requirements on member states. As well, of course, as finalising that overdue

Communication on the notion of State aid (and we’ll be writing about that when it’s issued).

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This is all helpful. What’s the catch?

There is a lot more flexibility and there are more schemes and exemptions to enable ‘good’ aid to be passed

on. That said, there is still a need to balance flexibility with the objective of avoiding unfair distortion of

competition.

There will be greater transparency in terms of making the award of aid public – which could lead to more

challenges and complaints.

There are more detailed and extensive monitoring obligations on member states.

And, as noted above, there will be more evaluation of large schemes after the event by the

Commission.

But on the whole, SAM is proving to be a good guy.

Sharon Jones | +44 (0)115 976 6284 | Sharon.Jones@brownejacobson.com

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Their application to regulated procurements

European Union (EU) public procurement law is based on three key elements. The directives, from which

stem the public contracts regulations implementing EU public procurement law into UK law (there are

different regulations for England and Wales, Scotland and Northern Ireland); some provisions of the Treaty

on the Functioning of the European Union (the TFEU), and the fundamental principles underlying the Treaty.

Four of the fundamental principles are codified in Directive 2014/24/EU on public procurement and

repealing Directive 2004/18/EC (the 2014 Directive), which sets out the overarching principles of EU

procurement law. The 2014 Directive came into force in April 2014 but has not yet been transposed into UK

law. The Public Contracts Regulations 2006 (the 2006 Regulations) are currently the source of procurement

legislation in the UK and apply the 2014 Directive’s predecessor, the 2004 Directive. Article 18 sets out the

principles of procurement, and provides that “Contracting authorities shall treat economic operators

equally and without discrimination and shall act in a transparent and proportionate manner.” The final

principle, of mutual recognition is derived from the general principles of EU law. Where a public

procurement does not fall within the scope of the Directives, the procurement is only subject to the

fundamental treaty principles stemming from the TFEU (Treaty Principles).

Much attention is given to the procurement regulations and directives, particularly at the moment as the

new public procurement regulations are expected to come into force in 2015 implementing the 2014

Directive. We tend to think of the Treaty Principles as having application only to below threshold and part B

procurements, and therefore as being of limited importance in procurements which are regulated by the

directives. In fact the Treaty Principles, because they pervade and guide all procurement law, are of equal

importance and relevance to any procurement. This is shown throughout EU jurisprudence, which

demonstrates the fundamental importance of the treaty principles in regulated procurements.

The Treaty Principles

Proportionality

Recital 1 of the 2014 Directive provides that “the award of public contracts by or on behalf of Member

States authorities has to comply with the principles of the [TFEU]… and in particular the free movement of

goods, freedom of establishment, and the freedom to provide services, as well as the principles deriving

therefrom, such as equal treatment, non-discrimination, mutual recognition, proportionality and

transparency…” The requirement for proportionality extends to states themselves as well as contracting

authorities.

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In case C-491/01 R v Secretary of State for Health, ex p British American Tobacco (Investments) Ltd and

Imperial Tobacco the CJEU considered the requirement of proportionality and laid down a two stage test. It

should be noted that although the case was not in the context of a procurement exercise, the principles

established in the case are of general relevance. The court explained that “measures implemented through

[EU] provisions should be appropriate for attaining the objective pursued and must not go beyond what is

necessary to achieve it.” The test for proportionality is therefore two stage. 1) Is the measure appropriate

for attaining the objective pursued and 2) does it go beyond what is necessary to achieve it.

In order to satisfy the first stage of the test, it is sufficient that the measure in question is a ‘recognised

means’ of achieving the desired objective, as stated in the British American Tobacco case. The second

question requires the party arguing that a measure is not proportionate to show that there are alternative

measures that would equally attain the objective. This is difficult to demonstrate, particularly because the

courts approach to this is that even where a measure can be shown to be an imperfect solution, this is will

not be sufficient to show that it is disproportionate.

In the case of Fabricom v Belgium [2005] ECR I -1559, the claimant, Fabricom sought annulment of two

provisions of Belgian procurement law which prevented companies who had previously been involved with

the contracting authority, or who had done initial research or studies etc in connection with public works,

supplies or services from bidding for those contracts. Fabricom argued that this provision violated the

fundamental EU treaty provision of proportionality, amongst others, on the basis that it went further than

was necessary to ensure the equal treatment of all bidders, which it felt could equally be ensured by a

detailed assessment of whether prior involvement could lead to a competitive advantage in the individual

case. The CJEU accepted this argument and held the provisions to be disproportionate because they had the

effect of excluding bidders from tendering even where they would not have received any commercial

advantage from having prior involvement with the contracting authority.

Following on from Fabricom, the CJEU in Michaniki AE v Ethniko Simvoulio Rdiotileorasis and Ipourgos

Epiktratias (C-213/07) [2008] held that national laws which exclude certain potential suppliers from bidding

can only be maintained if the purpose of the law is to preserve equal treatment and that the measure is

proportionate to that objective. The Fabricom and Michaniki decisions demonstrate the importance of the

principles; in both cases the CJEU is shown to evaluate national laws for compliance with EU Treaty

Principles.

Equal treatment or non-discrimination

The principle of equal treatment is key to the application of EU law generally, but of particular importance

to procurement law because of the need for a fair procurement process to support the internal market. In

the Fabricom case the CJEU stated that the principle of equal treatment “requires that comparable

situations are not treated differently and that different situations are not treated similarly unless such a

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difference or similarity in treatment can be justified objectively.” The principle does not apply only to

equal treatment between potential suppliers in different member states, but also between different types

and even sizes of potential supplier. For example in the case of Weinstrom GmbH v Austria [I-4527] Case C-

448/01 the court found that criteria which discriminated against smaller suppliers did not comply with the

requirement for equal treatment.

In practice, the principle of equal treatment must be applied to all potential tenderers from the very start of

the procurement process. The case of Commission v France [2000] ECHR 1-2043, (A case under directive

93/38/EEC (the old utilities directive)) concerned a situation where a number of lots of work had been

advertised for tender at national level but only some of the lots had been advertised at EU level. In that

case, the CJEU held that the principle of equal treatment must apply “to all the stages of the tendering

procedure” including the time before a tender has been submitted. Advertising a tender in a way which

would discourage contractors from other member states from tendering is contrary to the principle of equal

treatment and therefore the CJEU found against France on this occasion. The court also held that Article

4(2) (which prohibits the contracting authority from discriminating between tenderers and is analogous to

Article 18 in the 2014 Directive) extends the right to equal treatment to “those who are discouraged from

tendering because they have been placed at a disadvantage by the procedure followed by a contracting

entity”.

Transparency

The purpose of the 2014 Directive and the 2006 Regulations is to eliminate barriers to free trade within the

European Union. The equal treatment of all potential suppliers is fundamental to achieving this aim, and

there is therefore a necessity for transparency in order for compliance with equal treatment to be verified.

The requirement for transparency begins at the stage of advertising the procurement. The CJEU in Telaustria

Verlags GmbH v Telecom Austria (Case C-324/98) held that the principles of transparency and equal

treatment required “a degree of advertising sufficient to enable the market to be opened up to

competition.” It is not sufficient that a contracting authority contacts potential suppliers itself to advertise

the opportunity, an advertisement which is accessible to potential suppliers in all EU member states must be

published. It is worth noting that the Telaustria case was in relation to Part B services. For contracts for

works, goods or Part A services this test should be met by the issuing of the contract notice in OJEU but as

well as the advertising itself, the contract notice must contain sufficient information to allow all potential

bidders to understand clearly what the contract is for and any minimum requirements.

The requirement of transparency means that all potential suppliers must be as far as possible in the same

position when they put together their tenders Case C-87/94 Commission v Belgium [1996] E.C.R I-2043 and

once they have put in their tenders, the tenders must be evaluated against criteria which are clear and

transparent. A contracting authority should therefore make available in its advertisement the criteria that

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will be used for assessing whether a tenderer is suitable, and those which will be used for scoring their

tender (it is common for the contract notice to simply say that the criteria will be in the tender documents).

In particular where a tender is to be awarded to the most economically advantageous bid, all of the criteria

should be given to the potential tenderers and the weighting to be applied to each should be made known.

The reasonably well informed and diligent (RWIND) tenderer test was developed in EU case law in order to

articulate the standard of transparency required in public procurement exercises. The recital to the 2014

Directive provides that “contracts should be awarded on the basis of objective criteria which ensure

compliance with principles of transparency, non-discrimination and equal treatment and which guarantee

that tenders are assessed in conditions of effective competition…”

In the case of SIAC Construction Ltd v Mayo County Council (C-19/00) it was said that “the principle of equal

treatment implies an obligation of transparency in order to enable compliance with it to be verified…this

means that award criteria must be formulated…in such a way as to allow all reasonably well informed and

normally diligent tenderers to interpret them in the same way”.

The key point to note from the EU case law is that the test is objective. The question is not whether it could

be shown that all actual or potential tenderers had in fact interpreted award criteria in the same way, but

whether, when the criteria were interpreted by the court, it could be said that the criteria were sufficiently

clear for uniform interpretation by all RWIND tenderers. The opinion of the Advocate General in Lammerzahl

GmbH v Freie Hansestadt Bremen (C 241/06) explains that the reason for having an objective standard

against which to measure award criteria is to give legal certainty. Use of a subjective standard which

depended on evidence of the ability of particular tenderers to interpret award criteria in a uniform manner

would undermine that certainty.

The need for transparency also extends to the way in which a contracting authority makes decisions on the

award of contracts. The requirement is intended to ensure clarity of decision making and requires decisions

to be based on rules which are set out at the beginning of the procurement process. For example, in the

case of Medipac-Kazantzidis AE v Venizelio-Pananio (C-6/05) the contracting authority had sought tenders for

a product which had to meet EC safety standards. A number of tenders were received from suppliers, from

whom all of the products met the required safety standards but some of which were considered less safe

than others. The court considered whether the authority could reject tenders on the basis of a higher safety

standard than was specified in the invitation to tender. It held that the principles of transparency and equal

treatment required that where the invitation to tender had specified a certain standard and the tender met

that standard, the contracting authority was not permitted to reject the tender on the basis of a higher

standard in order to prevent arbitrary decision making.

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There has been a lot of case law in recent years on the issue of transparency around award criteria. In

Lianakis & Others [2008] (EUECJ C-532/06) the ECJ considered a situation in which a contracting authority

had stated the factors upon which it would evaluate tenders in its contract notice, and then further defined

the award criteria with reference to various sub-criteria and weightings during the evaluation procedure.

Unsurprisingly, the court found that this was not in conformance with the principle of transparency. Where a

contract is to be awarded to the most economically advantageous tenderer, the contracting authority must

state the award criteria that it intends to apply in the contract documents or contract notice. Potential

tenderers should be aware of all of the elements to be taken into account by the authority at the outset and

therefore weightings and sub-criteria that have not already been brought to the attention of the tenderers

should not be introduced at a later stage. In the case of Lettings International Ltd v London Borough of

Newham [2008] EWHC 1583 (QB) the High Court found that the London Borough of Newham had acted

unfairly and without sufficient transparency when it failed to disclose the detail of evaluation criteria and

their weightings to bidders. In considering its judgment, the High Court referred to the Lianakis case and

found that the principle of equal treatment involves an obligation of transparency. Where a contract is to be

awarded on the basis of the most economically advantageous tender, the contracting authority is required to

state the award criteria that it intends to use on the contract documents or contract notice. When preparing

their tenders, potential tenderers have the right to be aware of all of the factors which the contracting

authority will take into account in identifying which bid is the most economically advantageous, and the

relative weighting given to each factor.

Healthcare at Home Ltd v The Common Services Agency [2014] UKSC 49, which concerns a procurement

process which took place in 2010 provides further guidance on the court’s approach to transparency and the

tests it will use when determining whether award criteria are sufficiently transparent. An unsuccessful

bidder, Healthcare at Home Ltd challenged the Common Services Agency’s process on the basis that the CSA

had used criteria in its invitation to tender that were not sufficiently clear. The Supreme Court considered

the RWIND tenderer test and held that the test requires the court to consider an objective standard – what

the RWIND tenderer would have understood the meaning of the invitation to tender. The Supreme Court held

that in order for award criteria to be consistent with the principle of transparency, “all the conditions and

detailed rules of the award criteria must be drawn up in a clear, precise and unequivocal manner in the

notice or contract documents so that first, all reasonably well informed tenderers exercising ordinary care

can understand their exact criteria and interpret them in the same way, and secondly, the contracting

authority is able to ascertain whether the tenders submitted satisfy the criteria applying to the relevant

contract”. Further analysis of the case is available in the ‘Healthcare at Home Ltd v The Common Services

Agency article in the September ‘Public Matters Newsletter’.

Mutual Recognition

The principle of mutual recognition requires that contracting authorities should treat

products and services as equal, regardless of where in the EU they come from so long as

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they are equally capable of meeting the legitimate needs of the authority. This means that,

for example, qualifications earned in one member state should be treated by a contracting

authority as equally acceptable as the equivalent qualification in the authority’s member

state. When drafting tender requirements it is important to ensure that any qualifications or

certifications required can either be objectively justified or are described in such a way

that bidders can put forward alternative, equivalent solutions.

Angelica Gavin | +44 (0)115 976 6092 | angelica.gavin@brownejacobson.com