Rejecting a Tender when it ‘fails’ to pass a mandatory requirement – MLS (Overseas) Ltd and the Secretary of State for Defence

4 May 2018

Procurement challenge specialist, Colin Ricciardiello, considers the implications for procurement practitioners of the High Court’s judgement in MLS (Overseas) Ltd and the Secretary of State for Defence.

Introduction and Background

On 21st December 2017 Mrs Justice O’Farrell, sitting in the High Court, delivered judgment in MLS (Overseas) Ltd –v- the Secretary of State for Defence [2017] EWHC 3389.

Whilst the judgment turned on interpreting the relevant Instructions to Tenderers (“ITT”) it is still of practical relevance and of interest to practitioners when it comes to clearly drafting the rules of a procurement in an ITT and, importantly, clearly stating what are mandatory requirements and the consequences of failing to satisfy that type of requirement.

MLS challenged the MoD’s decision to reject its tender for a contract for global port, maritime and other logistical support services for the Royal Navy. On evaluation MLS would have won except for the fact that in sub question (Question 6.3) – scored ‘pass/fail’ - relating to safety at work, MLS was scored a ‘fail’. As a result, MLS’s tender was determined to be non-compliant and rejected in favour of the next highest scoring tenderer.

MLS’s case was that: (i) the ITT lacked transparency as it was not sufficiently clear in stating what was the consequence of scoring a ‘fail’ for Question 6.3. As a result the MoD was not entitled to reject and when it did it had acted unlawfully by breaching its obligations of transparency and equal treatment; (ii) scoring Question 6.3 as a ‘fail’ was a manifest error as MLS had addressed each of the requirements in question 6.3; (iii) if the MoD had a discretion to reject in cases where a ‘fail’ score was properly awarded, it did not exercise such discretion lawfully.

In response the MoD argued that: (i) Whilst by reason of administrative error the MoD omitted to include an express statement in the ITT that the consequence of a ‘fail’ score was rejection, that consequence was objectively apparent to a reasonably well informed normally diligent tenderer (“RWIND”[1]) either by way of automatic rejection or by exercise of discretion to reject; (ii) There was no manifest error because the MoD’s scoring of question 6.3 as a ‘fail’ was sound; (iii) Therefore, the option to reject was lawfully open to MoD and it had exercised that discretion rationally and proportionately.

Summary of the Judgment

1.  The decision to reject was held to be unlawful due to a lack of transparency – it not being clear to an RWIND tenderer that a ‘fail’ score for Question 6.3 would or could lead to a rejection.

  1. 2.  There was no manifest error in evaluating Question 6.3 as a ‘fail’.
  2. 3.  The exercise of a discretion to reject was lawful, and not disproportionate or irrational.

The Transparency Claim

In the ITT the MoD reserved a right to disqualify any non-compliant tender.

The ITT was made up of 5 technical questions, each of which were to be scored by an award of marks. The sixth section, which included Question 6.3, were evaluated on a pass/fail basis with no explanation as to what the consequences of a ‘fail’ score would be. The Judge rejected MoD’s argument that on a proper construction of the ITT RWIND tenderers would have interpreted the ITT the same way and have understood that the consequences of a ‘fail’ score for Question 6.3 would be an automatic, alternatively discretionary, rejection of its tender. It was held that on a proper construction of the ITT an RWIND tenderer would not understand whether or how a ‘fail’ score for Question 6.3 would, or could, result in a rejection of its tender.

This aspect of the judgment illustrates the need for clarity in ITTs and to spell out what might by implication seem obvious to a contracting authority. Therefore, if fulfilling a criterion to a minimum standard is so important to a contracting authority that it wants to reject for non-compliance then it needs to expressly say that is the consequence for non-compliance either in a mandatory way[2] or at least giving rise to a discretion to reject for non-compliance. The other side of the coin in being so transparent and explicit is that it may prevent contracting authorities from retaining greater flexibility in determining what the consequences are of a ‘fail’ score, failure to reach a minimum scoring level, or some other non-compliance with a mandatory requirement. What is not clear from the judgment in MLS is the extent to which the retention of a right to reject is ‘bad’ for a want of transparency where the grounds and basis on which that discretion would or would not be exercised are not sufficiently explained. The judgment simply presumed that the discretion was capable of being exercised lawfully.

Another aspect of interest arising out of the transparency issues was that if the consequence of non-compliance with Question 6.3 was unclear, then that was apparent on the face of the ITT and time to bring a claim based on that lack of transparency ran from the date of publication of the ITT[3]. However, putting MLS’ claim that way was held by the Judge to be a “mischaracterisation” and its claim did not challenge the ITT but the decision to reject.

The Manifest Error Claim

MLS argued that the MoD was wrong in fact to score its response to Question 6.3 as a ‘fail’ and the MoD should have sought clarification if it considered that evidence in its response was missing. The Judge concisely found that there was no manifest error in the MoD’s conclusion that the response to Question 6.3 was properly evaluated as a ‘fail’. As for the “MoD should have clarified” claim, the Judge again succinctly held that no proper challenge could be made for the failure to ask more clarifications questions than the two clarification questions put to MLS. To have gone further would have been beyond the limits of proper clarification[4] and;

 “To address the inadequacies identified by the MoD, MLS would have been required to provide additional evidence to support its bid. There was a risk that the submission of additional evidence could be characterised as a fresh tender, giving rise to a claim by the other tenderers of unfair advantage. In those circumstances, there was no obligation on the MoD to offer MLS an opportunity to submit further details”.

 Exercise of MoD’s Discretion

This issue was academic as the decision to reject was bad for a want of transparency but the Judge briefly found that when the MoD balanced the answer to Question 6.3, the other characteristics of MLS’s and the next most successful tender, it genuinely exercised the discretion it had retained and there was no irrationality or lack of proportionality in that exercise.

 Effect of the Judgment

In the conclusion to the judgment MLS were awarded a declaration that the MoD had acted unlawfully in rejecting. Unlike in Energy Solutions[5] there was no damages claim because the MoD had not entered into the contract with the ‘winning tenderer’ and it had not applied to end the contract making suspension.

 

Colin Ricciardiello, Sharpe Pritchard LLP

 

[1] For a discussion on RWIND see SIAC Construction Ltd v. County Council of Mayo (Case C-19/00) and Healthcare At Home v. The Common Service Agency [2014] UKSC 49

[2] EnergySolutions EU Limited v. Nuclear Decommissioning Authority [2016] EWHC 1988 considered disqualification for non-compliance at length and reminded that “It is also important to differentiate between cases where the rules of the competition entitle the authority to waive non-compliance, and those that do not. Those authorities engaged in competitions where the rules specifically do not permit this will rarely be entitled to act contrary to those rules, although the rules will differ in case to case”.

[3] There are a number of cases establishing that time for bringing proceedings can run from the date on which an ITT was published and even before the award decision was made. For example, see Turning Point Ltd. v. Norfolk County Council [2012] EWHC 2121(TCC).

[4] For a discussion on those proper limits see SAG ELV Slovensko (Case C-599 (10) and Manova A/S (Case C-336/12).

[5] Energy Solutions EU Ltd. v. Nuclear Decommissioning Authority {2016} EWHC 1988(TCC)

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.

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