This is our second article on the Rail Franchising Litigation.  In this article, we will look at whether a contracting authority is able to use undisclosed tools to assist it in the process of evaluating bids.  Our first article on the Rail Franchising Litigation is available here. 

We have given a summary of the facts of this case in our first article.  For the purposes of this article the following facts are particularly relevant.  The three competitions in this case were complex and the DfT anticipated that bids might not comply with the terms of the ITT to a greater or lesser extent.  The terms of the ITT provided that the Department for Transport (DfT) would exercise its discretion as to whether any instance of non-compliance would result in disqualification.  The Claimants submitted bids which expressly rejected the DfT’s allocation of risk for pensions liabilities and proposed alternative solutions to the management of pensions risk.  The DfT decided to reject the Claimants’ bids on the basis that they were non-compliant with the terms of the ITT and the Claimants complained that their disqualification was unlawful.  The key issue here relates to how the DfT decided whether a bid should be disqualified on the basis of it being “non-compliant” with the terms of the ITT.

The Claimants alleged that the DfT in fact used an undisclosed policy or evaluation criterion for determining whether a bidder should be disqualified or not – namely a non-compliance log.  Importantly the non-compliance log was not disclosed in the ITT and bidders were not aware of it.

The non-compliance log contained a scale for rating the non-compliances (from 1 to 5) with 1 being low, and 5 being high.  The “descriptors” for the ratings varied slightly across the competitions, but, for example, a “1” equated to “minor – a technical non-compliance” or “ignore” and a 5 equated to “Serious – an amendment to the terms of a [contract] which alters the risk allocation as between DfT and Franchisee….” or “consider elimination”.

The Claimants contended that the use of the undisclosed non-compliance log was unlawful.

In its Defence, the DfT submitted that the non-compliance log (and its associated 1 to 5 scale) was not used in the evaluation but that it was merely an administrative tool used by people processing the bids to prioritise which potential non-compliances should be looked at / worked on first, either because of their complexity or their potential seriousness.  The Judge, Mr Justice Stuart-Smith, accepted this.  Whilst he described the phrase  as “ugly” he found that the compliance log was “an internal administrative prioritisation tool” not an evaluation tool.  Importantly he found that the evaluation of the potential non-compliances was carried out later and by a different team to those processing the bids.  The 1 to 5 scale was not used during the evaluation and it did not influence or determine the evaluation decision. In other words, it was not itself part of the methodology by which the DfT decided how to respond to non-compliances and it was not an evaluation criterion or sub-criterion. It did not matter therefore that the non-compliance log had not been disclosed to bidders – it was not required to be.

The Judge also found that neither the existence nor use of the non-compliance log were inconsistent with the terms of the ITT.  The ITT left the exercise of discretion about how to react to non-compliances with the decision-maker and the Judge found that such decisions were not influenced or determined by the non-compliance scale.  For example, he found that the Claimants’ non-compliances on pensions were treated as significant and justifying disqualification, precisely because they were significant and serious – not as a result of any rating they were allocated in the non-compliance log.

The Judge concluded that “[t]he use of the non-compliance log scale thus falls within the ambit of the leeway that was available to the Defendant in carrying out its evaluation…”. 

Commentary

The principle of transparency is at play here – how far do public bodies have to go in explaining to bidders, in advance, exactly how their bids will be assessed?  For those interested in a detailed read, the Judge outlines the key principles at paragraphs 29 to 37 of the judgment.  The key principles can be summarised as:

• The purpose of the transparency principle is: (1) to ensure that bidders can base decisions on how to structure their bids on all the relevant information; and (2) to avoid the risk of favouritism / arbitrary decision-making by the contracting authority.
• Award criteria must be set out in the procurement documents in such a way as to allow all “reasonably well-informed and normally diligent tenderers” (RWINDTs) to interpret them in the same way.
• The contracting authority must also interpret the award criteria in the same way throughout the award procedure.
• Tenderers should be aware of all the features to be taken into account by the decision-maker in evaluating the bids.
• A contracting authority that has adopted a decision-making procedure for assessing bids must comply with that procedure – it cannot change it during the assessment.

The above principles point towards a high degree of transparency in the tender documents.  However the Judge noted one “gloss” which appears to be that a distinction is to be drawn between “award criteria” or “features” to be taken into account during evaluation (which have to be disclosed to bidders) and a “system of marking or its methodology of evaluation” (which does not, generally, have to be disclosed).  On the face of it, this appears to be a difficult distinction to apply.  For example, is a scoring scale evidence of an award criterion or a system of marking?  What about a model answer?  The judge also referred to the need for the contracting authority to have “some leeway in how it carries out its task provided that it does not change the award criteria that it has established”.

In terms of the principle that should guide contracting authorities when deciding what needs to be disclosed to bidders in advance, we would suggest it is this:  if a piece of information could affect either a tenderer’s decision to bid or the way in which they decide to formulate their bid, then it must be disclosed to bidders in advance of tenders being submitted.  It is abundantly clear that criteria and sub-criteria must be disclosed, but in our experience, scoring methodology can also often affect bid preparation and the safest course, if the methodology exists, is to disclose it in the tender documents.  If the contracting authority prepares instructions to evaluators or other tools to be used either in the evaluation or otherwise, the contracting authority must ensure it is very clear on their purpose, and how they are to be used.  If they are to be used in the evaluation and if they could impact on bid preparation, the starting position is that they ought to be disclosed to the participants in the procurement process.

In our next article on the Rail Franchising Litigation, we will look at the question of whether the DfT breached the principle of transparency by failing to provide clear and/or sufficient reasons for the disqualification and/or contract award decisions.

This article was written by Laura Brealey, Partner.