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Public bodies cannot favour a home team

IT/Law report: The Court takes a very dim view of national favouritism in public works contracts, writes Jeremy Winter

IN LATE October, the press was full of reports about the case of Harmon CFEM Facades (UK) v The Corporate Officer of the House of Commons.

This concerned the decision of the House of Commons' Public Works Department to appoint a UK contractor to supply fenestration for the new parliamentary office building above WestminsterUnderground station.

The UK contractor was appointed even though there was a technically compliant lower bid from another company (Harmon) that was American-owned.

Judge Humphrey Lloyd found that the Commons had breached all kinds of legal obligations to Harmon and was liable to pay Harmon significant damages, including loss of profits.

The parliamentary building was constructed on a construction management basis, so the House of Commons (HC) awarded individual works contracts for all the packages, including the windows. The HC knew it had to comply with EU Public Procurement rules (incorporated into English law as the Public Works Contracts Regulations 1991), involving advertising in the Official Journal and equal treatment of bidders, irrespective of nationality.

The package was advertised in the Official Journal, where it was stated (as is permitted by the regulations) that the contract would be awarded on the basis of the 'most economically advantageous offer' - which is not necessarily the lowest price. However, theevidence showed that the HC favoured giving work to UK firms wherever possible.

The fenestration package was bid and re-bid. Each time, Harmon's price was the lowest. Despite this, HC awarded thecontract to Seele/Alvis, a British/ German competitor, on what the judge found were unsatisfactory grounds that the whole-life cost of Seele/Alvis's was lower than Harmon's.

Harmon brought an action against HC alleging, first, that HC had breached the UK's obligations under the Treaty of Rome not to discriminate on grounds of nationality and not to restrict intra-community trade. Secondly, the firm claimed damages for breach of the Public Works Contracts Regulations 1991. Thirdly, Harmon claimed HC had breached an implied contract that had arisen from the tendering process.

Finally Harmon alleged the tort of 'misfeasance' by HC's officers.

The judge found that HC had not treated Harmon fairly or equally and hence was in breach of the treaty. HC had pursued a policy of favouring UK-owned contractors and had entered into unlawful post-tender negotiations with Seele/Alvis, producing a cost saving which other tenderers did not have the opportunity to bid against. This discriminated against Harmon as a close competitor of Seele/Alvis.

Secondly, he found that HC had not complied with the Public Works Contracts Regulations. By saying that the tender would be awarded on the basis of 'overall value for money', instead of properly defining criteria for deciding what was the 'most economically advantageous offer', HC became bound to award the contract on the basis of price alone.

Thirdly, HC's invitation and Harmon's bid created an implied contract under which HC was under certain obligations: that any alternative bid submitted by a tenderer would be considered alongside a compliant tender; any alternative would be one of detail and not of design; and tenderers who responded to that invitation would be treated equally and fairly. Therefore, by only discussing the alternative design with Seele/ Alvis, HC had failed to treat Harmon and the other tenderers fairly and equally.

Fourthly, HC had committed the tort of misfeasance - the wrongful exercise of lawful authority. The court found that the officer in charge either knew or was reckless as to the fact that the tendering process was not conducted in accordance with the appropriate legal provisions and this was likely to harm Harmon.

The judge held that Harmon was entitled to recover its tender costs because it was highly probable that, had procurement procedure been carried out properly, Harmon would have won the contract. It was also allowed to claim lost profit. The amount of the damages is yet to be assessed.

This case, in the clearest and most public way, has confirmed the basic principle that the European public procurement rules must be complied with by public bodies, and discrimination in favour of local bidders will not be permitted. Subject to any appeal, Judge Lloyd's judgement will be a useful manual of how to deal with the difficult issues that arise in post-tender negotiations.

Because of the rules of disclosure of documents in litigation, all of the internal papers of the HC and its consultants were subjected to scrutiny by the court. In the light of the clear picture of nationalistic favouritism that they showed, it is surprising that the case ever got to court. The fact that HC was found guilty of the rare and serious tort of misfeasance shows just how dim a view the judge took of its conduct.

Jeremy Winter was assisted in the preparation of this article by Jonathan Flintoft. This and other articles written by Jeremy forConstruction News appear on law firm Baker & McKenzie's website at: www.bakerinfo.com.

Key points

EU Public Procurement rules, as incorporated into English law, prohibit a 'Buy British' policy by public bodies.

Tenderers who lose contracts as a result of nationalistic favour-itism may be able to recover damages,including loss of profits.

Internal notes on the tender process will have to be produced to the court in litigation brought by disgruntled tenderers.