UK Court of Appeal considers need for clarity in exclusion rules and limits on tenderer responses

Why should I read this?

The Court of Appeal (“CoA”) has allowed Optima’s appeal against the earlier decision made by the Technology and Construction Court (“TCC”)[1] in March 2024. The CoA clarified that the rules of a public procurement competition must be drawn up in a clear, precise and unequivocal manner so that tenderers can be completely sure of how they are going to be applied. The judgment also outlines the principles that emerge when considering whether a contracting authority has the discretion to seek clarification, when that discretion becomes a duty, and what the permissible limits are to any response to a request for clarification.

Below, we provide more detail on the appeal and discuss the implications of the judgment.

What should I do?

Contracting authorities should take care when drafting the rules of any public procurement competition to ensure the terms are clear, precise and unequivocal so that tenderers can be completely sure of how they are going to be applied.

Contracting authorities should also:

• be abundantly clear in their procurement documents when setting out the consequences of non-compliance
• consider seeking clarification in a fair and transparent manner where there is an obvious and material error or ambiguity in a bid which may be material to the outcome of the competition
• remain alive to steps which could be taken to prevent a challenge arising and maintain thorough records of decisions (including the consideration of alternative actions when disqualification is in contemplation)
• have regard to their continuing duties of transparency, fairness and treating each economic operators equally to ensure healthy and effective competition

Economic operators should be mindful of the importance of adhering to competition requirements and, should seek clarity on the application of ambiguous terms within procurement documentation, particularly those which are material to the outcome of the competition.

Background

The case concerned a procurement conducted by the DWP for a call-off contract under the CCS Occupational Health, Employee Assistance Programmes and Eye Care Services Framework RM6182 (“the Procurement”) and was subject to the Public Contract Regulations 2015 (“PCR 2015”).

The Invitation to Tender (“ITT”) stated that “… any bids for any service line submitted to the Framework by invited bidders in excess of this will be discounted.”

DWP deemed Optima’s bid as non-compliant on the basis that, through “cut and paste” errors, it exceeded the framework maximum prices for three service line items. Two of the three service lines (OH58 and OH230) were for zero volume services which meant that there was no financial impact in respect of these two service line items. The financial impact of the remaining third error (OH229) was £600 per annum and impacted the scoring by just 0.02%.

DWP knew that Optima’s bid would have been comfortably the winning bid, because it was by far the highest scoring on quality and was competitively priced. It was accepted by DWP that Optima would have won the contract had they not made the cut and paste errors within the pricing schedule.

CoA Judgment

Was there a mandatory Exclusion Clause?

Coulson LJ noted that the rules of any public procurement competition must be drawn up in a clear, precise and unequivocal manner so that tenderers can be completely sure of how they are going to be applied. The issue was not what the ITT meant but whether its meaning would be clear to any RWIND tenderer.

It was common ground that the word “discounted” could mean “reduced” and, it can mean “excluded”.

The CoA found that the words of paragraph 2.2 did not refer to exclusion or disqualification and, were wholly incapable of providing the clarity and transparency required of an exclusion provision.

The Law Relating to Post-Tender Clarifications

In summarising the relevant principles when addressing whether a contracting authority has the discretion to seek clarification, when that discretion becomes a duty, and what the permissible limits are to any response to a request for clarification, the court identified that three stages should be considered:

1. A need for clarification will only arise where the error or ambiguity is obvious to the contracting authority and is material to the outcome of the competition. The court explained that if the error or ambiguity is immaterial or irrelevant to the final outcome of the competition, no further action is necessary.
2. If there is an obvious and material error or ambiguity, the contracting authority must then consider whether clarification should or must be sought. The authority has a discretion, and it can only ever be the factual circumstances of any given case that would turn that discretion into an obligation. At this second stage, a contracting authority will only be considering whether or not to seek clarification and must take the least onerous option[2], that will usually be to seek clarification rather than to exclude the tender altogether.
3. The final stage is concerned with the limited room for manoeuvre that a tenderer has when answering any request for clarification. A tenderer cannot use the mechanism of clarification to put in a new bid or make substantial amendments to the existing bid. Common sense is required when applying the public procurement rules to achieve healthy and fair competition and to permit the proper evaluation of the tenders. “Experienced evaluators working for contracting authorities should know when a response to a request for clarification is a simple adjustment of the kind they generally expected, and when it is an attempt to have another go. The latter is a new bid or a substantial change to the original bid. What is to be avoided is a strict and over-literal approach which may lead to the exclusion of the best tender for no objectively justifiable reason.”

A Failure to Exercise Discretion Due to A Misdirection of Law

The CoA held that DWP did not exercise any meaningful discretion and/or that any discretion that DWP did exercise was fundamentally flawed because it stemmed from DWP’s erroneous view that they had an automatic right to exclude if the framework maximum prices were exceeded. In so far as clarifications breach the duty of equal treatment, equal treatment is not an end in itself and “is simply one of the ways in which the purpose of public procurement are advanced”. Equal treatment principles are concerned with the outcome of the competition. Seeking clarification of an obvious error that is irrelevant to the outcome cannot affect the need for a healthy and effective competition, whereas clarification of errors or ambiguity relevant to the outcome are a potentially critical factor.

Obvious Mistake or Ambiguity

The CoA clarified that it is not for the authority to go looking for errors or ambiguity and, authorities have no duty or obligation, to consider seeking clarification unless there is an obvious and material error or ambiguity in the submitted tender. If issues are identified, it is the relevance or materiality of the obvious mistake or ambiguity that is key when considering whether to seek clarification.

Seeking Clarification and Changing the Bid

The CoA held that DWP would not have been in breach of the duty of equal treatment if they had clarified the erroneous prices, provided that the clarification did not allow a tenderer to have another go at improving its tender and, the duty to clarify arose once it had become apparent that Optima’s tender contained obvious mistakes and/or ambiguities which were highly material to the outcome of the competition and affected the proper evaluation of the tenders. Additionally, a clarification would not breach the equal treatment principle to other complaint bids as, until clarification had been sought, it was not possible to say whether or not Optima’s bid was compliant. 

Rationality and Proportionality

When considering the wider question of proportionality, the CoA clarified that if there are multiple courses of action open to the contracting authority, the least onerous to the bidder should be chosen. Where the options are either to clarify or exclude, the contracting authority must clarify.

[1] Working on Wellbeing Ltd trading as Optima Health v (1) Secretary State for Work and Pensions (2) Department for Work and Pensions [2024] EWHC 766 (TCC)

[2] Antwerpse Bouwwerken NV v European Commission [2009] ECR II-4439 at [57]