The High Court has held that the Nuclear Decommissioning Authority breached the Public Contract Regulations (PCRs) when awarding a GBP 4.6 billion contract for the decommissioning of 12 Magnox reactors in the United Kingdom. As a result, Energy Solutions is now entitled to what is likely to be a very sizeable damages award. After the trial it emerged that the claimant’s witnesses had been offered litigation success bonuses. The judge rejected the application to strike the claim out due to the existence of these agreements, but in doing so heavily criticised the use of such arrangements – which are illegal and contrary to SRA rules – and in particular the lawyers involved in drafting them (Energy Solutions EU Ltd v Nuclear Decommissioning Authority [2016] EWHC 1988, 29 July 2016).
A procurement exercise governed by the PCRs was conducted using the competitive dialogue procedure by the Nuclear Decommissioning Authority (the NDA) to select a company to decommission 12 former nuclear power station and nuclear research sites. Energy Solutions was the incumbent site operator for ten of those sites and was unsuccessful in its bid, as part of a consortium, for the contract. Energy Solutions brought a claim on the basis that there had been “manifest errors” in the evaluation of the bids, and as a result that its consortium should have been awarded the contract. Unusually for procurement challenges, Energy Solutions decided not to issue proceedings in the statutory standstill period, and therefore the only remedy available to it was a damages claim rather than an order that the tender exercise should be re run. The NDA had argued as a preliminary issue that, by failing to issue proceedings within the standstill period, Energy Solutions had caused its own loss. The Court of Appeal rejected that argument and therefore the matter proceeded to a full trial.
The judge identified a series of manifest errors in the scoring exercise carried out by the NDA’s experts which meant that the NDA was in breach of its statutory duties under the PCRs. In doing so, he heavily criticised the NDA’s approach to the bid evaluation documentation, whereby the NDA had sought to limit any written note taking by the bid evaluation team, contrary to the NDA’s duty of transparency. He also heavily criticised the way in which scores were changed even after the electronic scoring system had been closed down by the bid evaluation team.
The judge, having heard further evidence from the witnesses under cross examination, held their trial evidence had not been affected by the bonus arrangements (which took the form of a bonus payment if Energy Solutions succeeded in its claim). The fact that such arrangements were contrary to public policy and the SRA rules did not of itself entitle the NDA to succeed in applying to strike the claim out. The existence of the arrangements was, however, relevant to the weight to be given to the respective witnesses’ evidence.
Manifest error
Energy Solutions had identified a series of failures in the way the NDA’s experts had evaluated the various bids. The NDA argued that a manifest error could not arise in the course of a purely evaluative judgment, and that it was the score ultimately awarded that must be manifestly wrong. The judge rejected this approach. It was not restricted to only considering the scores awarded to the bidders in isolation. It was necessary to consider whether the NDA’s reasoning disclosed a manifest error, and to then consider whether these errors were material. There were several examples of where scoring criteria had been applied inconsistently or incorrectly. This included the application of pass/fail criteria where the NDA had sought to exercise discretion not to disqualify non compliant bids. This discretion was not available to the NDA on a proper construction of the tender documents. The bid evaluation team were not permitted to “lean against disqualification” and to apply the scoring criteria differently to how those criteria were set out in the tender documentation, simply because they feared that to apply them correctly would result in the drastic consequences of a bid being disqualified. A legal review had been carried out by a law firm instructed by the defendant, which resulted in scores being changed, but the NDA refused to waive privilege over those documents. While the refusal to waive privilege was not in itself a breach of the duty of transparency, it left the Court in a position of being unable to ascertain why certain scores had been changed.
Litigation success bonuses
The judge noted that Energy Solutions’ legal advisers had correctly brought the existence of these arrangements to the attention of the court as soon as they became aware of them. Although the drafting of these agreements was contrary to proper professional standards and contrary to Rule 5.8 of the Solicitors’ Code of Conduct, the judge did not consider that on the facts of this case they could be described as “inherently corrupt”. On the facts, neither the existence of the agreements nor the initial failure to disclose them justified striking out the claim.
COMMENT
Complex procurement cases that reach full trial are reasonably rare, as cases tend to settle once proceedings have passed the interim relief stage. This lengthy judgment contains a number of salutary reminders for contracting authorities, suppliers to the public sector, and lawyers alike and looks set to be a reference point for future procurement exercises. For contracting authorities, it shows that limiting the amount of internal documentation produced by the bid evaluation team deliberately to reduce the risk of being successfully challenged can backfire badly. In this case, it was a quick way to lose the court’s sympathy. For disappointed bidders involved in bids for major UK projects, it shows that the UK Technology and Construction Court is willing and able, in appropriate circumstances, to scrutinise in considerable detail the scoring of multiple facets of a very complex and technical bid. For lawyers, it highlights the obvious inappropriateness of litigation success bonuses for witnesses and the potentially catastrophic consequences. It also demonstrates that legal reviews of procurement exercises should not be used as a substitute for the bid evaluation team recording their own reasons why certain evaluation decisions were reached.
