07 Mar 2019

The new regime for challenging Australian Government procurement decisions: Lessons learnt from the UK

By Alexandra Wedutenko, Natasha Smith

Unclear criteria and sub-criteria, sloppy evaluation and confusion over the process will likely be the main drivers of challenges to Australian Government procurement processes, if the UK experience is any guide.

Non-corporate Commonwealth entities and prescribed corporate Commonwealth entities have long been legally required to comply with the Commonwealth Procurement Rules (CPRs) in conducting their procurement processes. But if the procurement is a "covered procurement" (that is, a procurement that is subject to the rules in Divisions 1 and 2 of the CPRs), a failure to comply with the CPRs will now, under the Government Procurement (Judicial Review) Act 2018 (GP Act) (due to commence on 18 April 2019 or earlier by Proclamation), open the door to a challenge from aggrieved tenderers, and a new era in government procurement as we know it, based on transparency and competitive procurement.

What shape will this new era take? To answer that, we can look to the United Kingdom's experience with its more mature (and detailed) regime under the Public Contracts Regulations 2015 (UK Regulations). The UK Regulations provide the rules for the conduct of government procurements and the award of related contracts in the UK, and ensure that the UK complies with the EU procurement regime (including the "Public Contracts Directive"). The experience of the UK's "contracting authorities" (the equivalent to the Australian Government "entities" for the purposes of the CPRs) can offer Australian entities subject to the CPRs some insights into the areas of their own procurement processes they will now likely need to strengthen.

At least until Brexit, the UK must (subject to certain exceptions) implement the EU procurement regime, and in particular, the Public Contracts Directive when undertaking public sector procurement processes. Under the EU procurement regime, member states must have a system of remedies for tenderers if the relevant tendering rules aren't followed – especially a right of review. In the UK's case, the initial laws to establish these challenge rights were, like the GP Act, not overly prescriptive. However, over time, and as the law developed further though the courts, member states' procurement rules/regulations have become more complex and more prescriptive, and the UK has seen an increase in the number of challenges made by aggrieved tenderers in almost every aspect of the tendering process.

The UK's experience could therefore be a valuable map for how issues in the GP Act might play out, particularly on:

  • the information given to tenderers;
  • the evaluation of tenders;
  • the review process and the role of the courts; and
  • possible inspiration for further legislative reforms.

Not enough information about the evaluation process: criteria vs sub-criteria

In the UK, a significant number of challenges have arisen from issues relating to allegations of unfairness in the evaluation of tenders, particularly when there is confusion over criteria vs. sub-criteria, or where the sub-criteria were not indicated in the request documentation.

For example, in Lettings International Ltd v London Borough of Newham [2008] EWHC 1583 (QB), the contracting authority's award of a contract was quashed because of a failure to disclose some of the criteria used to evaluate tenders. The contracting authority considered the relevant criteria to be "sub-criteria" that did not need to be disclosed. However, the court found that regardless of how the criteria were labelled, they did constitute "criteria" which needed to be disclosed to tenderers in accordance with the UK Regulations. While subsequent UK cases have modified this strict approach, the key lesson learnt from the UK regime is that there must have been nothing done which could have changed the tender preparation.

This is particularly important in the Australian context because of the CPRs' rules on evaluation criteria – which are defined as "the criteria that are used to evaluate the compliance and/or relative ranking or submissions. Evaluation criteria must be clearly stated in the request documentation" – for example:

  • "Relevant entities should include relevant evaluation criteria in request documentation to enable the proper identification, assessment and comparison of submissions on a fair, common and appropriately transparent basis."
  • "Request documentation must include a complete description of… (d) evaluation criteria to be considered in assessing submissions and, if applicable to the evaluation, the relative importance of those criteria".
  • "When, during the course of a procurement, a relevant entity modifies the evaluation criteria or specifications set out in an approach to market or in request documentation or amends or reissues an approach to market or request documentation, it must transmit all modification or amended or reissued documents:

a. to all the potential suppliers that are participating at the time the information is amended, if known, and, in all other cases, in the same manner as the original information; and

b. in adequate time to allow potential suppliers to modify or re-lodge their submissions, if required."

Given all of this, it's not far-fetched to assume that one of the first (if not the first) challenges to a procurement under the GP Act will come from a failure to comply with these parts of the CPRs, and that a court may look to the UK approach when making its ruling.

Were the disclosed award criteria clear enough for uniform interpretation by tenderers?

Under UK law, the test of "clarity" is objective, and is to be assessed by reference to whether the a hypothetical, reasonably well-informed, normally diligent tenderer would interpret the criteria in the same way as the aggrieved tenderer (Healthcare At Home Ltd v The Common Services Agency [2014] UKSC 49).

In Australia, uniformity, clarity and transparency are requirements under the CPRs; the CPRs envisage that value for money in procurements is achieved (in part) by facilitating accountable and transparent decision-making.

Again, it's quite possible that a tenderer in Australia could be inspired by the combination of CPRs requirements and UK authority to base a challenge on a failure by an entity to provide accountability and transparency by giving unclear information to tenderers.

Accordingly, if these requirements of accountability and transparency are not complied with by entities, entities risk a challenge being mounted against their process. It is essential therefore that entities ensure that their evaluation criteria and all sub-criteria are clear, and that entities are transparent and consistent in the information that they provide to tenderers.

The role of the courts

In the UK, where an application is made to the court by a tenderer, it is not the court's role to re-score the relevant tender (or any tender); instead, it reviews the contracting authority's actions in making the procurement decision to see if:

  • the public procurement rules were followed;
  • the facts relied upon by the contracting authority are correct; and
  • a "manifest error" (ie. a case where an error has clearly been made) has occurred in matters of judgement or assessment. Note, however, that where there has been a breach of duty to comply with the UK Regulations, the UK courts have been more willing to intervene and change the evaluation scores.

In considering an application under the GP Act, it is likely that Australian courts will review the relevant entity's actions in the procurement process to see if the:

  • CPRs were followed;
  • conclusions on findings made by the entity are supported by evidence which has been tested; and
  • evaluation process has been conducted appropriately and in accordance with the published approach to market documentation. In this regard, we query how far the Australian courts will go and whether there will be an appetite to follow the UK in changing evaluation scores in certain circumstances.

Possible legislative inspiration from the UK

Loss of opportunity

UK contracting authorities have a positive duty to comply with the UK Regulations. A tenderer has grounds to bring an action against the contracting authority if the contracting authority breaches this duty and the tenderer can show that such a breach caused or risks causing the tenderer a loss. The UK courts have accepted that "loss" can encompass where the tenderer had a chance of obtaining a contract, and lost it because of the breach. While the GP Act does not (yet) go so far as to specifically allow the Australian courts the discretion to award damages for loss of opportunity, it is something that might be considered down the track.

Standstill periods

In the UK Regulations, a "standstill period" of between 10 and 15 days kicks in between deciding on the preferred tenderer and actually executing the contract with the preferred tenderer. This allows a "contract award notice" to be issued to other tenderers, and gives those tenderers the opportunity to take court action to prevent the contract from being signed if they consider that there has been a breach of the rules. The notice itself is quite detailed, and includes the criteria for the award of the contract and the reasons for the decision, including:

  • the characteristics and relative advantages of the preferred tenderer;
  • the scores awarded to the unsuccessful tenderer and the scores awarded to the preferred tenderer;
  • the name of the preferred tenderer; and
  • the date the standstill period ends.

If an application is made to the court within the standstill period, there is an automatic suspension preventing the award of the contract, unless the contracting authority applies to the court to end it.

Currently, there is no requirement in the Australian regime for a standstill period, or the release of the  detailed information described above to each tenderer (in fact Australian probity principles may require some of this tenderer information to be kept confidential by procuring entities). However, it is possible that similar such requirements may develop over time to provide further transparency in the decision-making process, as well as to facilitate the complaints process for tenderers.

Even if these requirements do not make their way into the Australian public procurement law, they highlight the importance for entities to maintain accurate and full documentation of the reasons for decisions, supported by evidence, as required by current probity standards.

A "declaration of ineffectiveness

In the UK, the remedy of "ineffectiveness" allows the court to set aside a concluded contract and impose a civil financial penalty where a "declaration of ineffectiveness" is made, which must be made where any of three specific grounds are made out.

The declaration makes the relevant contract is, from the date of the declaration, ineffective, and the contracting authority must also pay a civil financial penalty.

While these issues may not yet be immediately relevant to the Australian regime, entities should be aware that these have been issues that similar regimes have had to grapple with when designing the entity's procurement policies, procedures and risk assessment relating to potential challenges under the GP Act.

Debriefing tenderers

In Australia, under the CPRs, following the rejection of a submission or the award of a contract, officials must "promptly inform affected tenderers of the decision. Debriefings must be made available, on request, to unsuccessful tenderers outlining the reasons the submission was unsuccessful. Debriefings must also be made available, on request, to the successful supplier(s)."

The requirements in the CPRs as they relate to debriefing tenderers are fairly broad and high-level.

In contrast, the requirements under the UK Regulations are much more prescriptive in the type and level of information to be provided in contract notices. Whether the Australian regime will adopt the requirements of the UK Regulations is yet to be seen, but if such requirements are introduced, this will significantly change the nature of debriefing sessions provided by entities to tenderers.

While failing to provide similarly detailed information to tenderers during debriefing sessions will not currently provide grounds for a tenderer challenge under the GP Act, entities should be aware of the potential for challenges resulting from the information provided during debriefing sessions and the potential for challenge for refusing to provide a debriefing session. Tenderer debriefs should be informed, clear, consistent and transparent of the process undertaken. A "fluffy" debrief is likely to encourage a challenge.

Lessons learnt from the UK for Australian entities under the GP Act

Although the GP Act does not specifically allow the Australian courts the discretion to award damages for loss of opportunity, the possible costs of failure to comply with the CPRs are high, as the GP Act provides that the courts may make an order for compensation for an amount not exceeding the sum of reasonable expenditure incurred by a supplier in:

  • preparing tender documentation for the procurement;
  • connection with a complaint made to the Accountable Authority about the contravention or proposed contravention; and
  • connection with making a reasonable attempt to resolve the complaint.

For large Commonwealth procurement processes, this could mean that the compensation ordered payable by an entity to a tenderer may run into the millions of dollars.

A court may also order an injunction which could impact on the conduct of your procurement process.

So how can your entity minimise the risk of a challenge under the GP Act? Drawing on the lessons from the UK:

  • transparency in the process is one of the most important aspects in mitigating the risk of challenges to government procurement decisions;
  • make sure all of the evaluation criteria (including sub-criteria) are clear;
  • disclose all of the evaluation criteria (including sub-criteria) to all potential tenderers in the approach to market documentation;
  • apply those published criteria when undertaking your evaluation process;
  • disclose the relevant importance or weightings you will apply to each evaluation criterion – and make sure you actually use that method (including where relative weighted scores are used) because the maths needs to add up!;
  • clearly identify mandatory requirements and the consequences for non-compliance and apply those consequences uniformly to tenderers. You should have valid and justifiable reasons for including mandatory requirements to mitigate risk of challenge by tenderers. Mandatory requirements that preclude tenderers from progressing through the evaluation process should be kept to a minimum to avoid unintended consequences; and
  • seek clarifications of errors or ambiguities which look as if they can be easily cleared up, without providing tenderers with the opportunity to raise new issues or to negotiate, as this may be grounds for other tenderers to claim a breach of the CPRs.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.