Fire tender case may start flood

The case highlights the importance of procurement planning and consistency, especially at a time when public-sector bodies are having to look at procurement procedures following the McClelland Review, and is symptomatic of a tightening market in which contractors are ever-more prepared to assert their legal rights before the courts.

In a procurement market worth millions a year, the case itself involved relatively small beer, the Court of Session awarding Aquatron Marine 122,149 damages against Strathclyde Fire Board. But as the first ruling by a Scots court awarding damages for breach of EU public procurement rules, the case sets an important precedent for any unsuccessful bidder that feels they have been unfairly denied a contract.

The Aquatron case involved a three-year contract for servicing, maintaining and repairing breathing apparatus. Aquatron had provided the service to the Fire Board for eight years until 2002, when it was replaced by another contractor, MB Air Systems, and was one of three companies that submitted tenders in response to a notice in 2004.

The Fire Board awarded the new contract to MB Air Systems, rejecting the tenders submitted by Aquatron and a third bidder CompAir UK Ltd, on grounds that they were non-compliant.

The Fire Board had not been satisfied Aquatron had suitably qualified employees in place prior to contract award or had provided acceptable quality assurance - essentially evidence of accreditation to ISO 9001, 2000. Aquatron subsequently sued the Fire Board, claiming "both in rejecting the tender as non-compliant with the specification and in concluding that the tender from MB Air Systems complied with the specification, the [Fire Board] acted in a manner that was arbitrary and capricious and did not treat the tendering parties fairly... in breach of the Public Services Contracts".

Lord Carloway highlighted what were, in his opinion, a series of failings in the procurement process. Having concluded SFB had incorrectly decided Aquatron's tender was non-compliant, he considered "what ought to have happened had both tenders been comparatively evaluated" - which tender would have won had they been judged according to stated contract criteria?

The notice said the contract would be awarded to the "most economically advantageous tender complying with technical specifications, i.e. price, delivery date, running costs, cost effectiveness, after sales service, compatibility, but not necessarily in that order".

His Lordship remarked that "curiously, and of significance, the quality of the service to be provided is not included, nor is the technical merit of the tender". However, during the proceedings, the Fire Board said its procurement manager had instructed only three criteria were to be used for the evaluation: price (50 per cent), quality (25 per cent) and technical merit (25 per cent).

His Lordship ruled this instruction was irrelevant as it differed from the original criteria set out. The regulations required the Fire Board to evaluate tenders against the award criteria set out. Other than "price", all the other criteria listed had to be discounted "as inapplicable or of little significance". That left price as the decisive criterion for the award of the contract.

Aquatron's tender was lower than MB Air Systems' and thus would have won had the criteria been applied correctly. Aquatron was therefore entitled to the profit it could reasonably have expected to earn on the contract that would have been awarded to it but for the breach of the rules.

In a further development last month, the European Parliament approved a proposal for a new remedies directive, which will significantly improve the remedies for contractors across the EU who feel they were unfairly treated.

In particular, it is likely to include the possibility of contracts which breach the rules being set aside (currently, unsuccessful bidders only have a remedy in damages and cannot challenge the validity of a contract).

It remains to be seen whether this case and, in time, the new remedies directive will open the floodgates of litigation, or simply be seen as a further driver for more efficient public sector procurement.

• Graeme Young is a senior associate at law firm Dundas & Wilson.