Who: Group M, Cabinet Office, Carat
When: November 2014
Law stated as at: 10 December 2014
WPP’s media division Group M issued High Court legal proceedings leading to suspension of the award of the Cabinet Office media account to its rival Carat following a tender process. In last month’s judgment, the Technology and Construction Court ruled that the suspension should be lifted. A new contract will now be signed with Carat.
Group M had taken advantage of rights under the Public Contracts Regulations 2006 and general EU Treaty principles of equal treatment, transparency and non-discrimination, which apply in public procurement cases such as this. Under the Regulations, the contracting authority (here the Cabinet Office) must refrain from entering into the new contract once it becomes aware that a dissatisfied tenderer has issued a claim form relating to the public procurement process in question. The Cabinet Office applied to lift the automatic suspension and the judge held that: (a) American Cyanamid injunction principles apply in cases such as this; (b) Group M’s claims for breaches of the Regulations did not disclose a “serious issue to be tried”; and (c) the “balance of convenience” and “adequacy of damages” tests under American Cyanamid principles in any event pointed to lifting the statutory suspension. These principles are: Is there a serious issue to be tried? Are damaged an adequate remedy? What is the balance of inconvenience?
Group M had argued that the statutory duties in the Regulations and applicable EU Treaty principles had been breached on the basis that tenderers had not been treated “equally and in a non-discriminatory way”, that the Cabinet Office had failed to act in a transparent way, that it had not conducted the procurement in a manner free from manifest error and had not complied with principles of good administration or evaluated all tenders fairly and objectively. In particular they alleged (amongst other things) that the assessment of the “sustainability” of the pricing that Carat had put forward (as required under the invitation to tender (ITT)) was flawed. Group M maintained that Carat could not conceivably have put forward sustainable prices that were lower than Group M’s: given Group M’s larger market share, they argued that Carat’s proposed prices (which were lower than Group M’s) would likely only have been sustainable if they were 8% higher than Group M’s.
The judge was not convinced by the basis of Group M’s claim, citing amongst other things the fact that no evidence had been put forward as to the profit margins the two tenderers had budgeted for. If WPP was aiming at all times for a 15% margin (as per press reports) but Carat was prepared to cut its margins in order to secure work, then that – said the judge – could provide a “potential explanation for Group M coming second on this occasion”. Further, he considered there was a strong case for saying that the sustainability assessment as set out in the ITT should not have been expected to include an analysis of each tenderer’s underlying costs – information that would not have been available to the Cabinet Office or its media auditors Ebiquity.
The judge therefore held that he was satisfied that in this case there was no serious issue to be tried. Accordingly, the automatic suspension was lifted.
Why this matters:
For those involved in public contracting, this is the latest case to address the question of which test the court will apply when deciding an application to lift an automatic suspention. There is a complex interplay between the Remedies Directive 2007/66/EC and the Public Contracts Regulations 2006 and this judgment (following another recent case of NATS (Services) Ltd v Gatwick Airport this autumn) makes it clear that the courts will apply American Cyanamid principles and are not inconsistent with the Remedies Directive.
For media agencies and public bodies subject to the Regulations, the case is a reminder of the legal measures available to unsuccessful tenderers wishing to challenge the outcome of a public procurement process. It also underlines the value of stating very clearly in invitations to tender exactly how key measures (such as “sustainability” here) will or will not be evaluated. Any arguable ambiguity around key evaluation criteria risks may potentially open the door to legal challenge.
A copy of the judgment can be found here.
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