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26 Mar 2021

High Court comprehensively rejects Bechtel’s procurement claims against HS2

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In the recent High Court judgment Bechtel Ltd v HS2 Ltd [2021] EWHC 458 (TCC) delivered on 4 March 2021, Mr Justice Fraser ruled that HS2 did not breach the Utilities Contracts Regulations 2016 in its evaluation and selection of the winning bidder, consortium Balfour Beatty Vinci Systra (“BBVS”) over unsuccessful bidder, Bechtel Ltd. 

The tender process related to the award of the contract by HS2 for its Construction Partner on the development of Old Oak Common – one of the two major London railway hubs for HS2 (the other being Euston) and one of the most expensive railway stations ever to be let for construction.

The contract included a risk profile that required the Contracting Partner to bear significant risk in relation to the total maximum budget of £1.054 billion for the construction cost and with respect to the target completion date. In its bid, Bechtel sought to significantly amend the conditions of contract relating to these risks and in so doing sought to fundamentally alter the commercial risk profile of the contract to be let. Bechtel was invited to withdraw the amendment on several occasions during the bid process but declined to do so. HS2 argued that it was entitled to disqualify Bechtel from the tender on the basis of the proposed amendment by Bechtel.

Mr Justice Fraser found that the “disqualification point” alone was sufficient to determine the outcome of the case, but he also considered and rejected the other claims made by Bechtel.

Bechtel claimed that HS2 evaluated its and BBVS’ bids in “manifest error” and in breach of the duties of equal treatment and transparency and "good administration". Bechtel also argued that in breach of Regulation 84, BBVS’ tender was abnormally low and that HS2 should have excluded BBVS’s tender on this basis. Alternatively, it claimed that certain changes to the management resource schedule (MRS) submitted by BBVS and the planned project dates amounted to a material change to the contract that required HS2 to abandon the  procurement and start again. 

The proceedings and judgment are detailed and complex, as might be expected for a procurement claim on a project of such magnitude. The comprehensive judgment provides useful guidance to bidders and authorities and key facts, issues and findings are summarised below.

Key facts

As evaluated by HS2, BBVS scored 75.38% on its bid whereas Bechtel scored 73.76%. While Bechtel scored higher than BBVS in some parts of the tender (Technical, Behavioural Assessment, Commercial and Staff Rates), BBVS substantially outscored Bechtel on the Lump Sum Fee, by a margin of 4.62%. The Lump Sum Fee had a maximum evaluation score of 10% to be given to the lowest bidder on Lump Sum Price (BBVS), whereas Bechtel was only awarded 5.76% for this category. Ultimately, this pricing difference, and the weight accorded to it, led HS2 to determine BBVS as the winning bidder.

Bechtel was informed it was unsuccessful in February 2019 and issued proceedings later that month, triggering automatic suspension under the UCR 2016, which prevented HS2 from entering into the contract with BBVS. Bechtel later consented to lifting the suspension but preserved a claim  for a declaration that the contract between BBVS and HS2 was ineffective.

Relevant to the question as to whether or not BBVS’ bid was “abnormally low” was the fact that the Invitation to Tender contained a “Fee Collar” of 7% - meaning that HS2 had specifically designed a minimum Lump Sum to ensure expressly that no bids could be abnormally low if they exceeded the Fee Collar. BBVS’ Lump Sum Price was above the Fee Collar.

Key issues and findings

HS2's right to disqualify Bechtel

As noted above, the court found that the qualification that Bechtel sought to impose on its tender was so central to the risk allocation between the parties, it entitled HS2 to disqualify Bechtel from the competition. The disclosure of internal emails within Bechtel showed that at least some personnel in Bechtel were aware of this possibility. Nevertheless, Bechtel were not willing to remove the qualification despite several requests by HS2. Ultimately, HS2 did not proceed with the threat of disqualification because BBVS had won the competition and the issue did not therefore arise. However, the court held that HS2 retained the right to disqualify Bechtel and, indeed, HS2 could not have accepted the qualification without breaching the principles of fairness and equal treatment to the other tenderers. 

No manifest error or breach of equal treatment or transparency

The Court found that there was no manifest error or breach of equal treatment or transparency by HS2 in the evaluation of the bids. Mr Justice Fraser noted that in the court’s assessment of manifest error, it will allow evaluators to act within a “margin of discretion” – it is not for the Court to substitute its own view on scoring and the procurement claim process is not an appeal against the outcome of a procurement competition.

Mr Justice Fraser stated:

“…[T]he court will only interfere in the evaluation if there has been manifest error, or other breaches of obligation (such as that of equal treatment). It is no function of the court to re-evaluate the different bids absent manifest error or other breach. It must be remembered that a procurement exercise such as this is a competition, with the different bidders competing against one another to secure the contract. The bid that is evaluated with the highest score will, assuming that it is evaluated in accordance with the ITT (and absent manifest error), win that competition (absent breaches of the principles of fairness, equal treatment and transparency).”

He also upheld the consensus and moderation process undertaken by HS2, noting that the scores of individual evaluators were only draft scores and it was inherent in the process that, after discussion between evaluators, they would change their views and scores would go both up and down. There was nothing unfair about this and indeed it showed that the process was operating as intended.

The judgment does however remind contracting authorities of the importance of keeping and disclosing adequate records of the procurement process and in particular the rationales for scores and adjusted scores. The extent of record keeping required is subject to the principle of proportionality and it is not, for instance, necessary for the authority to keep verbatim records of every meeting. Summaries of the reasoning and conclusions is sufficient.

The Court also found there was no separate duty of “good administration” owed by HS2 to Bechtel, but confirmed the duties of equal treatment and transparency (as provided for at UCR Regulation 36) and found that the duty of "good administration" added nothing to these well-established principles. Mr Justice Fraser re-affirmed that the duty of equal treatment was not "hard-edged" and it was subject to the same margin of discretion as "manifest error".

Abnormally low tender

Mr Justice Fraser considered the extent of a contracting authority's obligations and found that there is a power but no duty to reject an abnormally low tender under UCR Regulation 84, and the tender of BBVS in this case was not abnormally low. The question of what constitutes an abnormally low tender is fact specific and depends on the circumstances of the particular contract.

On the issue of the Fee Collar, the Court found that it was not arbitrarily chosen:

“it was set after consideration of the evidence available to HS2 for all the procurements it had conducted on other contracts, and then adjusted. Given the European cases [..] state that an abnormally low tender “must be determined for each contract”, this was done by HS2 in the ITT itself. That was the purpose of the Fee Collar, and I find it accomplished its purpose.”

Another point contended for by Bechtel was that the level of resourcing by BBVS pointed to an abnormally low tender overall. Mr Justice Fraser considered that it is “doubtful that “level of resourcing” could be seen as falling within the terms of the regulation governing abnormally low tenders, so far as this specific contract is concerned.”   It is relevant that the tender was for contract management services and the lump sum fee was not determined by resource levels. The contract price did not cover the cost of the construction works where resource levels may have been a factor. 

The court also noted that the difference between the lump sum fees tendered by BBVS and Bechtel was significantly reduced when profit was taken out of the picture; the profit margin of Bechtel was markedly higher than BBVS. The fees tendered by BBVS were also not significantly different from other tenderers.

Abandonment of the procurement

Bechtel argued that post tender adjustments made to the MRS and project dates in the contract with BBVS were material changes that could not be made without abandoning the procurement and starting again. Bechtel relied on the well-known case of Pressetext and the terms of regulation 88 of the UCR 2016 which codify the previous law.

Mr Justice Fraser rejected this argument. The negotiated procedure under the UCR allowed the utility considerable flexibility in clarifying and finalising contract terms with a preferred bidder in recognition of the nature of utility contracts. Further, the ITT had made clear that such discussions would occur once the winning tender had been chosen and Bechtel had not objected to these provisions. It was clear that the MRS would be subject to ongoing review throughout the project and the project date changes were not so material that, had they been known, Bechtel might have submitted a different tender. In any case, the reason for the date changes was largely because of the delay caused by the automatic suspension arising from Bechtel's claim.

Conclusions

The decision shows that attempts by bidders to fundamentally alter the risk profile of a contract during the bidding process can justify disqualification of a bid. It is a matter for the contracting authority to set the risk profile and if a bidder does not like it they can choose not to submit a bid. Indeed, accepting a non-compliant bid is likely to result in challenges from other bidders and this would be a risky approach by the contracting authority.

The decision is also a reminder to bidders that the Court’s exercise of jurisdiction in procurement competitions is supervisory, and the threshold for the Court’s intervention is high – in matters of evaluation, only manifestly erroneous conclusions or scores will be reconsidered. As explained in the judgment “[t]he scope of potential remedies available to a disgruntled bidder is comprehensive, and include some powerful orders available to the court in the event of a successful challenge. On the other side of the scales, providing balance, these powers are exercised with restraint. Challenges are considered by the court with the supervisory jurisdiction in mind.”  Bidders should therefore not expect that the Courts will readily re-evaluate tenders and authorities may take some comfort in the Court’s restatement of its supervisory jurisdiction in procurement competitions.

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