The European Court of Justice has made it clear that public bodies cannot take account of a bidder’s capacity to do the job at the award stage

The procurement procedures implemented by public bodies in the UK could be declared invalid thanks to the recent European Court of Justice (ECJ) decision in the case of EMM G Lianakis and Others vs Dimos Alexandroupolis and Others.

The crux of the judgment is that when the award of a contract is based on the most economically advantageous tender principle, it is not permissible at the award stage to take account of criteria linked to the tenderer’s ability to perform the contract.

The factors that the ECJ says can be taken into account are clear and unambiguous. The problem is that virtually all the public procurement procedures I have seen take account of non-permitted factors and, so, are non-compliant. The effect of this judgment is that, if challenged, these procurement procedures would be declared invalid.

Where a public body intends to award a contract for carrying out construction operations in excess of £5.25m, the Public Contracts Regulations 2006 must be complied with. The regulations implement the requirements of European Directive 2004/18/EC and set out a number of procedures that can be followed in relation to the award of the public contract. By far the most common in respect of construction operations is the “restricted procedure”, which is detailed in regulation 16.

In order to adhere to the restricted procedure, three distinct stages must be followed.

Stage one: To exclude a) firms that are ineligible because they have been convicted of certain specified offences, or who have been declared bankrupt or insolvent (regulation 23); and b) who fail to satisfy the minimum standards for economic and financial standing (regulation 24) or technical or professional ability (regulation 25)

Stage two: To select, from those firms not rejected at stage one, those that will be invited to tender. Regulation 16 provides that the contracting authority shall make the selection of the firms to be invited to tender in accordance with the regulations detailed above.

Failure to adhere will result in public money being wasted defending challenges

At the end of stage two, the contracting authority will have rejected those bidders that are not eligible to tender or do not meet the minimum technical requirements, and will have selected from those that remain the firm that will be invited to tender.

Stage three: Regulation 16 provides that the contracting authority shall award the contract in accordance with regulation 30. Under regulation 30, the award can either be made to the firm with the lowest price, or on the basis of “the offer that is the most economically advantageous from the point of view of the contracting authority”.

Regulation 30 states: “A contracting authority shall use criteria linked to the subject matter of the contract to determine that an offer is the most economically advantageous, including quality, price, technical merit, aesthetic and functional characteristics, environmental characteristics, running costs, cost effectiveness, after-sales service, technical assistance, delivery date, delivery period and period of completion.”

The criteria used in deciding which bidder will be awarded the contract must be linked to the economic advantage of the offer from the point of view of the contracting authority.

What cannot be taken into account are characteristics relating to the suitability of firms to carry out the project. In the Lianakis case, the ECJ made this point clear – criteria such as size, manpower levels and resources were held not to be criteria that could be taken into account at the award stage.

Failure to adhere to the correct procedures will result in public money being wasted in defending challenges to contract awards and paying for the loss of potential profit to unsuccessful tenderers.