Cladding contractor’s victory in MPs’ building case casts doubt over government procurement policy.
A landmark High Court ruling on government procurement is set to open the floodgates for suppliers that have lost out to competitors even though their bids were lower.

Mr Justice Humphrey Lloyd ruled that curtain-walling contractor Harmon was treated unfairly in the tender for the £30m-plus cladding subcontract for the £250m parliamentary building, on site in Westminster. He found that the House of Commons adopted a buy-British policy in choosing a joint-venture company comprising UK defence contractor Alvis and Austrian cladding contractor Seele.

The 300-page judgment stated that Seele/Alvis bid £34m for the contract – £2.4m more than Harmon. It also revealed that the House of Commons Parliamentary Works Directorate – the client – justified the decision by saying the Alvis bid represented better value for money. But Mr Justice Lloyd upheld Harmon’s challenge and awarded legal costs, estimated at £2m, the tender cost of £420 000 and the profit Harmon would have made on the job, estimated to be £4.5m-5.4m.

Ruling could cause surge in claims.

Commenting on the ruling, barrister Robert Akenhead said that other companies could sue if they felt they had been dealt with in a similar way. He said clients must have watertight justifications if they claim that decisions were based on best value rather than lowest tender.

Akenhead said: “There could be a surge of enquiries relating to larger jobs where large profits are at stake.” He added that bids going back as far as six years could be challenged.

The case has serious implications for government procurement policy. The Treasury initiative Achieving Excellence and the local government policy of best value, which is due to come into force next spring, both say that suppliers should be chosen on value-for-money criteria rather than lowest price.

Akenhead warned local government and other government bodies that if they want to use best value procurement methods, the criteria must be clear and defensible. He said that if best value was mentioned in an advertisement, then it must also include the criteria, other than cost, by which bidders would be judged.

The barrister added that in tightly controlled, highly specific bids, lowest price probably did equate with best value, but in more open-ended bids that might not be the case. He said it was therefore better to leave the specification open and allow bidders to differentiate themselves on the product they would provide rather than simply price. But Akenhead emphasised that the criteria for choosing on best value lines must be transparent.

What is the moral of the case?

Major Contractors Group director Jennie Price said the lesson to be drawn from the case was: “Best value is not an excuse to pick the bid you like the most.”

Richard Steer, senior partner in QS Gleeds, said the case had fewer implications for the private sector. “The private sector client is not as accountable as the public sector is to the taxpayer,” he said.

But Steer warned that best value procurement provided an opportunity for corruption. He added: “You must be able to prove your value measures. Lowest price is the easiest way.”

The DETR, which is responsible for the local government best value policy, said experts in the department were considering the implications of the case.

The House of Commons Commission, which looks after the business of the Commons, said: “The commission is concerned by the judge’s finding that the project team unlawfully promoted a buy-British policy. Given the liquidation of Harmon in March 1998, the House would have been put in a disastrous situation if the contract had gone to it. Advice on the grounds for appeal is being sought.”

What is best value?

Best value is the procurement policy that is to be imposed on local government by the DETR. The system, which replaces compulsory competitive tendering, embraces partnering, private investment and the Egan agenda. Best value systems are used by large private sector clients such as BAA, Asda and Railtrack and are being adopted by government departments. Prime contracting is a type of best value procurement where suppliers are chosen on quality of service and culture as well as price. Critics of best value say it is open to corruption. They argue that price is a verifiable yardstick, whereas unscrupulous procurers can abuse a system such as best value because the criteria tend to be qualitative rather than quantitative.