In this article number 3 on the Rail Franchising Litigation we look at the question of whether the Department for Transport (DfT) breached its duty of transparency by failing to provide clear and/or sufficient reasons for the disqualification.

As explained in article number 1, it is important to bear in mind that, although the Invitation to Tender (ITT) for each franchise referred to the opportunity to bid for a “concession contract”, the Concession Contracts Regulations 2016 did not apply to the procurement process. Nor did the Public Contracts Regulations (PCR) or Utilities Contracts Regulations apply. This means that the detailed requirements in the PCR on provision of information about key decisions and contract award decision (standstill) letters, which most readers will be familiar with, did not apply. This case was considered in the light of the duties imposed by the industry specific EU Railway Regulation[1], Treaty principles and by applying general principles of EU law rather than the PCR - specifically the principles of non-discrimination, proportionality, transparency, equal treatment, the protection of legitimate expectations, the requirement to act without manifest error, and good administration.

We have a provided a summary of the facts of this case in article number 1. For the purposes of this article, the following facts are particularly relevant: at a meeting on 1 April 2019, the Secretary of State took the decision to disqualify the Claimants from any further participation in the three franchise competitions. The DfT then went ahead and prepared letters to each of the Claimants, without further reference back to the Secretary of State. On 9 April 2019, the DfT sent “disqualification letters” to each of the Claimants, in similar terms,  informing them that their respective bids were disqualified and rejected. However, it emerged during the process of the litigation that no notes or minutes had been kept of the 1 April meeting at which the Secretary of State made the decision to disqualify. It was also disclosed that the briefing note provided to the Secretary of State in advance of that meeting recommended cancellation of the competition rather than disqualification. The Claimants asserted therefore that the reasons for disqualification set out in the letters were not the actual reasons for the Secretary of State’s decision.

The content of the disqualification letters

Each disqualification letter noted that the ITT had stated that bidders should not propose amendments to specified documents and should not seek to transfer risk from the franchisee to the DfT. Any proposed amendment would result in the bid being deemed non-compliant.  The disqualification letters also referred to communications with tenderers after issue of the ITT, which had emphasised the need for bids to be compliant and prohibiting mark ups.  Each disqualification letter contained passages in materially identical terms explaining that the relevant bid was non-compliant as its content constituted a proposed contractual amendment which sought to transfer risk from the franchisee to the Secretary of State.

The letters confirmed that the Secretary of State had decided that, in all the circumstances, disqualification and rejection was an appropriate response. The letters noted the inconsistency of the non-compliant bids with the DfT’s policy on allocation of risk and the DfT’s inability to compare the tendered prices in non-compliant bids on a fair basis with prices submitted in compliant bids. The letters also referred to the DfT’s obligations under EU and English law including the need for transparency and equal treatment as well acting proportionately in making a decision to reject/disqualify. Subsequent feedback sessions repeated the reasons for disqualification but did not elaborate on them.

The judgment

The DfT accepted that there is a duty to provide reasons for a decision such as disqualification and that the obligation to state reasons is an essential procedural requirement. The Claimants argued, however, that they did not receive clear and sufficient reasons to enable them to understand and challenge their disqualification and to enable the court to exercise its supervisory jurisdiction[2], asserting in effect that the reasons were not the real reasons. They relied on the history of events around decision making explained above, and the absence of any evidence from the Secretary of State, or anyone else who attended the 1 April meeting, to explain his thinking at the time.

The judge confirmed that the reasoning for a decision such as disqualification must be disclosed in a clear and unequivocal fashion but the level of detail will inevitably be context and fact-specific. He noted that where the context permits, the reasoning can be in summary form,  but in other cases the reasoning may require different levels and means of explanation.  The judge emphasised that a procurement in which the contracting authority cannot explain the reasons for its decision “fails the most basic standard of transparency”.  However, in this case he was satisfied that clear and sufficient reasons were given for the decision to disqualify and noted that the  level of detail required will be context specific.

The judge also commented there is no requirement that the reasons and reasoning must all be contained in one document.  He added that the later the purported explanation is given, the greater the scrutiny that will be required to ensure that what is being provided is, in fact, the reasons or reasoning that prevailed at the relevant time and not merely justification after the event.

Commentary

Our view is that these comments need to be understood in the context of the facts of this case and treated with care where PCR obligations apply to the procurement, particularly in terms of requirements for informing participants about key decisions and the necessary content of a compliant contract award decision (standstill) letter.[3] In terms of audit trail, in other cases concerning procurements governed by the PCR, the judges (including the judge in this case, Stuart-Smith J) have taken a much stricter view and repeatedly emphasised the importance of contemporaneous records. In the Lancashire Care case[4], for example, Stuart-Smith J noted that where “the authority relies upon those notes as setting out the written reasons for the evaluators’ decisions, it is to those notes that the Court must look for the reasons and reasoning adopted by the Authority” in finding that the Council’s audit trail was inadequate.

In this case, the judge was satisfied that there was no breach of the duty of transparency. The reasons and reasoning in the disqualification letter were more than enough. They were “concise, clear and sufficient to enable the claimants to know that they had been disqualified for serious non-compliance on pensions which was the actual reason for disqualification”.  He was also satisfied that although the letters were prepared without reference back to the Minister, their concentration on the need to comply with obligations of fairness, equal treatment and transparency reflected the Secretary of State’s reasons and reasoning. Whether the same view would have been reached in a case where the objective rationale for the decision was not so clear seems unlikely.

This article was written by Susie Smith, Consultant.

[1] Regulation (EC) No.1370/2007 on public passenger transport services by rail and road. This requires that the procedure adopted for competitive tender shall be open to all operators, shall be fair and shall observe the principles of transparency and non-discrimination. It does not set out specific provisions for notification and explanation of decisions - including contract award decisions - in the manner required in the PCRs.

[2] Which is the test for the appropriate level of detail of debriefing information approved by the Supreme Court in Healthcare at Home v Common Services Agency [2014] UKSC 49

[3] This comment also applies to procurements subject to the Utilities Contracts Regulations 2015 and Concession Contracts Regulations 2016.

[4] Lancashire Care NHS FT v Lancashire County Council [2018] EWHC 1589 (TCC)