In-house Insights: Property Disputes
Mar 1 2024
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On 20 September 2018, the Court of Justice of the European Union ("CJEU") delivered a ruling in Montte SL v Musikene which provides a helpful clarification on how open procurement procedures may be conducted in accordance with Directive 2014/24/EU ("the Directive") which is transposed into UK law by the Public Contract Regulations 2015 ("PCR").
The Court ruled that:
* The Directive permits open procurement procedures in which tenders that do not reach minimum threshold scores in the technical evaluation are excluded from the subsequent evaluation of both technical criteria and price; an
* This reduction in the number of tenders is permissible regardless of how few tenderers would remain in the procurement as a result.
Why is this significant?
The open procedure is usually a one stage process in which bids that comply with the criteria for qualitative selection are evaluated according to the award criteria (usually a combination of quality and price). This is in contrast to procedures where negotiation is permitted (competitive dialogue, competitive procedure with negotiation and innovation partnerships) which often consist of multiple stages and in which the staged reduction in the number of bids is common.
Musikene, the contracting authority, commenced an open procedure procurement for a supply contract for "furniture and signage, specific musical equipment, musical instruments, electro-acoustic, recording and audio-visual equipment, computer equipment and reprographics". As this was the open procedure, all bidders were required to submit all of the elements of their bids at the outset but the bids were evaluated in a two-stage, knockout process. Stage one involved a technical evaluation, and stage two involved an economic assessment. Both stages were weighted equally at 50%. Any bid that did not achieve the threshold score of 35 out of 50 at stage one would not proceed to stage two. In the UK, this is sometimes referred to as the "double envelope" approach. For example, the "technical envelope" is opened and assessed first. Bids that do not meet technical requirements are excluded and the "price envelope" for those bids is not opened. The "price envelope" is opened and the price information evaluated for those bids which were not excluded.
The technical scores awarded in stage one would form part of the overall assessment. For example, a bidder who scored 35 for quality and 40 for price would achieve a total score of 75. A bidder who failed to score at least 35 for quality would be excluded, no matter how competitive their price was.
Montte, a bidder in the procurement, argued that the requirement to achieve at least the threshold score of 35 points in stage one meant that the weighting of the economic and technical stages was meaningless. Montte argued that the contracting authority could not assess which was the most economically advantageous bid in this way. Such an assessment must take into account price.
Musikene argued that the threshold score was justified in the context of a public contract for the installation of equipment that will form part of a building. In those circumstances it was acceptable to require bids to meet certain minimum requirements concerning compliance with time limits and technical quality.
The questions put to the Court:
The following questions (in essence) were referred to the CJEU by the Administrative Board of Contract Appeals for the Basque region:
* Does the Directive permit, in an open procedure, award criteria which apply in successive elimination stages containing a minimum threshold score?
* If so, is such a process permitted even if in the final stage there are not a sufficient number of tenders to ensure genuine competition?
The Court's judgment
The court followed the opinion of Advocate General Szpunar. Contracting authorities are obliged by Article 67 of the Directive (Regulation 67 of the PCR) to award contracts based on the most economically advantageous tender, which may be (and usually is) based on the best price-quality ratio. There is nothing in Article 67 that precludes a minimum technical score. The court noted that a threshold quality score is simply a means of ensuring that the contracting authority's needs are met.
The fact that the Directive expressly provides for the successive elimination of tenders in negotiated procedures does not mean that such elimination is prohibited in open procedures. There is a fundamental difference. In negotiated procedures the contracting authority can decide to eliminate, for example, all but the "best" three tenders. There is a good reason for that in that it limits the number of bidders with whom an authority has to negotiate. An authority cannot do that in an open procedure; all bids that reach the threshold score have to proceed to the next stage (at which negotiation is not permitted).
In relation to the second question the court noted the obligation in Article 67 / Regulation 67 that "award criteria shall ensure the possibility of effective competition". Where the application of a threshold quality score results in only one bidder remaining in the competition, that could indicate shortcomings in the award criteria. The contracting authority may decide to terminate the procedure and launch a new one with different criteria.
Lessons for contracting authorities
The case provides a helpful clarification for contracting authorities. It is permissible to run an open procurement in which bids are eliminated if they do not achieve a threshold quality score. In devising such a procurement authorities need to be mindful of their obligations under Regulation 67 to the Public Contract Regulations 2015 ("PCR"). While it is permissible for such a process to result in only one bidder remaining in the competition, such an outcome may not achieve an authority's value for money objectives and may indicate unduly restrictive award criteria which the authority may wish to re-visit.