Is the cheapest tender the most economically advantageous?

Not necessarily; seems to be the verdict of a recent case before the European Court of Justice (SIAC Construction Limited -v- County Council of the County of Mayo).

The case centred around a public works contract awarded by open procedure in the County of Mayo in Ireland. It was a measure and value contract based on estimated quantities under which the final cost of the works would be determined by measuring the actually quantities on completion. The works involved laying sewers, drains and pipes.

The contract notice to bidders said that the contract shall be awarded to the competent contractor submitting a tender which is adjudged to be the most advantageous to the Council in respect of cost and technical merit, subject to the approval of the Minister for the Environment.

Twenty-four tenders were received. The lowest came from SIAC; the next lowest came from Mulcair and the next lowest from Pierce Contracting. The consulting engineer who reviewed the tenders on behalf of the County Council adjudged that these three lowest tenders were all equal on technical merit. The consultant recommended that the Pierce Contracting tender should not be accepted because its price was higher than the Mulcair tender. The SIAC tender was not to be accepted because SIAC had failed to include a time for completion, SIAC had taken out a provisional sum item rather than add a percentage for overheads and profit and SIAC had zero-rated a higher portion of the items to be priced than Mulcair, including some major items of measured work, thereby distorting the quantities. Hence, in the consultant's view, the Mulcair tender was more balanced than that of SIAC and might give better value for money and might even cost less at the end of the day.

The County Council therefore awarded a contract to Mulcair.

SIAC was unhappy and commenced proceedings in Ireland. SIAC's claims were dismissed on the basis that the County Council had exercised a discretionary power of selection based on the professional advice from a consulting engineer. SIAC appealed and the High Court in Ireland referred the matter to the European Court of Justice for a preliminary ruling. The relevant EU Directive which had to be interpreted provided that:-

The criteria on which the authorities awarding contracts shall base the award of contracts shall be either the lowest price only or, when the award is made to the most economically advantageous tender, various criteria according to the contract: e.g. price, period for completion, running costs, profitability, technical merits. In the latter instance, the authorities awarding contracts shall state in the contract documents or in the contract notice all the criteria they intend to apply to the award, where possible in descending order of importance.

There was no dispute that the contract notice in question stipulated that award would be made by reference to the most economically advantageous tender rather than simply on price. However, the question was whether a higher price could be most economically advantageous where the ultimate cost was not known at the time of tender (because of the measure and value nature of the contract). There was a sub-dispute in that the parties could not agree as to whether the terms price and cost,, used in the tender documentation, referred to the total price of the tender or the ultimate cost of the contract. However the High Court in Ireland proceeded on the basis that price and cost had been used interchangeably.

First of all, the European Court made it clear that it is not empowered to resolve differences of interpretation of terms used in a tender; that is a matter for the national Courts. The European Court's role is to ensure that procedures for awarding for public works contracts eliminate barriers to freedom and, pursuant to that objective, observe the principle of equal treatment of tenderers. More particularly, the Court must ensure that tenderers are in a position of equality both when their tenders are formulated and when the tenders are being assessed by the adjudicating authority.

As for the criteria for an award based on the most economically advantageous tender, the Court said that price, duration, running costs, profitability and technical merit were not exhaustive factors to take into account. The adjudicating authorities could lay down the criteria they wished to apply provided that the criteria do relate to identifying which offer is economically most advantageous. However, it was not objectionable that one aspect of the award criterion related to a factual analysis of matters (such as costs) which might not fully be known at the time of tender.

The key aspects of the Court's judgment were that:-

• the award criteria must be formulated in such a way as to allow all reasonably well informed and normally diligent tenderers to interpret them in the same way, and
• the adjudicating authority must interpret the award criteria consistently throughout the tender assessment procedure, and
• when tenders are being assessed, the award criteria must be applied objectively and uniformly to all tenderers. Seeking an expert opinion, including one that relates to potential costs unknown at the time of contract award, is not inconsistent with this principle.

In conclusion, therefore was nothing wrong, in principle with the County Council of Mayo having awarded a contract to a tenderer whose tender was, in the professional opinion of an expert, likely to be the lowest in terms of ultimate cost. The case was therefore returned to the Irish High Court to decide whether, on the facts, in awarding the contract, tenderers had been treated with equal transparency and objectivity, i.e. in particular whether the particular award criterion was clearly stated in the contract notice or contract documents and whether the expert's professional opinion was based on objective factors which, in good professional practice, are recognised as relevant and appropriate to the assessment made.

So we still do not know whether SIAC's appeal will succeed. However, given the guidance from the European Court and the initial judgment of the Irish High Court, I, for one, would be very surprised if SIAC's cause were upheld.

This article first appeared in Construction Europe in December 2001.

For further information, please contact John Uwins at john.uwins@cms-cmck.com or on +44 (0)20 7367 2502.