J Varney & Sons Waste Management Ltd v Hertfordshire County Council

These proceedings comprise two actions by the claimant company claiming damages under regulation 47(6) of the Public Contracts Regulations 2006 (“the Regulations”) for breach by the defendant County Council (to which I will refer as “the Council”) of its obligations under those Regulations, alternatively damages for breach of an implied contract. By order of Master Fontaine dated 18 May 2009 and by order of Simon J dated 10 February 2010, the present trial has been limited to issues of liability, excluding causation.

The claimant company, to which I will refer as “Varney”, was one of the unsuccessful tenderers for the contracts for the operation of the 18 Household Waste Recycling Centres (“HWRCs”) in Hertfordshire for the five year period from 2008 to 2013. Varney was the incumbent operator at three sites, Ware, Potters Bar and Cole Green, for the period 2003 to 2008. It tendered for the contracts to operate all but one of the eighteen sites, but was awarded none.

In summary, the first claim (HQ08X04961) centres on the tendering process and alleges a number of respects in which the Council was in breach of the Regulations as regards its obligations of transparency, equal treatment and non-discrimination.

The second claim (HQ10X00391) issued as recently as 1 February 2010, alleges that changes in the recycling bonus scheme in the HWRC contracts alleged to have been made in August 2009 were impermissible and constituted in law the award of new contracts without any tender procedure having been undertaken.

The provisions of the Public Contracts Regulations 2006 (“the Regulations”) which are relevant to the issues in this case are set out in Annex A to this judgment. The Regulations implement into domestic law the EU Directive 2004/38 on the coordination of procedures for the award of public works contracts, public supply contracts and public services contracts. The Regulations lay down general principles which authorities such as the Council must follow in tendering for contracts. In particular, Regulation 4(3) imposes an obligation on the Council to treat tenderers equally and in a non-discriminatory way and to act in a transparent way.

The complaints made by Varney in these proceedings (in so far as they were still pursued at the end of the trial) were usefully summarised in Mr Coppel’s Skeleton Argument as follows:

Before setting out in detail the factual background against which those complaints fall to be considered, I should say something about the witnesses who gave evidence.

The principal witness for Varney was Mr James Varney himself, the managing director of the company. I formed the view that he was an essentially honest witness, but there were a number of respects in which his evidence was unsatisfactory. To begin with, as happens far too often in civil litigation, his witness statements were something of a lawyer’s construct, carefully crafted to cover particular aspects of Varney’s case and to argue that case, displaying a level of sophistication which Mr Varney himself lacked in the evidence he gave in the witness box. Several times in cross-examination he was forced to accept points put to him by Mr John Howell QC and by Mr James Segan for the Council which were inconsistent with his witness statements.

Another respect in which his evidence was unsatisfactory was his willingness to accuse Council officers of having deliberately favoured Edwards both at the tender stage and subsequently. Whilst it would appear that Mr Varney genuinely believes that it is Edwards which has deprived him of the sites to which he believes he was entitled, there is simply no justification whatsoever for the accusation that the Council deliberately favoured Edwards. It is an allegation of bad faith on the part of Council officers, amounting to misfeasance in public office. Such a serious allegation would have to be properly pleaded, which it was not, and be supported by evidence, which it also was not.

At various points in his cross-examination of the two Council officers involved in the tender and award processes, Mr Michael Shaw and Mr Matthew King, Mr Jason Coppel, Counsel for Varney, seemed to be suggesting to them that they had acted or conducted themselves with the intention of awarding contracts to Edwards which it should not have obtained. Although Mr Coppel expressly eschewed any allegation of bad faith, I considered that such questions crossed the line into the impermissible. I ruled that I would not permit any questions which suggested that Council officers had acted in bad faith. When the matter came up again later in the trial, I ruled formally that it was not open to Varney to run a case of bad faith on the part of the Council or its officers.

Mr Varney’s brother Mr Kevin Varney, who is the manager of the site at Potters Bar now operated by Edwards, also gave evidence. His evidence was of little significance but he suffered from the same tendency to make wild allegations against Edwards as his brother, in his case a somewhat incoherent suggestion that Edwards was defrauding the Council in relation to the movement of containers. This was not pleaded and I ignored it.

The other witness for Varney was Mr Peter Brydon, one of the four directors of a company called Fourways Waste Limited (“Fourways”). Each of the other three directors ran one of the three sites which the company operated under the 2003-2008 contracts at Letchworth, Rickmansworth and Berkhamsted and which were again awarded to Fourways in September 2008. I regarded Mr Brydon as a somewhat unsatisfactory witness who appeared to be more concerned with helping his friend Mr Varney than with giving an objective or truthful account of events.

In particular, he gave two pieces of evidence which were simply not true. First was the suggestion (which I will return to in more detail below) that Fourways had withdrawn its bids from the sites other than the three it was already running because the Council in some way threatened that, unless it did so, it would be awarded nothing. The truth is that Fourways withdrew its bid for 11 of the 18 sites it had originally bid for, because it had failed to take account of the impact of the obligations it would have under the Transfer of Undertaking (Protection of Employment) Regulations 2006 (“TUPE”). When those TUPE obligations were brought into account, Fourways evidently considered the operation of those 11 sites was not viable. However it maintained its bid for the other 7 sites, albeit it was only awarded the three it already ran.

Second, Mr Brydon contended that Fourways was losing money on the three sites it has continued to operate, the implication being that even on those sites, its assessment of how much income it would generate from sources other than the site management charge (which influenced the level of pricing it put forward for that charge) was unrealistic. This contention was sought to be supported by reference to some management accounts for the nine months to 30 November 2009 for each of the three sites described as “transactional profit and loss accounts”, which Mr Brydon produced. However, he could not speak to the information contained in them and the person who had prepared them, whether or not it was the company’s accountant Ms Janette Day, was not called to give evidence. I formed the very firm view that these accounts did not give a true picture of the profitability of the company and that when other available financial information was taken into account, the company was profitable.

Another aspect of Mr Brydon’s evidence which was unsatisfactory is that, some days after he had finished giving evidence and indeed after Mr Coppel had closed his client’s case, a further witness statement was produced from Mr Brydon purporting to deal with and clarify aspects of his oral evidence. I allowed that statement to be adduced in evidence but placed little or no reliance upon it. I regarded one particular aspect of it as frankly incredible, namely the attempt to suggest that the income Fourways made from ferrous metals (the figure for which Mr Brydon had been constrained to accept when various matters were put to him by Mr Howell in cross-examination) should in fact be halved because the value of the first two metric tons of each four metric ton load had to be paid to the scrap metal dealer who collected the containers.

The two principal witnesses for the Council were Mr Michael Shaw and Mr Matthew King. Mr Shaw was the Operations Manager in the Waste Management Unit of the Council. He reported to the Head of Waste Management for the Council, Mr Greenall. It was Mr Shaw who was responsible for devising the Invitation to Tender and for marking and evaluating the tenders. Mr King was the Senior Waste Manager who reported to Mr Shaw. He assisted Mr Shaw in the evaluation of the tenders and marked the Return Schedule dealing with price. They were both impressive witnesses who gave their evidence in an honest and straightforward manner.

I have already indicated that I was not prepared to permit any cross-examination which suggested that either of them had favoured Edwards, a line of questioning which necessarily involved an allegation of bad faith. In any event, having heard and seen them in the witness box, I am quite satisfied that they approached their task of marking and then evaluating the tenders conscientiously and entirely properly. There were areas where detailed criticisms could be made of particular marking, but that was not because of any shortcomings on the part of Mr Shaw or Mr King, but was really the inevitable consequence of their marking and evaluation being put under a microscope by Mr Coppel. For reasons elaborated later in this judgment, this microscopic examination was of no avail ultimately to Varney, since it failed to establish any manifest error.

The third witness for the Council was Mr David Allen, the Waste Contracts Manager for the Council. He dealt with the successful tenderers after the contracts were awarded. He too was an impressive and straightforward witness. Where concessions needed to be made, he was quite happy to make them. For example, he accepted that in the early days of the new contracts, there had been problems with all the contractors as regards matters such as staffing. The Council tried to resolve such problems through meetings and persuasion rather than confrontation, which seemed to me an entirely reasonable and sensible approach. Mr Allen also refuted any residual suggestion that the Council had given Edwards favourable treatment. He said that the Council had always treated all the contractors equally and I accept his evidence.

In relation to the award of these contracts, the Council elected to adopt the restricted procedure laid down by Regulation 16 of the Regulations. On 1 June 2007 the Council sent a contract notice (published in the Official Journal of the European Union on 5 June 2007) indicating that they were seeking service providers for the relevant contracts which had an estimated value of £12.5 million. The Defendants elected to state the award criteria and their weighting in that notice. The notice indicated that the award criteria would be:

“The most economically advantageous tender in terms of the criteria stated below:

1.

Price. Weighting: 65.

2.

Customer satisfaction. Weighting: 35.”

The notice invited submission of requests to participate by 5pm on 27 July 2007. It further stated that:

“Hertfordshire County Council will incorporate a minimum 10 calendar day standstill period at the point information on the award of the contract is communicated to tenderers. This period allows unsuccessful tenderers to seek further debriefing from the contracting authority before the contract is entered into. Applicants have 2 working days from the notification of the award decision to request additional debriefing and that information should be provided a minimum of 3 working days before the expiry of the standstill period....The purpose of the standstill period referred to above is to allow parties to apply to the Courts to set aside the award decision before the contract is entered into.”

The notice also drew attention to the time within which claims had to be brought under the 2006 Regulations. Although in his evidence Mr James Varney contended that the notice he had seen did not refer to the standstill period and that he thought at the time that the standstill period was one during which the successful tenderer would have an opportunity to withdraw from the contract, I reject that evidence. I am quite satisfied that he was well aware of the existence and purpose of the standstill period, namely that it would allow an aggrieved unsuccessful party, such as he became, to apply to the courts to set aside the Council’s decision before the contracts were entered into.

Pursuant to the restricted procedure there were then Pre-Qualification Questionnaires (PQQs) completed by the 11 entities (including Varney) who wished to be invited to tender. It was at this stage that it was for the Council to decide which of the would-be tenderers should be invited to tender, applying the selection criteria set out in Regulations 23 to 25. These relate to matters of conduct and probity, economic and financial standing and technical and professional ability. In order to assist the Council to determine whether would-be tenderers should be selected or rejected, Mr King obtained a financial assessment of each of the applicants from Mr Chris May in the Council’s Finance Department which was contained in a Memorandum from Mr May dated 13 September 2007. I shall return to consider certain matters in relation to that Memorandum later in this judgment. In the event, one party withdrew but the Council selected all the others and invited them to tender.

The Invitation to Tender (“ITT”) was sent to all ten entities by email on 23 June 2008. It consisted of three volumes. Volume I consisted of instructions for tendering together with drafts of relevant documentation and the Conditions of Contract. Volume II consisted of the Return Schedules, to which I return below. Volume III consisted of the various appendices to the new contract.

Paragraph 2.1 of the instructions provided, inter alia as follows:

“The tender analysis will be on an individual site basis although the Tenderer must indicate with its Tender its particular requirement for minimum numbers or groups of sites for which he wishes to be considered.

All submissions will be evaluated on the basis of:

2.1.1.

most economically advantageous to Hertfordshire County Council (65%)

2.1.2.

resources (including staff) to be allocated to the delivery of the Services and the manner in which the Tenderer proposes to provide the Services in order to deliver outstanding customer satisfaction (35%).”

The allegation originally made by Varney that the Council had misstated the award criteria in the ITT because they differed from those stated in the notice in the Official Journal of the European Union was not pursued at trial, it being accepted that the headline criteria had been correctly stated in the Official Journal and that the Council did have and did apply a lowest price criterion as set out in paragraph 2.1.1 of the ITT.

Paragraph 2.5 of the instructions stated:

“The Tenderer must also submit with its Tender in Volume II: Return Schedules:

…

2.5.2

details of proposed staffing and labour levels together with details of any qualifications to demonstrate technical competence, health and safety, first aid, customer care etc. Minimum numbers of staff to be permanently employed at each Site must be such that all of the requirements of the Contract are complied with, maximum quantities of material are separated for composting, recycling, reprocessing and re-use and Customers given no reason to complain about the level of service provided.”

Paragraph 2.16 of the instructions stated:

“Any queries arising from the Tender Documents which might have a bearing on the offer to be made should be raised with Mr MG Shaw as soon as possible (preferably in writing) and in any case not later than Friday 25 July 2008.”

The Return Schedules were described as follows: 1 Household Waste Recycling Centre Servicing; 2 Customer Service and Staff Training; 3 Controls on Non Household Waste and Adherence to …Council Policy; 4 Dealing with Hazardous Wastes; 5 Increasing and Encouraging Recycling; 6 Health and Safety; 7 Welfare and Amenities; 8 Details of Tenderer’s proposed Plant and Equipment; 9 Staffing Levels at the Household Waste Recycling Centres; 10 Contractor’s Recycling and Reporting Proposals; 11 Contractor’s Re-Use and Reporting Proposals; 12 Incentivisation of Household Waste Recycling Centre Staff; 13 Education of Residents and Added Value for the Council; 14 Dealing With Emergencies and Severe weather Conditions; 15 Internal and External Site Cleanliness; 16 Preamble to the Schedule of Rates and the Schedules of Rates and 17 Summary of Completed Return Schedules and Other Information.

At the front of the Return Schedules were instructions for completion which stated:

“Tenderers must complete each of Return Schedules 1 to 15 giving full details of the methods it intends to employ to carry out the particular aspect of the Service provided.

Tenderers must also complete Return Schedule 16, the Schedule of Rates, for each Site for which a tender is submitted giving the tendered Site Management Charge.

Tenderers must also complete Return Schedule 17, the summary of completed Return Schedules and other information required.”

At the beginning of each of the Return Schedules 1 to 15, the Council set out in some detail the standard of Service which it expected and required from tendering contractors. These Return Schedules were to be used and were used by the Council to assess the bids as regards the other criterion, apart from price, of customer satisfaction. Mr Coppel on behalf of Varney sought to argue that four of the Return Schedules, 7 and 12 (welfare and amenities and incentivisation of HWRC staff) and 10 and 11 (recycling proposals and re-use proposals) were not concerned with customer satisfaction at all. There is nothing in this point. Incentivisation of staff and a better working environment will lead to better service for customers, as Mr Varney accepted in cross-examination. Furthermore, quite apart from the Council’s answer in relation to recycling and re-use that it is also a customer as the holder of the waste licence, it seems to me that in the modern world, public awareness of and interest in recycling and reducing waste is such that proposals relating to those matters bear upon customer satisfaction.

It is not necessary to quote the instructions in those Return Schedules in extenso in this judgment, save in relation to Return Schedule 9, Staffing Levels, which stated inter alia:

“As required under Clause 13 of the Conditions of Contract the Contractor must provide sufficient numbers of suitably qualified Staff to both carry out the Services and provide excellent Customer service at all times.”

That Return Schedule then required the tenderer to set out the staffing levels for each of the sites for which it was tendering.

The Preamble to the Schedule of Rates, Return Schedule 16 provided, inter alia, as follows:

“The rates and prices shall include for the provision of personnel, supervision, dealing with consignment notes where required and providing all necessary documentation, consumable materials, insurance, overheads and profit and every incidental and contingent cost and charge whatsoever for compliance with the Conditions of Contract and the Specification.

…

THE COUNCIL SEEKS A PRICE FOR ALL ITEMS IN THE SCHEDULES OF RATES AND A SEPARATE RATE MUST BE SUBMITTED AGAINST ALL ITEMS. FAILURE TO SUBMIT SEPARATE RATES AGAINST ALL ITEMS FOR ANY PARTICULAR SITE WILL RENDER THE TENDER NON-COMPLIANT,

…..

Items the price of which are the same must not be bracketed and the use of the word “included” against any item is not permitted.

For Sites for which a tender is not being submitted the words NO TENDER must be entered against the item for total weekly cost.

For a weekly Site Management Charge involving no payment by the Council to the Contractor or no payment by the Contractor to the Council the rate entered should be “NIL””

The Schedule then required the tenderer to set out for each of the Sites for which it was tendering the weekly Site Management Charge, broken down into separate weekly figures for staffing levels, controls and management, plant and equipment, welfare and amenities and insurances and overheads.

In his witness statement Mr Varney sought to suggest that the proposed contracts for 2008-2013 were much more onerous for any site operator than the outgoing contracts for 2003-2008. On analysis though, as Mr Varney was really constrained to accept in cross-examination, the only respect in which the new contracts were any more onerous is that they required the separation of inert waste such as soil and hardcore, which had not previously been required. In other respects the obligations to be imposed on site operators were essentially the same as under the outgoing contracts, including the obligation to maximise recycling.

One of the ways in which the Council sought to encourage recycling by site operators under the outgoing contracts was the Recycling Incentive Bonus Scheme (“RIBS”). This awarded to the operators of the sites a bonus of 50% of the theoretical cost of disposal of each type of waste (for example compost or wood) less the actual cost of disposal. The rationale behind the RIBS was that the more the site operator could reduce the actual waste by (i) restricting the waste accepted at each site to household waste only, (ii) maximising the materials removed for recycling and reuse and (iii) packing containers densely so as to reduce the number of container lifts, the bigger the bonus. The theoretical cost was calculated by a formula consisting of [theoretical site throughput x disposal rate] + [(theoretical site throughput/target container weight) x transport cost]. Similarly actual cost was calculated by the formula [actual waste tonnage x disposal rate] + [(actual waste tonnage/actual container weight) x transport cost].

Under the 2003-2008 contracts, the theoretical tonnage for each successive year was calculated on the basis of applying a compounded 2.5% growth factor to the previous year’s figure, starting in 2002/3 when the theoretical tonnage was the actual tonnage for the previous year to which the growth factor was then applied. Similarly the theoretical disposal costs were subject to annual increases in line with landfill tax. The theoretical minimum container weight for sites without compacting equipment was set at 3.7 tons.

The effect of all this during the lifetime of the 2003-2008 contracts was that because the amount of recycling generally increased year on year, the actual cost of waste disposal went down whilst the theoretical cost increased artificially with the 2.5% compounded growth figure and increases in landfill tax during that period. As a consequence, as Mr Varney accepted in evidence, the RIBS had become grossly inflated as a result of decreasing waste and increasing landfill tax. By way of illustration, a spreadsheet prepared by Mr King for budgetary purposes after the tenders had been received for the new contracts showed that for the three sites operated by Varney at Ware, Potters Bar and Cole Green, the annual RIBS bonuses received by Varney in 2007/2008 was £88,801, £59,042 and £92,641 as against the annual site attendance charge for those sites of £33,300, £33,658 and £48,000 respectively.

Accordingly, in the new 2008-2013 contracts, the Council was determined to reduce the amount of RIBS bonus available to site operators. In Appendix 13 to the new contracts, it was made clear that because of the significant reduction in actual throughput of waste in recent years, the theoretical site throughput would be subject to only a 1% compound growth factor. Thus the theoretical site throughput for the first year of the contracts, 2008/09, would be the actual tonnage for 2007/08 (which for all sites is considerably less than the actual tonnage for 2001/02 from which the theoretical tonnages for the previous contracts were derived) multiplied by the 1% growth factor. The theoretical minimum container weight for sites without compacting equipment was set by Mr King at 4 tons. On the basis of these changes to the calculation of the RIBS, in his budgeting spreadsheet, Mr King projected the annual RIBS under the new contracts for the three sites at Ware Potters Bar and Cole Green as £42,089.46, £49,072.31 and £42,589.65 respectively, a considerable reduction from the 2007/08 bonuses.

Mr Varney was clearly aware that the existing RIBS was extremely profitable for the operators and disadvantageous for the Council. Indeed in a witness statement for an employment tribunal he described in somewhat crowing terms how he was making money just by keeping his sites open with fewer customers and reducing volumes of throughput. Although in cross-examination he sought in a rather unimpressive manner to disavow this by saying it was just to explain things to people in the tribunal, I find that this was how he viewed the RIBS at the time. Furthermore, he clearly appreciated that under the new contracts, the RIBS bonuses for site operators would be much reduced and this was one of the factors that influenced how he priced his bid.

So far as other tenderers are concerned, the only one from whom there was any direct evidence of their appreciation that the RIBS bonuses would be reduced under the new contracts was Fourways, who held the existing contracts for Berkhamsted, Letchworth and Rickmansworth. In his first witness statement Mr Brydon seemed to be suggesting that Fourways was not aware of the decrease in the level of bonus under the new contracts. In fact, that was not correct. A meeting was held on 7 July 2008 which Mr Brydon attended (which was arranged after Fourways’ accountant sent an email asking for a meeting to explain the RIBS) at which Mr King explained how the RIBS would work in future. Mr Brydon accepted in cross-examination that he was told by the Council that the RIBS payments would be lower in the future.

The ITT required tenders to be submitted by 1 August 2008. In the event, tenders from seven companies, including Varney, were received on that date. The tenders were then marked by the Council’s officers. Mr Shaw marked the Return Schedules other than in relation to staffing levels and price (Return Schedules 9 and 16 respectively) which were marked by Mr King. In the case of each of the Return Schedules except that relating to price, they were given equal weighting of 5 marks each, on the advice of Mrs Evelyn Poulton of the Council’s Special Procurement Group. In addition to the marking of those Return Schedules, Mr Shaw made a further assessment of the quality of the information received from each tenderer for which up to 5 additional marks were given.

So far as the staffing levels were concerned, that Return Schedule was marked somewhat differently from the others. For each site, the tenderer with the highest staffing levels was given one mark, with those with descending levels of staffing getting decreasing fractions of one, with the tenderer with the lowest staffing levels getting zero. The marks awarded were then added up to get an overall figure which was taken to be for all 19 sites (even where the tenderer had not bid for all the sites), divided by 19 and then multiplied by 5 to get an overall mark out of 5.

Although I have no doubt that Mr Shaw genuinely believed what he said in his second witness statement about the staffing levels at the sites having been marked on an individual site basis, in fact this method of marking did not give full credit on a site by site basis to the tenderer with the highest staffing levels for that site. This prejudiced the tenderers who had bid for fewer sites but with higher staffing levels. For example Russ Recycling bid for only ten sites, on eight of which they had the highest staffing levels and so received one point per site. Because their total mark was divided by nineteen, not ten, their overall mark did not reflect properly the fact that they had come first at so many sites on a site by site basis and they were placed only third overall.

However, it is difficult to see how this method of marking prejudiced Varney. They had the highest or equal highest staffing levels at only seven of the eighteen sites for which they bid and yet this system of marking placed them first overall with 3.32 marks out of 5. If, in an effort to reflect better the number of individual sites for which the particular tenderer had bid at which their staffing levels were the highest or equal highest, the Council had adopted some different system of marking, it seems to me that overall Varney would have come second to Russ Recycling (or at best first equal to Russ) who had the highest staffing levels at seven of the other sites for which Varney bid. I return to the issue of marking generally later in this judgment in the context of Varney’s allegations about manifest errors in the marking.

Mr King checked Mr Shaw’s marking and discussed it with him. Neither of them was sure in evidence whether any changes had been made following that discussion but what is clear is that they were agreed on the marks awarded to each tenderer.

When the overall results were collated, Varney’s overall ranking on each site for which it tendered was fourth, fifth or sixth. Fourways put in the best scoring tender for each of the 18 sites for which it had bid. However, Fourways prices were significantly lower than the other prices received from other tenderers. Because, as Mr King said in his witness statement, Fourways’ bid deviated from the mean average of all the tenders received by a significant amount and on a consistent basis, he and Mr Shaw considered that Fourways’ bid on all sites was abnormally low and that confirmation would be required concerning how it had arrived at its tendered prices. A clarification meeting was arranged (to which I return below).

So far as the other tenders are concerned, it is clear that various of the tenderers (specifically Edwards and DWS) quoted a site management charge which did not necessarily represent the actual cost of such matters as staff. It appears that they considered that the income they would make from other sources such as the sale of ferrous and non-ferrous metals and salvage as well as the RIBS payments (albeit at a reduced level under the new contracts) was such as could subsidise to an extent the cost of running the relevant HWRCs. In contrast, Mr Varney took a conservative approach and quoted prices which represented his actual cost of running the centres plus a margin for profit.

Varney complains that the approach adopted by others such as Edwards was not permitted by the Preamble to the Schedule of Rates. However, even if its interpretation of the Preamble is wrong, Varney criticises the Council for not having rejected those other tenders as “abnormally low” on the basis that they were not economically sustainable over the five years of each of the contracts. I will deal in detail with Varney’s case on this issue later in the judgment, but for the present two points are worth emphasising.

First, although in his evidence Mr Varney sought to criticise those other tenderers as irrational, there is simply no evidence to suggest that whatever commercial judgment Edwards or others made at the time as to the likely income from other sources over the lifetime of the contract and the extent to which that would pay for the cost of running the centres was in fact irrational. Nor is there any basis for any suggestion that any of the tenders were put forward on a loss-making basis, to undercut others. Furthermore, upon closer analysis, there is no evidential basis for the suggestion that the operation of the sites by Edwards or other contractors has in fact proved loss-making.

Second, whilst it is open to Varney to allege, pursuant to its case that the Council was under a duty to investigate “suspect” tenders, that the Council ought to have appreciated that other tenders than Fourways’ (specifically Edwards’) were abnormally low, there is no basis for any suggestion that the Council or its officers in fact knew or suspected that other tenders were abnormally low. It is quite clear that they did not. This is important not only in the context of the absence of any case of bad faith on the part of the Council or its officers (to which I have already referred earlier in the judgment) but also to the questions (to which I will return in detail below) whether the Council was under a duty to investigate other tenders and whether the fact that the Council did not investigate other tenders was a breach of duty.

On the morning of 2 September 2008, Mr Shaw telephoned Mr Brydon and said that the Council required a meeting to discuss Fourways’ bid. That afternoon an email was sent by Mr Brydon to Mr Shaw evidently drafted by the company’s accountant Ms Janette Day. This said amongst other things that when considering the tender price, careful consideration had been given to the potential income from RIBS bonuses and salvage (evidently from the context including metal income). The directors were said to be aware that the RIBS bonuses would not reach the levels of recent years and of the impact of the WEEE Directive (i.e. that the contractors would no longer get electrical salvage).

On 9 September 2008, Mr Shaw and Mr King had a meeting with Mr Brydon and Ms Day to clarify the Fourways bid. As recorded in Mr King’s note of the meeting, he and Mr Shaw felt that Fourways would be incapable of managing a large number of sites. Mr Shaw confirmed this in evidence when he described how the company had been set up to run the three sites which it had managed under the outgoing contract, with one director managing each site and Mr Brydon as the fourth director. With a touch of humour, Mr King described how the director at Letchworth was closely associated with that site: “I don’t suppose he’s ever been out of Letchworth, let alone knows where Watford is”.

Mr Brydon’s response to the concern expressed by Mr Shaw and Mr King was to say that, in priority order, the tendered sites they were seeking would be Letchworth, Berkhamsted, Rickmansworth [i.e. the three sites they were already operating], Stevenage, Hemel Hempstead and Watford. Contrary to Mr Brydon’s witness statement, there was no suggestion of the Council threatening Fourways that, unless it withdrew its bids on the sites other than those which it was already operating, it would not be awarded anything. Rather, as Mr King’s note records, issues were raised by the Council about the TUPE obligations of taking over additional sites from existing operators and it was agreed Ms Day would consider the implications of this on behalf of Fourways.

It is clear that, in pricing the staffing costs for sites currently operated by other contractors, Fourways had simply failed to take account of its TUPE obligations, because the staffing costs set out in the tender were significantly less than Fourways would in fact have had to pay pursuant to its TUPE obligations. It was indicated on behalf of Fourways that consideration of those obligations might lead to Fourways withdrawing from a number of sites due to a decrease in profit. Fourways were to inform the Council of the position by the afternoon of 11September.

At the meeting, the Council also sought clarification from Fourways of staffing numbers and proposed management structure at each of the sites. Mr Brydon confirmed that there would be one site manager present each day in addition to a minimum of two site operatives based on three full-time staff working a rota.

One of the other matters raised at the meeting on 9 September relevant to the viability of Fourways’ tender was that, as recorded in the note of the meeting, Mr King checked the Fourways’ projections for income from RIBS, ferrous metals and non-ferrous metals and found them to be plausible. In evidence he described how he had produced the spreadsheet of sensitivity tests which had been run to test Fourways’ tendered prices. He had carried out the calculations in relation to Fourways’ projections for ferrous and non-ferrous metals at the meeting. He knew the tonnages and had the prices, so was able to check Fourways’ figures using a calculator. Mr Brydon had seen him doing this and had not said the resultant income needed to be divided in half, as he now seeks to suggest in his second witness statement. Mr King said that the resultant income was consistent with what he knew about the market for metals at the time.

Mr King also said in evidence that there was nothing in the tickets produced when ferrous metals were delivered by Fourways to scrap metal dealers to suggest that there was a 50% deduction on the price paid. He made the point that what was shown on the tickets was net income. This is what the Council had been told by Fourways in the context of a claim for compensation in respect of the Rickmansworth site which closed for part of 2007. There had been no suggestion by Fourways in that context that it was necessary to make a deduction of 50% of the ferrous metal income shown on the tickets. I consider that Mr Brydon’s evidence about the 50% deduction was untrue.

Following that meeting, on 11 September 2008, Ms Day sent an email saying that, after careful consideration, the directors had withdrawn their bid for 11 of the 18 sites. She also enclosed a schedule that the directors of Fourways had asked her to forward which set out their projected income and expenditure for the seven sites for which they were continuing to bid. Ms Day went on to say that the directors had reviewed Return Schedule 9 (Staffing Levels) for the remaining sites for which they were still bidding and noted that for all sites, a dedicated Customer Care operative and dedicated site cleaner had been omitted.

Those matters were further confirmed at a follow-up meeting between Mr Shaw and Mr King and Mr Brydon and Ms Day the following day, 12 September 2008. Mr King sought clarification in relation to Berkhamsted (one of the sites Fourways was already operating) that there would be a minimum of 5 staff at that site at all times. Mr Brydon and Ms Day confirmed that this was the case. In evidence Mr Brydon confirmed that the directors had maintained the bid for seven sites because they thought they could make money out of them.

A few days later, on 16 September 2008, Mr Shaw wrote to Fourways informing the company that its tender had been accepted for the three sites it was already operating, at Berkhamsted, Letchworth and Rickmansworth. In evidence Mr Shaw explained that the Council had considered that it was a risk worth taking to award Fourways the sites it was already operating of which it had experience, but the award of any other sites was too great a risk.

Thereafter, on 29 September 2008, a further meeting took place between Mr King and all four directors of Fourways. Mr Knight, the director who ran the Berkhamsted site confirmed that an income of about £50,000 was more than achievable for salvage at Berkhamsted (that being the projected figure in the schedule enclosed with Ms Day’s email of 11 September 2008). Mr Judge, who ran Letchworth, said that he had reduced the salvage income projection in the schedule for that site from about £103,000 to about £45,000. According to Mr King’s sensitivities analysis in the spreadsheet he had prepared, that would still have provided Fourways with a profit on that site. Mr King had recalculated the net profit on the basis of a 50% reduction in salvage income to £51,500 as some £37,000 so that a reduction in salvage income to £45,000 would still give a net profit for Letchworth of some £31,000.

Mr Knight also asked Mr King at that meeting whether he was saying that staffing numbers had to be increased for them to have any opportunity of operating the sites. Mr King said categorically not, the Council had wanted to confirm staffing levels and management structure with Fourways at the first meeting because it was unclear from the tender. The email from Ms Day had then indicated an additional two members of staff permanently on site. The three directors other than Mr Brydon then indicated that they had not known of the email from their accountant to which Mr King responded what if this was the legally binding position and two of them said they could not make it pay, Mr Knight indicating that he would want to continue.

Mr King and Mr Shaw discussed the matter further after the meeting and decided that, as the email from Ms Day had come after the tender and was neither a signed document nor directly from one of the directors, it should not be treated as official. The Fourways tender for the three sites was accordingly accepted on the basis of the original staffing levels and it was decided that the sufficiency of those levels would be assessed through contract management.

Mr Coppel suggested to Mr Shaw in cross-examination that the various discussions with Fourways after the tender was submitted were an example of the Council illegitimately negotiating with tenderers after the tenders had been marked, but Mr Shaw refuted that suggestion, saying that Fourways had been asked to clarify the tender, there had been an offer of an extra two staff, the matter had gone backwards and forwards and in the end the Council had decided Fourways should only have the three sites it was already operating. In other words, what had happened was legitimate clarification of the tender, not further negotiation. In my judgment that is borne out by what was decided after the 29 September 2008 meeting.

Varney also complains about the discussions which the Council had with other successful tenderers following the marking of the tenders. The primary complaint concerns Edwards, to which 11 sites were awarded. A meeting took place between Mr Shaw and Mr King and Mr Edwards and Mr Taylor, directors of Edwards, on 12 September 2008. Varney focused in particular on Mr King’s note of the meeting which recorded him saying that due to the other work Edwards had for the Council, the financial limitation would be about £355,000. I am quite satisfied, for reasons I will elaborate later in the judgment, that Mr King did not in fact say this and that his note is mistaken.

Mr Coppel also submitted that there were further negotiations at the meeting, specifically that Edwards made additional commitments to have a dedicated customer liaison officer on each site rather than one across all sites and to offer assistance to customers unloading and segregating waste. This submission was clearly based on a misconception. As Mr King explained, Edwards had undertaken to provide dedicated customer liaison service in Return Schedule 2. There is not a dedicated customer liaison officer for each site but a single, roving manager. Equally, providing assistance to customers was stipulated in the ITT and Edwards was not offering something additional at the meeting, but simply that it would provide what was required under the ITT.

There was a suggestion by Varney in its pleadings that, at the meeting, Edwards had been permitted to expand on its TUPE plan. In his witness statement Mr Shaw said he did not understand this allegation and it was not put to him in cross-examination. In any event it is clear from the note that Edwards was just clarifying the position.

Mr Coppel also alleged that at the meeting Edwards requested and was granted additional funding for the Council to provide security at the Cole Green site. Again this is a misconception. Edwards had raised a concern about security in its tender. At the meeting, Edwards’ representatives expressed concern about intimidation at that site. There had been problems of that kind in the past at that site with certain sections of the gypsy community. As Mr Shaw explained in evidence, the cost of providing security at the site when any such problems occurred was not a cost which tenderers had been asked to include in their rates. The Council is responsible for security at the site. The cost of providing security when it was necessary was simply not a cost of operation of the site at all.

In any event, even if this had been the negotiation of some further matter which worked to Edwards’ benefit, it is difficult to see how Varney can allege inequality of treatment or that it would have made any difference either to the Varney bid or could possibly have led to Varney putting in a more competitive bid than Edwards. The Varney bid for this site, which it had been operating, was some 25% more than Edwards. It is fanciful to suggest that Mr Varney would have reduced his bid (let alone sufficiently to beat Edwards) if he had known in advance that the Council would pay for the cost of security in the future if any problem arose. He was the operator there and did not think there was a problem with security, so he would not have included it in his price.

In addition, unpleaded allegations were made in Mr Coppel’s Skeleton Argument concerning what were said to be negotiations with other successful tenderers, specifically GRR and DWS. In relation to GRR, the point was made that it had been second to Fourways on eight sites and yet had only been awarded two sites, Watford and Tring. Somewhat inconsistently with that point, in his cross-examination of the Council’s officers and in oral submissions, Mr Coppel seemed to be criticising the Council for failing to investigate the GRR tender for Watford as being abnormally low.

As regards the first point, the Council officers had a perfectly satisfactory answer, namely that whilst Mr Green of GRR was an extremely experienced salvage contractor in Hertfordshire, he had no experience whatsoever of running HWRCs. Accordingly, they were reluctant to award any more than two sites to GRR. In any event, even if it could be said that the Council should have awarded more site contracts to GRR, it is difficult to see what loss and damage that caused Varney. If anyone could complain, it would be Mr Green and significantly, he has not done so. In reality, this point was part of the allegation that the Council had deliberately favoured Edwards, which as I have indicated, I ruled formally it was not open to Varney to make. As regards the suggestion that the Council should have investigated the Watford tender as abnormally low, I will deal with that in the section of the judgment which deals with the complaint about abnormally low tenders.

Again, there is an unpleaded allegation about DWS that the Council offered it St Albans as its second site, whereas if it had been offered Waterdale on which it also finished second, then GRR would have been promoted to first place at St Albans. Again if there were anything in this complaint, it would be GRR not Varney which suffered and the reality is that this too is a complaint about favouring Edwards. However, there is nothing in the point. In the letter of 23 July 2008 sent with its tender DWS said its preference was to be awarded a maximum of two sites, Elstree and one out of Rickmansworth, St Albans, Waterdale, Berkhamsted and Potters Bar. The problem was that Mr Bateman of DWS had not indicated a preference within those sites and, at the meeting with DWS, all that the Council was doing was clarifying that he was happy to run St Albans, which he was.

In my judgment, there is nothing in the suggestion that the Council engaged in illegitimate negotiations with tenderers after the tenders had been marked.

A debriefing meeting was held at County Hall on 15 September 2008 between Mr Varney and Mr Shaw and Mr King. Mr Varney in fact recorded the meeting and there is a transcript, albeit that it appears incomplete and in places is difficult to follow. However, in my judgment the transcript does bear out what Mr Shaw said in his evidence about Mr Varney not appearing to be surprised that he had lost the tenders. Indeed, as appears from the transcript, he said he had already sold his uniforms to Mr Brydon of Fourways, so it seems clear that he knew before the meeting that he had been unsuccessful. In cross-examination he said he had spoken to Mr Brydon on the morning of 15 September. The transcript records Mr Varney as having said that he had thrown his tender in the bin twice and that “at the end of the day I don’t give a toss one way or the other”. In cross-examination, he made a wholly unconvincing attempt to explain this away as a reference to a tender relating to tyres. In fact, it is clear the comment was made about the fact that his tender had been unsuccessful and the impression was given to the Council officers that he was not over-concerned about having been unsuccessful.

Mr Varney is also recorded as saying: “we’ve been blown out on price” and although, as I say, the transcript is difficult to follow, it appears to be correct, as Mr Shaw said in evidence, that Mr Shaw explained at that point that the tenders were evaluated by reference to all the Return Schedules, fourteen of which were to do with performance, not price. I also accept the evidence of Mr Shaw and Mr King that they said to Mr Varney that they would answer any questions he had and I reject Mr Varney’s suggestion in evidence that he did not feel that he could ask about the tender. The meeting was clearly informal and Mr Varney would appear to have been in an expansive mood, reminiscing about his past experiences working on the sites and talking about writing a book about those experiences. I also accept Mr King’s evidence that the meeting ended amicably.

Following the meeting, the Council wrote to Mr Varney on 17 September 2008 informing him that the tender of 17 July 2008 had been unsuccessful. On 17 October 2008, Varney wrote to the Council asking for a copy of the Edwards tender for Ware, Cole Green and Potters Bar. The Council responded on 10 November 2008 that copies of the tender documents of other tenderers were within an exception under the Environmental Information Regulations 2004 in respect of the commercial interests of those other tenderers, in other words the Council declined to disclose the tenders on grounds of commercial sensitivity.

Thereafter, on 2 December 2008, Cartwright King, solicitors then acting for Varney wrote to the Council asking for reasons as to why the tender was unsuccessful and an explanation of the Council’s procedures when considering the tenders. That was followed on 8 December 2008 by a much fuller letter from Varney’s current solicitors, DMH Stallard, seeking a detailed response from the Council. The first Claim Form was then issued on 12 December 2008.

In about June 2009, after the new contracts had been running for some nine months, Mr King was informed by one of his colleagues that many of the site operators were finding it virtually impossible to achieve the target theoretical maximum container weight of 4 tons per load which Mr King had set in Appendix 13 to the new contract. This meant that in practice the operators were not able to make the projected RIBS bonuses. Mr King was concerned that he had made a mistake in setting the figure as high as 4 tons and that an inability to make the bonus might lead to a disincentivised workforce. Accordingly he decided that to be fair and reasonable to all contractors, he would reduce the theoretical minimum weight from 4 tons to 3.25 tons.

As Mr King explained in evidence, although this would lead to an increase in the bonus payments, this was likely to be self-funding, in the sense that the additional cost would be compensated for by the financial benefit to the Council of separating more inert materials and reducing the number of containers to be used to transport residual waste.

An email was sent by Mr King to each of the contractors on 30 June 2009 in which he said that he was reducing the minimum container weights and that this would be the subject of a formal variation to the contract in the near future. On 18 August 2009, Mr King wrote to each of the contractors enclosing a formal amendment to Appendix 13 and asking each of them for their written acceptance, whereupon the Council would prepare a Deed of Variation. In anticipation that this amendment to the contracts would be made, the Council paid the various contractors additional sums by way of RIBS bonuses for the period between January and September 2009, as if the amendment was in force.

Only GRR and DWS wrote back accepting the proposed amendment and the Council heard nothing from the other contractors. On 11 November 2009, Varney’s solicitors wrote to the Council contending that the Council would be in breach of the Regulations if the contracts were amended by the proposed Deed of Variation. In letter dated 20 November 2009, the Council undertook not to enter into any Deed of Variation until that contention had been considered and the Council wrote accordingly to the contractors, explaining that the RIBS would return to the original position whilst that contention was considered. In the event, the Council decided not to pursue the proposed amendment and the original Appendix 13 has not been amended.

The importance of and the reasons for the requirement of transparency were explained by Lord Phillips of Worth Matravers CJ in the judgment of the Court of Appeal in R (Law Society) v Legal Services Commission [2007] EWCA Civ 1264; [2008] QB 737 at paragraphs 42 and 43:

“42 In Commission of the European Communities v French Republic (Case-C-340/02) [2004] ECR 1-9845, para 34 the European court said that -

"The principle of equal treatment of service providers, laid down in. . . the Directive, and the principle of transparency which flows from it . . . require the subject matter of each contract and the criteria governing its award to be clearly defined."

43 The rationale of the principle has been expressed in a number of different ways.

(1)

First, it enables the contracting authority to satisfy itself that the principles of equal treatment and of non-discrimination on the grounds of nationality have been complied with: Telaustria Verlags GmbH v Telekom Austria AG (Case C-324/98) [2000] ECR 1-10745, para 61; SIAC Construction Ltd v Mayo County Council (Case C-19/00) [2001] ECR 1-7725, para 41 and Commission of the European Communities v French Republic (Case C-340/02) [2004] ECR 1-9845, para 34.

(2)

Second, it facilitates competition: Telaustria Veriags GmbH v Telekom Austria AG (Case C-324/98) [2000] ECR 1-10745, para 62; Parking Brixen GmbH v Gemeinde Brixen (Case C-458/03) [2005] ECR I-88, paras 50, 52 and Impresa Portuale di Cagliari Sri v Tirrenia di Navagazione SpA (Case C-174/03) (unreported) 21 April para 75, per Advocate General Jacobs.

(3)

Third, it enables the impartiality of procurement procedures to be reviewed: Telaustria Veriags GmbH v Telekom Austria AG (Case C-324/98) [2000] ECR 1-10745, para 62 and Impresa Portuale di Cagliari Sri v Tirrenia di Navagazione SpA (Case C-174/03), para 75, per Advocate General Jacobs.

(4)

Fourth, it precludes any risk of favouritism or arbitrariness on the part of the contracting authority: Commission of the European Communities v CAS Succhi di Frutta SpA (Case C-496/99 P) [2004] ECR 1-3801, para iii.

(5)

Fifth, it promotes a level playing field by enabling all tenderers to know in advance on what criteria their tenders will be judged and those criteria are assessed objectively; SIAC Construction Ltd v Mayo County Council (Case C-19/00) [2001] ECR 1-7725, para 38, per Advocate General Jacobs.”

The principle of equality of treatment of tenderers requires that comparable situations are not treated differently and that different situations are not treated in the same way.

Varney’s principal complaint as regards alleged lack of transparency is that each of the Return Schedules was a separate award criterion and that neither the fact that these were award criteria nor the weightings attached to each was disclosed to Varney, as it is contended they should have been. In support of that case, considerable reliance is placed on the decision of Silber J in Letting International v Newham London BC [2008] EWHC 1583 (QB); [2008] LGR 908.

Three questions arise in the context of this contention:

In support of the case that the Return Schedules were indeed distinct award criteria, Mr Coppel relies upon the analysis of Silber J in the Letting International case at paragraphs 52 to 63 which he submits is equally applicable to the present case. Mr Howell on the other hand submits that on a correct analysis the Return Schedules are no more than sub-sub criteria or, at most, sub-criteria of the stated award criteria of customer satisfaction and price.

In my judgment, when properly analysed the Return Schedules are not separate award criteria. Rather, as I have found above, Return Schedules 1 to 15 are dealing with different aspects of customer satisfaction, one of the stated award criteria and therefore are sub-criteria or a sub-set of that award criterion. Return Schedule 16 deals with rates i.e. price, the other stated award criterion. Accordingly I do not consider that to be a different or new sub-criterion, let alone a separate award criterion. Return Schedule 17 is merely a summary of the information provided by the tenderer and so nothing to do with award criteria.

My reasons for concluding that the Return Schedules in this case, unlike the Method Statements considered by Silber J in the Letting International case, are not award criteria, are as follows. First the relevant stated award criterion in that case of “Compliance with Specification” was somewhat broad and vague and so it is not difficult to see why the learned judge considered that the Method Statements, which were much more specific, were distinct award criteria. Second, Silber J determined that the Method Statements were distinct criteria by reference to the dictionary definition of “criterion” as “principle, standard or test by which a thing is judged, assessed or identified”. Applying that definition, it seems to me that the relevant principles or standards or tests in the present case were “customer satisfaction” and “price” and the Return Schedules were not separate principles or standards or tests but no more than (in the case of Return Schedules 1 to 15) sub-sets of those principles or standards or tests. Return Schedule 16 simply dealt with the criterion of price.

It is clear from Letting International and the European Court jurisprudence which it follows (specifically the decision of the European Court of Justice in Lianakis v Municipality of Alexandroupolis [2008]) that where there are undisclosed criteria and weightings for those criteria, the Directive and the Regulations require a strict approach to be taken to the obligation of transparency. Thus, it would be no answer to a claim that there had been a failure to disclose expressly that the Return Schedules were award criteria that it must have been perfectly obvious that the Return Schedules were going to feature in the assessment of the tenders or that they were going to be marked: the same could have been said of the Method Statements in Letting International.

Equally, if the Return Schedules had been award criteria, it does not seem to me that it would be an answer to the lack of transparency to say that the ITT stated in terms “any queries arising from the tender documents which may have a bearing on the offer to be made should be raised” enabling any prospective tenderer to enquire as to the status of the Return Schedules and what weighting they would be given. It seems to me that seeks to pass responsibility to the tenderer for a matter which on this hypothesis would have given rise to an anterior obligation on the Council.

I should add that, at one point in the argument, it struck me as odd that the Council could have looked at the Return Schedules as part of its general assessment without giving any marks to them and that would not have been a breach of its obligation of transparency, whereas the moment it allocated marks without having expressly stated in advance it was going to do so, it was in breach of its obligation of transparency. However, in relation to unstated criteria, that is clearly the effect of the decision of the European Court of Justice in Lianakis: see Silber J in Letting International at paragraph 46 where he states:

“In a helpful case-note written on the Lianakis case by Professor Sue Arrowsmith which has been published on the Themis procurement law portal, she explained that "entities that wish to use sub criteria must state them in the notice or documents – otherwise they must simply apply the award criteria in a general discretionary manner with out using the specific sub criteria at all". As I will explain, this was the same approach adopted by the Court of Appeal in the present case when deciding that there was a serious issue to be tried on this point.”

However, for the reasons I have already stated, I do not consider that the Return schedules are award criteria. Rather, Return Schedules 1 to 15 contain sub-criteria of the stated award criterion of customer satisfaction.

The obligation of transparency in relation to prior disclosure of those sub-criteria and the weightings attached to them is qualified in a way in which disclosure of the award criteria themselves is not. This is apparent from the judgment of the European Court of Justice in ATI EAC v ACTV Venezia [2005] ECR I-10109.

At paragraph 32 of the judgment in that case the European Court reached this conclusion:

“…Community law does not preclude a [contracting authority] from attaching specific weight to the subheadings of an award criterion which are defined in advance, by dividing among those headings the points awarded for that criterion by the contracting authority when the contract documents or the contract notice were prepared, provided that that decision:–

-does not alter the criteria for the award of the contract set out in the contract documents or the contract notice;

-does not contain elements which, if they had been known at the time the tenders were prepared, could have affected that preparation;

-was not adopted on the basis of matters likely to give rise to discrimination against one of the tenderers.”

Silber J in Letting International pointed out (at paragraphs 37 and 64-5 of the judgment) that if (but only if) those three conditions were satisfied, a contracting authority would be entitled to withhold the sub-criteria and the weightings to be attached to them. He also emphasised that a contracting authority is obliged to disclose any sub-criteria which not merely did affect the preparation of the tender but whichcould have affected that preparation.

Varney contends that even if, contrary to its primary case, the Return Schedules were only sub-criteria, not award criteria in themselves, nonetheless the Council was in breach of its obligation of transparency in failing to disclose in advance that these were sub-criteria and that each Return Schedule would be marked with a weighting of 5 marks for each Schedule, because if this had been disclosed to Mr Varney it could have affected the preparation of his tender. Specifically, Mr Varney contended that he might have changed three aspects of his tender.

First, he contended in evidence that if he had realised that staffing levels would count for so few marks in relative terms, he would have given staffing much less weight and cut back staff to the level required to achieve minimum recycling levels. That contention was challenged in cross-examination by Mr Howell and Mr Varney was constrained to accept that that approach would have been inconsistent with the ITT and would have meant Varney could not comply with the contractual obligations in relation to maximum recycling. As Mr Howell pointed out in submissions, irrespective of the contractual obligations, pitching staffing levels so as to achieve only minimum recycling would mean Varney was foregoing the profit which Mr Varney was expecting to make from the RIBS scheme, scrap and salvage, which he would surely not have wanted to do. Furthermore, in answer to a question from me, Mr Varney accepted that the staffing levels he put in his tender were unaffected by how the tenders were marked.

Second, Mr Varney said he would have reduced the cost of health and safety training, so that only some of his staff would be trained by outside bodies and those staff would then be expected to train the others. I accept Mr Howell’s submission that if, in truth, Mr Varney had thought that was a satisfactory way to train staff in health and safety, then there is no obvious reason why he would not have done that anyway. Accordingly, I consider that how the marks were awarded in respect of health and safety had no effect on Varney’s bid.

Third, Mr Varney said that, if he had known how the marks were awarded, he would have given more information in respect of some of the Return Schedules. However, as Mr Howell pointed out, any rational tenderer would try to put forward its best case in its tender whatever marking scheme was adopted. Furthermore it is difficult to see how knowing in advance that each Return Schedule would receive 5 marks i.e. equal marking, could have led to the provision of more information by Mr Varney in respect of some of the Return Schedules as alleged. That is totally illogical. Accordingly, I simply do not accept that knowledge of the marking scheme would have made any difference to the Varney bid.

Mr Coppel emphasised what Silber J held in Letting International that a contracting authority is obliged to disclose any sub-criteria which not merely did affect the preparation of the tender but whichcould have affected that preparation, so that the authority will only be excused from failure to make such disclosure if that disclosure could not have affected the preparation of any of the tenders. He submitted that the Council simply could not demonstrate that that was the case here.

In contrast, Mr Howell submitted that this is where the statement by the Council in the ITT that “any queries arising from the tender documents which may have a bearing on the offer to be made should be raised” was of considerable significance. In the event, none of the potential tenderers raised any query about sub-criteria or the weightings attached to them. He submitted that this showed that, in the present case, there was no need for notification of such matters, as the tenderers themselves did not consider that such further information could affect their offers.

It seems to me that this submission is correct: in reality it was perfectly obvious that the award criteria were going to be marked by reference to the information provided in response to the Return Schedules and if any of the tenderers had wanted clarification of that or of what marks would be attached to each Return Schedule, they would surely have asked. Accordingly I am satisfied that this is a case where, within the ATI principle, there was no requirement to disclose in advance the sub-criteria or the weighting attached to each of them, because such disclosure could not have affected the preparation of any of the tenders. In the circumstances, the Council was not in breach of the obligation of transparency in that regard.

Given that submission it is not strictly necessary to consider the additional reason advanced by Mr Howell as to why there was no breach, namely that in complying with its obligation of transparency under the Regulations, the Council still had a “margin of appreciation” in the sense that, in line with another fundamental principle of European law, that of proportionality, provided the Council attained the objective of equal treatment of tenderers, which it had done in the ITT, it did not need to go further. However, since the point was fully argued and is of some importance, I will deal with it.

In support of that submission, Mr Howell relied upon the decision of the Grand Chamber in Michaniki AE v ESR C-213/07 (2008) 16 December. That case concerned a provision in the national law which provided that persons or entities involved in the ownership or management of media undertakings were precluded from also being involved in the ownership or management of undertakings which carried out public works. The Court held at paragraph 49 that although the Directive contained an exhaustive list of the grounds for exclusion from participation in a public works contract based upon objective considerations of professional quality:

“However, that directive does not preclude a Member State from providing for further exclusionary measures designed to ensure observance of the principles of equal treatment of tenderers and of transparency, provided that such measures do not go beyond what is necessary to achieve that objective.”

The issue for the Court was then whether a national provision which established an incompatibility between the media sector and the public procurement sector was compatible with the principles of Community law. The Court answered that question in the affirmative, reasoning as follows at paragraphs 53 to 57 of its judgment:

“53

As was noted in paragraph 39 of this judgment, the primary aim of Directive 93/37 is to open up public works contracts to Community competition. The purpose of that directive is to avoid the risk of the public authorities indulging in favouritism (see, to that effect, Ordine degli Architetti and Others, paragraph 75, and Lombardini and Mantovani, paragraph 35).

54      The Community coordination of procedures for the award of public contracts is designed in particular to avoid both the risk of preference being given to national tenderers whenever a contract is awarded and the possibility that a contracting authority may choose to be guided by considerations which are unrelated to the contract in question (see, to that effect, Case C-380/98 University of Cambridge [2000] ECR I-8035, paragraph 17; Case C-237/99 Commission v France [2001] ECR I-939, paragraph 42; and Lombardini and Mantovani, paragraph 36).

55      Against that background, as the Advocate General observed at point 30 of his Opinion, it is appropriate to grant the Member States a certain discretion for the purpose of adopting measures intended to safeguard the principles of equal treatment of tenderers and of transparency, which, as was noted at paragraph 45 of this judgment, constitute the basis of the Community directives on the award of public contracts.

56      Each Member State is best placed to identify, in the light of historical, legal, economic or social considerations specific to it (see, to that effect, La Cascina and Others, paragraph 23), situations propitious to conduct liable to bring about breaches of those principles.

57      Consequently, Community law does not seek to call into question the assessment of a Member State, in the light of the specific context of that Member State, as to the particular risk that such conduct will arise if, amongst the tenderers for a public works contract, there is an undertaking active in the media sector or connected with persons involved in that sector, and as to the need to take measures to reduce that risk.”

I do not consider that, when properly analysed, that case supports Mr Howell’s submission. The Court is not saying that, by virtue of the principle of proportionality, the relevant public authority has a “margin of appreciation” or discretion as to whether to comply with the Directive (or in the present instance the Regulations) in fulfilling its obligations of equal treatment or transparency. Rather, the Court is saying that in seeking ensure compliance with the principles of equal treatment and transparency, the public authority may apply national laws in addition to the Directive, provided that they do not go beyond what is necessary to achieve the objective of ensuring compliance with the principles of equal treatment and transparency i.e. that they do not infringe the principle of proportionality.

I agree with Mr Coppel that in relation to compliance by the Council with its obligations of equal treatment and transparency there is no discretion or “margin of appreciation” for the Council as to whether it complies with those obligations. It seems to me that the law is correctly stated by Morgan J in Lion Apparel Systems Ltd v Firebuy Ltd [2007] EWHC 2179 (Ch) at paragraph 36:

“If the Authority has not complied with its obligations as to equality, transparency or objectivity, then there is no scope for the Authority to have a "margin of appreciation" as to the extent to which it will, or will not, comply with its obligations.”

On the other hand in relation to matters of judgment or assessment, the Council does have a margin of appreciation, so that the court should only disturb the decision of the Council where it has committed a “manifest error”, by which is meant an error which has clearly been made, an obvious error: see Lion Apparel at paragraphs 37 and 38. The latter principle will apply for example in relation to the criticisms levelled by Varney against the method of marking of the tenders, to which I return below.

Given my conclusion that merely because the ITT did not state expressly that the Return Schedules were sub-criteria or that they would each carry 5 marks, the Council was not in breach of its obligation of transparency, it is also strictly unnecessary to consider the Council’s alternative defence that any claim Varney had in respect of a breach is time barred by virtue of Regulation 47(7) (b). Nonetheless, since the point was fully argued and the case may go further, I propose to deal with the point.

Before dealing with the matters which are in issue between the parties on this question of time bar, I should deal briefly with a matter which is no longer in issue following the recent decision of the European Court of Justice in Uniplex (UK) Ltd v NHS Business Services Authority (2010) 28 January. One of the questions decided in that case was that the provision in Regulation 47(7) that proceedings could not be brought unless brought “promptly” was precluded by the Directive because it gave rise to uncertainty. It follows that after that decision, a claim will only be time barred under that Regulation if it is brought more than three months from the date “when grounds for the bringing of the proceedings first arose” and the Court concludes that there is no good reason for extending the period within which proceedings are to be brought.

The principal matter in issue between the parties is when the grounds for bringing the claim in respect of the breach of the obligation of transparency first arose. The Council alleges that the breach of the obligation occurred when the ITT was published and that, since Varney knew that the award criteria and weightings had not been disclosed, it was aware of those matters on receipt of the ITT on 23 June 2008. However, no proceedings were brought in respect of the alleged breach until 12 December 2008, more than 3 months after 23 June 2008. Accordingly it is said that any claim is time barred.

In resisting any suggestion that Varney’s claim in respect of that breach was time barred, Mr Coppel relies upon two related propositions. First he contends that any breach did not occur when the ITT was published but only at a later date when the criteria and weightings were applied, which was not until early September 2008 when the Council was evaluating the tenders received. He relies in support of that proposition on paragraph 38 of the judgment in Lianakis, submitting that, until the Council actually applied the criteria or sub-criteria and weightings it had not previously disclosed, it would have been open to the Council just to consider the Return Schedules generally without assigning any specific marks and thus without breaching the obligation of transparency.

Second, Mr Coppel submits that Uniplex is authority for the proposition that in every case including the present, time starts to run only from the date when the unsuccessful tenderer knows the reasons why his tender was unsuccessful. He relies upon the following paragraphs of the judgment:

“ 30 However, the fact that a candidate or tenderer learns that its application or tender has been rejected does not place it in a position effectively to bring proceedings. Such information is insufficient to enable the candidate or tenderer to establish whether there has been any illegality which might form the subject-matter of proceedings.

31      It is only once a concerned candidate or tenderer has been informed of the reasons for its elimination from the public procurement procedure that it may come to an informed view as to whether there has been an infringement of the applicable provisions and as to the appropriateness of bringing proceedings.

32      It follows that the objective laid down in Article 1(1) of Directive 89/665 of guaranteeing effective procedures for review of infringements of the provisions applicable in the field of public procurement can be realised only if the periods laid down for bringing such proceedings start to run only from the date on which the claimant knew, or ought to have known, of the alleged infringement of those provisions (see, to that effect, Universale-Bau and Others, paragraph 78).

33      This conclusion is supported by the fact that Article 41(1) and (2) of Directive 2004/18, which was in force at the time of the facts in the main proceedings, requires contracting authorities to notify unsuccessful candidates and tenderers of the reasons for the decision concerning them. Such provisions are consistent with a system of limitation periods under which those periods start to run from the date on which the claimant knew, or ought to have known, of the alleged infringement of the provisions applicable in the field of public procurement.”

Mr Coppel also relies upon paragraph 43 of the Opinion of the Advocate-General in the same case:

“Only once the unsuccessful tenderer or candidate has been informed of the essential reasons for his being unsuccessful in the award procedure may it generally be presumed that he knew or in any case ought to have known of the alleged breach of procurement law. Only from then on is it possible for him sensibly to prepare a possible application for review and to estimate its chances of success. Before receiving such reasons, on the other hand, the person concerned cannot as a rule effectively exercise his right to a review.”

On the basis of those passages, Mr Coppel submits that it was not until Varney was informed by the Council of the reasons for the rejection of its tender that time began to run. He submits that this is the position on the basis of those passages in the Opinion and the judgment even if Varney knew or ought to have known that there was a breach of the obligation of transparency before the date when it was given the reasons for the rejection of its tender.

Mr Howell submitted that the relevant infringement of the obligation of transparency, if there was one, occurred when the ITT was published on 23 June 2008 and that Varney knew or ought to have known from its receipt of the ITT that the Return Schedules would be marked (as Mr Varney admitted in evidence) but that no weightings were disclosed in the ITT. He then submitted that whilst Uniplex was authority for the proposition that generally time would not run until the unsuccessful tenderer was aware of the reasons why its tender had been unsuccessful, that was not an immutable principle and it did not apply in a case such as the present where the unsuccessful tenderer was or ought to have been aware of the alleged breach before it obtained the specific reasons why its tender had been unsuccessful.

In response to the suggestion that Varney’s argument would involve the conclusion that it could obtain an injunction pursuant to Regulation 47(8) notwithstanding that no cause of action had yet arisen, Varney relied upon the decision of the Court of Appeal in Brent LBC v Risk Management Partners [2009] EWCA Civ 490. The Court of Appeal made clear that interim relief under Regulation 47(8) is available in cases of apprehended or anticipatory breach before any cause of action for actual breach has started to run: see per Pill LJ at paragraphs 147-149 and Moore-Bick LJ at paragraphs 251-252. It seems to me on reflection that Varney is correct on this point and that there is no illogicality in Varney’s argument.

Nonetheless, in my judgment, Mr Howell’s submissions on this issue are to be preferred to those of Mr Coppel for the following reasons. First I accept that at the time that the ITT was issued on 23 June 2008, it was clear that the Return Schedules were going to be marked as part of the evaluation of tenders, as Mr Varney essentially accepted in evidence. It seems to me unreal to suggest that the Council might have changed its intended approach and, in the event, not have awarded marks to each of the Return Schedules. The whole purpose of asking for the Return Schedules to be completed was to mark them as part of the evaluation process. Accordingly, I agree with Mr Howell that any breach was committed when the ITT was published on 23 June 2008.

Second, I accept that Uniplex is not laying down an immutable principle that time will not run until the unsuccessful tenderer knows the reasons why its tender has been rejected. It is clear from the Advocate-General’s Opinion that she considered that that was only “generally” the position and I do not consider the Court is saying anything different, particularly given ruling 1 at the end of the judgment which states the principle in quite general terms, unrelated to the date when the claimant was informed of the reasons for rejection, as follows:

“Article 1(1) of Council Directive 89/665/EEC of 21 December 1989 on the coordination of the laws, regulations and administrative provisions relating to the application of review procedures to the award of public supply and public works contracts, as amended by Council Directive 92/50/EEC of 18 June 1992, requires that the period for bringing proceedings seeking to have an infringement of the public procurement rules established or to obtain damages for the infringement of those rules should start to run from the date on which the claimant knew, or ought to have known, of that infringement.”

Similarly, in my judgment, the Court in Lianakis at paragraph 38 was not seeking to lay down some immutable general proposition that an authority would not be committing a breach and therefore time would not start to run until the authority had actually applied sub-criteria which it had not brought to the attention of the unsuccessful tenderer. As I see it the Court in that case was not dealing at all with the issue as to when time would start to run for any limitation purposes.

The reason why the general position is that time does not run until the claimant is informed of the reasons for its rejection is the obvious one that it is only then that the claimant knows or ought to know that there is a potential claim against the public authority in question. However, that is not invariably the position, particularly where, as in the present case, any breach of the obligation of transparency is apparent before the claimant’s tender was rejected or the claimant was informed of the reasons for the rejection. I can see no reason for artificially suspending the running of time in such a case until the claimant is told the reasons for rejection of his tender.

It follows from this analysis that I accept Mr Howell’s submission that the three month period under Regulation 47(7) expired on 23 September 2008, long before the proceedings were commenced on 12 December 2008. Mr Varney knew on 15 September 2008 that he had not been awarded any of the contracts and yet he took no steps. He claimed that he had difficulty in finding a suitable solicitor and it was not until he was given the name of his current solicitor by his waste management consultant in December 2008 that he was able to instruct those solicitors and issue the Claim Form. However, Mr Varney has considerable experience with lawyers and in any event there was no explanation given as to why he did not consult his waste management consultant sooner. I can see no good reason to extend the time for bringing proceedings.

It follows that if, contrary to my principal conclusion on this issue, there had been a breach by the Council of the obligation of transparency in failing to state expressly that the Return Schedules were criteria or sub-criteria and that each would carry up to five marks, any claim in respect of that breach would have been time barred under Regulation 47(7).

So far as the other allegations of breach of the obligation of transparency comprised within Complaint (2) set out in Paragraph 6 above are concerned, Varney made two points. The first is the allegation made about four of the Return Schedules that they involved the adoption of criteria or sub-criteria which did not relate to the stated criterion of customer satisfaction. I have already stated in the section of the judgment concerned with the factual background that this allegation is misconceived because all four Return Schedules did relate to customer satisfaction.

The second point was that the Council had failed to disclose that, in addition to the marks for each of the Return Schedules, the Council was going to make an evaluation of each particular tender and assess the quality of the information generally, for which additional marks of up to five marks would be awarded. In my judgment, there is nothing in the suggestion that this was a breach of the Regulations. This was not some additional undisclosed criterion, but an assessment of the information provided.

In his skeleton argument Mr Coppel sought to suggest that this was a “means for Council officers to give further effect to their subjective views about the merits of the different tenderers”. This appears to smack of the allegation (which I held it was not open to Varney to pursue) that the Council had deliberately favoured Edwards, but in any event, the allegation is wholly without foundation. There was no question of Mr Shaw and Mr King having shown any favouritism. They were both patently honest and honourable people. Mr Shaw said that he had marked everybody on an equal basis and I accept that evidence.

Varney makes two complaints about the treatment by the Council of financial capacity (Complaints (3) and (5) in Paragraph 6 above). For reasons which will become apparent, it seems to me that these two complaints are mutually inconsistent.

The first complaint is that, in determining which contracts should be awarded to which contractors, the Council applied an overriding criterion of financial strength or stability derived from Mr Chris May’s financial assessment of the tenderers set out in his Memorandum dated 13 September 2007, in other words used a selection criterion at the evaluation stage. The Council’s case is that this overstates the use made of Mr May’s assessment, which was not used as an overriding criterion but merely taken into account. Furthermore, the Council points out that it departed from Mr May’s assessment in relation to a number of the successful tenderers.

Nonetheless, it was accepted by the Council from the outset of the trial, that the rejection of any tender on the grounds of financial stability was unlawful in the present case. Mr Howell submitted (and I accept) that it does not follow that financial stability is completely irrelevant to which bid or bids were the most economically advantageous or that it is unlawful for consideration to be given to financial stability at the evaluation stage. It is clear from Regulation 16(15) (c) that information as to financial standing may be considered at the evaluation stage.

However, for it to be lawful for the Council to do so, the Council would have had to disclose in advance (which it did not) in the ITT that an assessment of the risk of non-performance because of lack of financial stability was one of the matters which the Council would be taking into account in determining which tenders were economically most advantageous. In the present case, the Council neither stated in the ITT that this was a factor which would be taken into account nor identified in the ITT the information needed to evaluate that matter as contemplated by Regulation 16(15)(c).

It follows that in the present case, as the Council accepts, it was in breach of the Regulations in taking financial stability into account and it should not have rejected any tenderer on the basis of the risk of non-performance. Nonetheless I accept Mr Howell’s submission that this breach only affected those ranked higher than Varney in the marking of the Return Schedules and had no effect on Varney at all. Although issues of quantum are for another day, it follows that, although there was a breach, Varney suffered no loss as a consequence and cannot have a sustainable claim for damages in respect of that breach.

The other complaint (Complaint (5)) in relation to financial stability is inconsistent with the first one because, far from criticising the Council for having taken financial stability into account, it is suggested that the Council did not treat tenderers equally in taking financial stability into account. The essence of this allegation of unequal treatment concerns Edwards and the suggestion that the Council officers ignored the financial assessment of Mr May and, subsequently, Mr Housden, in awarding eleven contracts to Edwards. Despite the energy and enthusiasm with which Mr Coppel pursued this allegation, it seems to me that it is wholly misconceived for a number of reasons.

The relevant passage in Mr May’s memorandum dealing with Edwards states as follows:

“Given the financial information available I consider that Edwards Waste Management Limited is financially acceptable to be invited to tender; however, as they currently undertake a significant level of work for the County Council I consider that any single package that they are awarded should not exceed £375,000 at the present time up to an aggregate value of £1,500,000 per annum.”

The “significant level of work” referred to was evidently, as Mr Shaw explained in evidence, a reference to the container and composting contracts which Edwards had already been awarded, which had a value of some £1.4 million.

The principal plank of Varney’s argument is that the recommended limit for Edwards in Mr May’s Memorandum in respect of the HWRCs across the board was £375,000, whereas the total value of the contracts awarded to Edwards was slightly in excess of £1.5 million. No amount of repetition of this point improved it: it is simply wrong. It is quite clear from the words used and the context (of the container and composting contracts already awarded) that the £375,000 figure was a per site figure and that the figure of £1.5 million was intended to be the total value of all HWRC contracts or sites awarded. Given the value of the container and composting contracts already awarded to Edwards which was about £1.4 million, Varney’s construction has the illogical consequence that, if £1.5 million was an overall limit on all contracts with the Council, the maximum value of any or all HWRC contracts which could in fact be awarded to Edwards was £100,000, whereas on Varney’s construction Mr May was saying it was £375,000.

In any event, whatever Mr May meant, it seems to me what matters is how the Council officers dealing with this interpreted the memorandum. The evidence of both Mr Shaw and Mr King was absolutely clear that they both understood that what Mr May was saying was that £375,000 was a per site limit and £1.5 million was the recommended overall or “aggregate” limit for all HWRC sites awarded.

Mr Coppel sought to make much of Mr King’s manuscript minute of the meeting he and Mr Shaw had with the directors of Edwards on 12 September 2008. Mr King records himself as having stated: “Financial limitation c £355k due to other work from the CC. Estimated total award is c£2 million”. When asked about this in cross-examination Mr King said that he had racked his brains for an explanation of this note and could only say that he thought it was a mistake, in other words that he had not said what the note recorded. This was borne out by Mr Shaw’s evidence. He said that he had no recollection of Mr King saying this at the meeting and that if he had, Mr Shaw would have argued against it and said it was wrong. Mr Shaw made the point which I have already referred to in the previous paragraph that the construction for which Varney contends makes no sense as it would leave only £100,000 available for HWRC contracts.

I accept the evidence of the Council officers as to their understanding of the May memorandum and that what is recorded in the minute of the meeting must be a mistake. Indeed, the contrary submission advanced by Mr Coppel that their real understanding was reflected in the minute (i) involved a contention that they were lying to the court about their understanding, in circumstances where I can discern no motive for their doing so, a fortiori given Mr Shaw’s evidence, which was clearly correct, that Mr May’s memorandum was only advice and not some immutable constraint on contracts awarded, so that it was always open to the Council officers not to follow that advice; and (ii) necessarily involved the contention that in awarding the contracts they did to Edwards the Council officers had acted in bad faith, a case which as I have said and as I ruled formally during the trial, was not open to Varney on its pleaded case.

Mr Coppel also sought to make much of a subsequent email exchange between Mr King and Mr Mark Housden, the “supplier manager” in the Strategic Procurement Group of the Council. The context, as is clear from Mr King’s email to Mr Housden of 15 September 2008, is that Mr King was asking him about the advisability of requiring a £8,000 bond per site from Edwards and the other contractors to whom the Council was contemplating awarding contracts. This was confirmed by Mr Shaw in evidence. He said that he would normally have asked Mr May about the need for a bond but the internal structure within the Council had changed. He asked Mrs Poulton to whom he should speak, and she gave him Mr Housden’s name. Mr Shaw said that updated financial advice about Edwards was provided to Mr Housden, on the basis of which he was being asked whether a bond was required. Mr Shaw was firm in his evidence that he and Mr King were not seeking to have the limits set out in Mr May’s advice increased. Mr King also confirmed that Mr Housden was not being asked for a revised financial assessment.

In his response on 17 September 2008, Mr Housden took it upon himself to go somewhat further than answering the question about whether a bond was required, stating:

“I am concerned that Edwards is being awarded this contract as I am currently undertaking a review for a contract also with Edwards for the Central Container Service which is already above the agreed guidelines for exposure.

I am also not happy about being pressurised into making statements regarding the suitability of these companies just prior to award of contract when this work could have been done a few weeks ago. To award both contracts to Edwards is exposing HCC to unnecessary risk and I cannot support this.”

No doubt in order to reflect his sense of being pressurised, Mr Housden then took more than three months to provide his response, in an email of 29 December 2008, where in relation to Edwards he said:

“I have reviewed the financial information and undertaken a review of current spend etc and can advise that I am happy to recommend that Edwards is allocated a maximum annual contract and spend limit of £2.4 million. If the total contract levels are above this then it is for the Chief Officer to decide if this is acceptable.”

By the time this email was sent, the Council had awarded the contracts, including the eleven awarded to Edwards. It is quite clear that Mr Housden’s emails had no formal status as financial advice which was in any sense binding upon the Council. Mr Shaw indicated in evidence that Mr Housden had in effect exceeded his remit and gone beyond what was being asked of him.

Mr Howell explained on instructions what in fact happened before the contracts were awarded. The Executive Member, the relevant elected member of the Council was consulted. Mr Greenall, head of waste management (to whom Mr Shaw reported) provided a written report to Mr John Wood, Director of Environment, their ultimate boss. There is a decision record sheet which records the decision to award the contracts. Given this explanation of how the final decision was arrived at, I cannot see any ground for criticising the Council. Even if Mr Housden’s views should have been given more credence than they were, in effect, exactly as Mr Housden advised, the relevant Chief Officer of the Council decided that the award of these contracts was acceptable. In any event, the total value of the contracts awarded to Edwards was some £1.51 million, marginally more than Mr May’s aggregate limit of £1.5 million.

Ultimately, Mr Coppel accepted in his final submissions that Varney could not establish a case of inequality of treatment by the award of the contracts to Edwards unless (a) Mr May’s advice had a greater status than Mr Shaw had said it had and (b) his interpretation of what that advice meant was correct. For the reasons I have given, I consider that Varney is wrong on both those points. Both the context of Mr May’s memorandum and Mr Shaw’s evidence about it (which I see no reason not to accept) demonstrate that this was not some constraint which had to be followed, but advice which the Council officers might choose not to follow, if for example other materials available to them indicated financial viability beyond what Mr May advised. Furthermore, the advice clearly meant what Mr Shaw and Mr King understood it to mean, that £375,000 was a per site limit and that £1.5 million was an aggregate limit on all the sites to be offered to Edwards. In the event, the Council only exceeded that limit to a de minimis extent. In all the circumstances, no question of inequality of treatment arises and this aspect of Varney’s claim fails.

Varney alleges that the Council conducted negotiations with the various successful tenderers (Edwards, Fourways, GRR and DWS) after the tenders had been marked, in a manner which was in breach of the requirements of transparency and equality of treatment. I have dealt with the issue whether there were any such illegitimate negotiations in the earlier section of the judgment dealing with the facts. As I have set out in detail there, I am quite satisfied that the discussions with tenderers at the various meetings were all for the perfectly legitimate purpose of clarifying various aspects of the tenders and no question of any further negotiations beyond what was permissible arises. This allegation, which was not pressed strongly in closing, is wholly without merit.

The next major criticism levelled against the Council (complaint (7)) was that it erroneously accepted tenders as “most economically advantageous” when their prices were abnormally low and were not sustainable over the life of the contracts. The complaint has two broad aspects:

So far as the first point is concerned, I consider that the construction which Varney seeks to put on the Preamble is unsustainable. It reads too much into the words in the first paragraph that the rates and prices “shall include” for the provision of personnel, supervision etc and all other costs. It seems to me that paragraph is making it clear that the cost of running the site will be the responsibility of the contractor so that the relevant tenderer must have that in mind when quoting.

In evidence, Mr Shaw said that what he was trying to ensure was that tenderers included everything in their price to avoid the possibility of a tenderer seeking to claim later that the cost of some item had not been included. The Preamble does not preclude a tenderer from quoting a price for running the site which is less than the overall cost of doing so because some or all of that cost would be subsidised by income made from the RIBS bonus, salvage and metal sales (which seems to have been the basis on which most of the other tenderers apart from Varney quoted).

That this is so is made clear by the paragraph of the Preamble providing:

“For a weekly Site Management Charge involving no payment by the Council to the Contractor or no payment by the Contractor to the Council the rate entered should be “NIL””

It is quite clear that this expressly contemplates that a tenderer might decide that it would not make a Site Management Charge for running a site, no doubt because the other sources of income from being the operator of the site, which I identified above, might well cover the costs of running the site and provide a profit on top. This was how the cost of running sites was covered in the past. Indeed on sites run by the Varney family, they used to pay the Council for the privilege, because of the income that could be made from other sources.

Mr Coppel had no alternative explanation as to why this paragraph had been included, other than to suggest that it was a historical anomaly included from the old contract in error. However given that the new contract was not on identical terms to the old one and the ITT had obviously been prepared specifically for the new contract, that seems implausible. Whilst Mr Shaw accepted that in a modern context it was highly unlikely that a tenderer would pay the Council to run the site, the possibility of a nil charge was still included. I am satisfied that this was not some inadvertent error, but was deliberate. Equally I do not consider that there is any ambiguity in the meaning of the Preamble, as Mr Coppel sought to suggest.

Mr Coppel also relied upon the definition of “Site Management Charge” in the Conditions of Contract, which provided as follows:

“the Contractor’s charge for providing the services which shall cover all of the Contractor’s expenses in providing the Services and shall cover all of its obligations under the Contract.”

Mr Coppel contended that this demonstrated that in effect the site management charge had to correspond to the actual gross costs of providing the services, disregarding any other sources of income such as scrap or salvage. In my judgment, that argument is misconceived for the reason Mr Shaw gave in evidence, as cited above, that the Council was endeavouring to ensure that the tenderers including everything in their evaluation of the site management charge, to avoid any subsequent suggestion that they had overlooked something and could seek to recover it from the Council. The definition was not intended to preclude a tenderer from quoting a site management charge which took account of other sources of income. It follows that there is no inconsistency between that definition and the Preamble.

Mr Coppel put the case for Varney that the Council was in breach of duty in accepting the tenders which it did because they were abnormally low in the following way:

So far as the Directive is concerned, the relevant provision is Article 55, which provides:

Article 55

Abnormally low tenders

1.

If, for a given contract, tenders appear to be abnormally low in relation to the goods, works or services, the contracting authority shall, before it may reject those tenders, request in writing details of the constituent elements of the tender which it considers relevant.

Those details may relate in particular to:

(a)

the economics of the construction method, the manufacturing process or the services provided;

(b)

the technical solutions chosen and/or any exceptionally favourable conditions available to the tenderer for the execution of the work, for the supply of the goods or services;

(c)

the originality of the work, supplies or services proposed by the tenderer;

(d)

compliance with the provisions relating to employment protection and working conditions in force at the place where the work, service or supply is to be performed;

(e)

the possibility of the tenderer obtaining State aid.

2.

The contracting authority shall verify those constituent elements by consulting the tenderer, taking account of the evidence supplied.

3.

Where a contracting authority establishes that a tender is abnormally low because the tenderer has obtained State aid, the tender can be rejected on that ground alone only after consultation with the tenderer where the latter is unable to prove, within a sufficient time limit fixed by the contracting authority, that the aid in question was granted legally. Where the contracting authority rejects a tender in these circumstances, it shall inform the Commission of that fact.

Thus, the wording of the Directive is somewhat different from that of Regulation in the sense that it states that the contracting authority “shall” do certain things before rejecting a tender which appears to be abnormally low, whereas Regulation 30(6) states that the authority may reject a tender which is abnormally low but only if it has done certain things. This difference of wording was one of the matters which led Arnold J in the recent case of Morrison Facilities Services Limited v Norwich City Council [2010] EWHC 487 (Ch), to conclude that it was seriously arguable (for the purposes of granting an interim injunction under Regulation 47) that the relevant authority owed a duty, when it suspected that there has been an abnormally low tender, to investigate that tender.

In reaching that conclusion, Arnold J also relied upon the decision of the European Court of First Instance (now the General Court) in Renco SpA v Council of the European Union [2003] ECR II-171, where at paragraphs 75 and 76 the Court stated:

“75 The Court finds that the applicant cannot criticise the Council for checking many of the prices quoted in its tender. It is apparent from the wording of Article 30(4) of Directive 93/37 [the predecessor of the current Directive] that the Council is under a duty, first, to identify suspect tenders, secondly to allow the undertakings concerned to demonstrate their genuineness by asking them to provide the details which it considers appropriate, thirdly to assess the merits of the explanations provided by the persons concerned, and, fourthly, to take a decision as to whether to admit or reject those tenders (Joined Cases C-285/99 and C-286/99 Lombardini and Mantovani [2001] ECR I-9233, paragraph 55). The Court notes, for example, that the Council, in its defence, stated that it had questioned the applicant about very many of the abnormally low prices, namely the price of 319 items in the summary out of a total of 1 020. It also asked the applicant for clarification regarding a series of very blatant anomalies and particularly about the price of the doors, which are the same for single doors, double doors or glass doors. The applicant has not provided adequate explanations for those anomalies either in its reply or at the hearing.

76 In that regard, the Court observes that, although Article 30(4) of Directive 93/37 does not require the Council to check each price quoted in each tender, it must examine the reliability and seriousness of the tenders which it considers to be generally suspect, which necessarily means that it must ask, if appropriate, for details of the individual prices which seem suspect to it, a fortiori when there are many of them. Furthermore, the fact that the applicant's tender was considered to conform to the contract documents did not relieve the Council of its obligation, under the same article, to check the prices of a tender if doubts arose as to their reliability during the examination of the tenders and after the initial assessment of their conformity.”

In relation to Renco, Mr Howell submitted that it was not a case where the European Court was saying that there was a duty to investigate all tenders which appeared abnormally low irrespective of whether they were going to be rejected. In my judgment that submission is correct. Neither Renco nor the earlier case in the European Court of Justice of Impresa Lombardini v ANAS [2001] ECR I-9233, to which Arnold J refers, were cases where the issue arose directly for decision whether the relevant authority owed a duty to investigate “abnormally low” tenders generally, as opposed to where the authority was considering rejecting the tender. In both those cases, the authority was proposing to reject the tenders in question. Furthermore, although the point did not arise directly in the later decision of the General Court in TQ3 Travel Solutions Belgium SA v The Commission [2005], in my judgment it is implicit in the reasoning of the Court at paragraphs 49 and 50 that the relevant authority is not under a duty to investigate a tender which appears abnormally low unless it intends to reject it.

Mr Howell submitted that Arnold J had misread the Directive as imposing an obligation to investigate “suspect” tenders generally, when it did not, save in cases where the authority was proposing to reject the tender in question. I agree with that submission. In my judgment, despite the difference of wording, there is no difference in substance between the provisions of the Directive and those of the Regulations. The thrust of both provisions is that an authority cannot reject a tender which is abnormally low unless it does certain things in terms of investigating that tender. For present purposes, there is no difference between saying that you shall do certain things before an entitlement to reject arises and saying that you may reject the tender provided you have done certain things.

Either way, there is nothing in either provision to support the contention that there is a general duty owed by the authority to investigate so-called “suspect” tenders which appear abnormally low. Nothing in the European Court decisions to which Arnold J refers dictates a different conclusion. In any event, Morrison is only a decision as to what was arguable on an interlocutory basis. Having heard full argument on the point at trial I am quite satisfied that neither the Directive nor the Regulation imposes a duty to investigate so-called suspect tenders generally.

It follows that, on the correct interpretation of both the Directive and the Regulation (save in the case of Fourways where the Council did consider the tender abnormally low and was contemplating rejecting the tender at least in part if not totally), the Council was not under a duty generally to investigate so-called “suspect” tenders in circumstances where the Council had no intention of rejecting those tenders. In my judgment, this aspect of Varney’s complaint that the Council was in breach of duty in failing to investigate the tenders other than Fourways fails at the first hurdle.

Furthermore, I consider that there is another fundamental obstacle to Varney’s case that the Council was in breach of duty in failing to investigate the other tenders. Although Regulation 30(6) talks in the abstract of an offer which is abnormally low, the Directive refers to tenders which “appear to be abnormally low” which only makes sense as a reference to what “appears” to the relevant authority. In the circumstances, it seems to me that the duty for which Varney contends could only arise where the Council either knows or suspects that the tender in question is abnormally low. Leaving Fourways out of account, it is quite clear on the evidence of Mr Shaw and Mr King (which I accept) that neither of them actually knew or suspected that the other tenders were abnormally low.

Mr Coppel contended in his cross-examination of Mr Shaw and Mr King and in his submissions that the Council ought to have known or suspected that the other tenders were abnormally low. He submitted that it was a manifest error to have accepted tenders which the Council should have recognised as unsustainable. Alternatively, he submitted that there was a duty to reject such tenders. In terms of what is the correct test in law, I am firmly of the view that the duty for which Varney contends (even if, contrary to the decision I have already indicated, such a duty could arise) cannot arise save in the case where the relevant authority actually knows or suspects that a tender is abnormally low. What it is contended an authority ought to have known or suspected, but did not know or suspect, is not sufficient to impose the duty for which Varney contends. Were it otherwise, an authority would have to investigate all tenders in detail to satisfy itself of the economic viability of each tender, an unrealistic and onerous burden.

However, even though, for reasons I have already indicated, I do not consider that Mr Coppel is right that the test is what the Council ought to have recognised as unsustainable, it is necessary to consider the contentions in more detail and to set out my conclusions on the evidence, particularly since this case may go further.

It was submitted by Mr Coppel that the Council had committed a manifest error in that the Council officers should have appreciated that the tenders of the other tenderers than Varney were unsustainable because their pricing took account of other sources of income than the site management charge. I have already dealt with the argument that the ITT did not permit such other sources of income to be taken into account, which is not a sustainable argument on the wording of Return Schedule 16.

Mr King explained in his witness statement and in his oral evidence that the tenders other than that of Fourways were not considered abnormally low, because they were consistent with one another and did not deviate from the mean average of all tenders received for the sites for which they had tendered. In other words, the Council adopted an “anomaly threshold”, which is a perfectly permissible approach as a matter of European law: see Impresa Lombardini v ANAS [2001] ECR I-9233, where the European Court held that an authority has a discretion as to what test it uses for identifying what may be an abnormally low tender and that it is permissible to use a comparison with the average of the tenders submitted for the contract as a threshold for determining whether a tender is abnormally low.

Mr Coppel attacked the Council for having adopted this mathematical threshold alone and said that the Council should have gone on to investigate the tender price against the likely cost of performing the relevant services. However, in my judgment, there is nothing in either Lombardini or TQ3, upon which Mr Coppel also sought to rely, which suggests that an authority is under a duty to apply a number of criteria or “thresholds” or that other unsuccessful tenderers can come along later and say that the authority should have applied another threshold.

Mr Coppel sought to criticise Mr King for not having concluded that the other tenderers’ bids were unsustainable over the five year period of the contracts. This criticism had a number of aspects. First, Mr Coppel put to Mr King, by reference to a budgeting spreadsheet that Mr King had prepared, that the annual costs projected under the 2008-2013 contracts on the basis of the tender prices had gone down from the current costs for 2007/08, which should have caused alarm bells to ring. However, this point was based upon a fundamental misreading of that spreadsheet, as Mr King explained in evidence. The reason for the overall reduction was the substantial decrease in the RIBS costs under the new contracts. That can be seen immediately from the first site entry on the spreadsheet for Hoddesdon where the 2007/08 RIBS costs were £135,369 whereas the projected annual RIBS costs under the new contract were £25,799.94.

As Mr King explained, with one exception (Fourways), the site attendance charges which the tenderers were proposing to charge were more than the current site attendance charges in 2007/08. He was expecting to pay more by way of site attendance charges under the new contracts. Fourways stood out because its proposed site attendance charges were all less than was being charged under the existing contract. Mr King was aware that under the existing contracts the RIBS payments had escalated beyond what was intended and since he had revised the terms of the RIBS under the new contracts so as to reduce payments significantly, he was confident he would make a saving over the two costs (attendance charges and RIBS) and, as he put it, he was over the moon when he saw that he was correct that savings would be made overall. It was the downward revision of the RIBS payments which accounted for those savings not, as Mr Coppel sought to suggest, that all contractors bar Varney were somehow obviously undercharging. Try as Mr Coppel might, there was absolutely nothing in the spreadsheet in the slightest bit disturbing or which could or should have alerted the Council to the tenders being in some way unsustainable.

Next, Mr Coppel sought to suggest, by reference to another spreadsheet which Mr King prepared headed “Weekly Staffing Costs vs Staffing”, that this demonstrated that apart from Varney, all the other tenderers were proposing hourly wage costs which were below the minimum wage. However, as Mr King pointed out convincingly when he was cross-examined about that document, something had gone wrong somewhere. Given that each site would have a manager, a foreman and operatives, he would have expected any particular tenderer to have a consistent hourly charge for each site it tendered for, but instead there was considerable disparity. Accordingly he had concluded it was a flawed exercise and he did not rely upon it at the time, because it was not correct.

For the purposes of these proceedings, Mr King produced a schedule showing so far as possible the actual costs and income for each contractor. In its final form this demonstrated that overall all the contractors were making a profit. Varney sought to counter that by its own rival schedule designed to demonstrate, by a comparison of costs and income that, apart from at Cole Green, Edwards was making a loss at every site and that Fourways was making a loss at all three of its sites. I will consider the position of Fourways in more detail below.

I have to say at the outset that, even if that schedule and the assumptions on which it is based were correct, I am at a loss to understand how they could even begin to demonstrate that the Council should have appreciated, when the contracts were awarded, that the proposed charges would be unsustainable. It is clear that the economic recession has meant that the actual results for the first year of the new contracts were disappointing for all contractors. For example, metal prices fell significantly in 2009 and have only begun to rise again in the more recent past. It seems to me that the actual results for 2009 do not even begin to show that, in September 2008, before this extent of recession was anticipated, the Council should have concluded that the rates of all the tenderers except Varney were unsustainable.

However, I agree with Mr Howell that the schedule produced by Varney is not correct and does not accurately reflect the real costs and income and that Mr King’s schedule is to be preferred. In any event, when the incorrect assumptions in Varney’s schedule are removed, what emerges is a somewhat different picture, showing that there is no reason for any concern about the financial health of Edwards.

The Varney schedule provides for a 20% reduction from Mr King’s figures for ferrous metal income of all contractors other than Fourways (in relation to which a 50% reduction is made, as to which see below) to take account of arrangements which such contractors are likely to have with their scrap metal dealers under which those dealers take a percentage of the income. However, in relation to Edwards, this reduction is incorrect, since Mr King’s figures were based upon what Edwards had told him their income was for the relevant period and they had told him that figure was net income.

The Varney schedule also imposed an arbitrary increase on Mr King’s plant and equipment and welfare and amenities costs (taken from the tenders) of 50%, leading to an additional £19,000 of costs, for which there was no justification. The staff costs were on the basis of the same hours in winter and summer and took no account of ongoing disputes between Varney and Edwards about staff taken over by Edwards at sites formerly run by Varney. This accounted for a further £24,000 of costs.

Mr Howell also made the point in relation to both schedules that Mr King’s figures for salvage income for Edwards of £6,000 per site, totalling £66,000, were based on the figures which Mr Green of GRR (the salvage contractor) pays on standard sized sites. It is evident that on the larger sites, GRR pays Edwards more.

Varney sought to paint a picture of Edwards as a contractor which was cutting corners and struggling economically. There is no justification for that conclusion by reference to either Mr King’s schedule or the Varney schedule once the incorrect assumptions are ironed out. This picture of Edwards is also sought to be put forward in relation to complaint (8), the complaint that the Council has permitted Edwards to fail to comply with its contractual obligations. As will be clear from the section of my judgment dealing with that complaint, the picture is a false one. Furthermore, far from wanting to divest itself of sites because it is losing money, Edwards took over the Buntingford site in 2009 when the original contractor went into liquidation for reasons unconnected with its operation of that site.

Furthermore, as Mr Howell rightly pointed out, whilst the tender costs put forward by Edwards were on an individual site basis, Edwards will almost certainly have made economies of scale through running eleven or twelve sites on overheads, management charges and insurance. On an individual site basis those costs totalled £458,000 and it seems to me that Mr Howell is right that there is considerable scope for savings within that figure with economies of scale.

Nothing daunted in its attempt to demonstrate manifest error by the Council in its assessment of the tenders other than Fourways, Varney then sought to criticise the anomaly threshold actually adopted in relation to the tenderers. Mr Coppel complained that the approach of taking the mean average meant that the threshold was considered across the board, not on a site by site basis as the ITT required. I consider this criticism to be misconceived. There is nothing in the ITT or the Regulations that requires the assessment of whether a tender is “abnormally low” as opposed to the marking of tenders to be on an individual site basis.

Then, it was suggested that Mr King’s evidence that the bids other than Fourways were not considered abnormally low because they were consistent with one another and did not deviate from the mean average of all tenders received for the sites for which they had tendered, was not true. The basis for this contention as put to him by Mr Coppel in cross-examination was difficult to discern, but seemed to be that on some sites other contractors than Fourways were lower than the average. Mr Coppel focused particularly on GRR’s bid for Watford which was £1,378 compared to Fourways’ £1,154 and the average of £3,137.43. However, as Mr King explained, there were perfectly good reasons for GRR’s low bid on Watford. Mr Green was keen to procure that site. He and his staff all lived in Watford and his bid made clear there would be no management charge for the site and that they would offer a one third discount, which would reduce the bid to £918.

It seems to me that the point Mr Coppel put to Mr King was a false one. Whilst some other contractors than Edwards were, as Mr King accepted, lower or higher than the average on certain sites, overall the bids other than Fourways were consistent with one another and did not deviate from the mean average of all tenders received for the sites for which they had tendered, as is demonstrated by the various spreadsheets Mr King produced at the time.

In my judgment there is nothing in Varney’s suggestion that the Council should have appreciated that the tenders of the other contractors than Fourways were also abnormally low because the rates quoted for the site management charge were less than the costs of staffing and running the sites. The answer given by both Mr Shaw and Mr King in evidence when this suggestion was put to them was cogent and convincing. This was that, whilst it was clear that the other tenderers were quoting on the basis that other sources of income (i.e. RIBS bonus, salvage and ferrous and non-ferrous metal sales) would subsidise the costs of running the sites, the tenderers knew better than anyone at the Council what income they might hope to make from those other sources and it was not for the Council to second guess their commercial judgment, nor was there any logical or sensible reason (despite Mr Varney’s personal views to the contrary) to suppose that the tenderers’ assessment of what was the appropriate management charge, given those other sources of income, was irrational. In any event, I do not see how I could reach the conclusion that the other tenderers acted irrationally without hearing evidence from them. In my judgment the suggestion that the Council was in manifest error in failing to investigate further the tenders other than Fourways is wholly without merit.

Fourways requires separate consideration. I have set out the detail of the discussions which took place between the Council and representatives of Fourways in the section of this judgment dealing with the factual background. Where the discussions ended up was that the Council decided it would award Fourways the three sites which it was already operating. As Mr Shaw explained in his evidence, after the discussions, the Council felt it was too much of a risk to offer more than those three sites to Fourways, but that it was a risk worth taking to offer them the sites they already operated. In my judgment, that decision cannot be criticised, nor is there any question of any manifest error. Mr Brydon accepted in evidence that the directors of Fourways thought that their offer to run the three sites (in fact they were looking to run seven) was a viable one and they stood by it.

Varney sought to demonstrate that the Council had made a manifest error in awarding the three sites to Fourways by contending (i) that the sites were proving loss-making, so that the Fourways prices were not sustainable over the period of the contract and (ii) that this was something which the Council officers should have recognised at the time of evaluation of the tender.

The first contention was in large measure founded upon so called “transactional profit and loss accounts” for each of the three sites for the nine month period March to November 2009. These were produced by Mr Brydon in evidence although it was quite clear he could not give any evidence about their contents or how they were prepared and from what information. Varney did not call the person who prepared them, whether that was Fourways’ accountant Ms Day or someone else. Since the “transactional” accounts had a number of puzzling aspects, I found this absence of a proper explanation of how they were prepared very unsatisfactory and am not prepared to accept them as an accurate reflection of the financial status of Fourways.

The matters which were anomalous were as follows. First, the transactional profit and loss accounts showed figures for “gross wages” which were considerably in excess of the pro-rata figures for the same 9 month period shown on Fourways’ payroll runs. For example, for the Berkhamsted site the gross wages for the 9 months to 30 November 2009 were £77,708.63, whereas the payroll run for the 12 months to 28 February 2010 gave a total of £85,988.22, equivalent to only £64,491.17. No explanation was provided for this anomaly of more than £13,000 between the two sets of figures.

Second, it is difficult to see how the “other sales” figure in the transactional profit and loss account for Berkhamsted of £33,499 could have included salvage. The income from the sale of ferrous and non-ferrous metals alone at that site in that nine month period was some £32,000. Given Mr Brydon’s evidence, confirmed in cross-examination, that the salvage for that site was running at £40,000 per annum, the “other sales” figure simply cannot include the salvage income at all. Mr Brydon had no explanation for this anomaly, which suggests that the transactional profit and loss accounts understate significantly the actual income being made.

Third, the “Overheads” figures in the transactional profit and loss accounts for each of the sites included (and therefore deducted from the profit figures) dividends paid to the shareholders, which were £18,000 for Letchworth and £15,000 for Rickmansworth. Their inclusion was clearly inappropriate, as those dividends would only be payable after the calculation of net profit and on the assumption that the sites were profitable.

As Mr Howell submitted, even if one took the transactional profit and loss accounts at face value, if those dividend figures were added back in, two of the three sites were profitable in the nine month period and, overall, the company made a small profit for that period. This is hardly consistent with Varney’s case that Fourways was making a loss and that its pricing was unsustainable.

Furthermore, the company’s audited accounts for the twelve month period to 28 February 2009, in other words the period immediately preceding the transactional profit and loss account, showed an overall profit of £167,157, only marginally down from the profit for the previous year of £172,225. Five months of that twelve month period was under the new contracts. Even allowing for the inflated RIBS bonuses under the old contracts, this profit figure is scarcely consistent with Fourways being loss making under the new contracts. In all the circumstances, I consider that the evidence simply does not support Varney’s contention that Fourways’ business has been loss making under the new contracts.

Varney also sought to demonstrate that Fourways was making a loss by reference to the schedule it produced in response to Mr King’s schedule. I have already indicated in the previous sub-section of the judgment why I regard Mr King’s schedule as preferable and a more accurate picture of the financial position. That schedule shows two out of the three sites as profitable and Fourways as making a profit overall.

The same point arises in relation to Fourways as in relation to the other contractors, that whatever they all thought their likely income from other sources would be at the time of the bids and the clarification meetings with the Council in September 2008, the economic reality in the recession has been somewhat worse. Thus, the schedule which Fourways sent to the Council under cover of Ms Day’s email of 11 September 2008 showed anticipated income from salvage and ferrous and non-ferrous metal sales for the three sites they were subsequently awarded as about £320,000. However, if the figures in the transactional profit and loss accounts are taken at face value for these purposes and scaled up for a twelve month period, the actual income was about £146,000, some 45 % of what was anticipated. As Mr Howell pointed out, notwithstanding this reduction of income caused by the recession, Fourways remains in business.

As regards the second contention referred to above, that the Council officers should have appreciated at the time of evaluation of the Fourways tender, that the tender was unsustainable, in the light of my conclusion that there is no evidence that the tenders for the three sites have been unsustainable so far and that, on the contrary, overall the contracts are making a small profit, that contention must necessarily fail.

Varney complained about a number of alleged errors made by Mr Shaw in the marking of the various tenders, particularly the marking of Varney’s own tender. However, in his Skeleton Argument Mr Coppel accepted both that these challenges were less significant and far reaching than other complaints made and that the alleged “marking down” of its tender did not have a substantial impact overall, although it was said to indicate that Varney had been treated unfairly. It seems to me that this amounts to an acceptance that this complaint is essentially academic. As Mr King said in one of his witness statements, in a passage which was not challenged, even if the criticisms were well-founded, it would have made no difference in practice to the outcome so far as Varney is concerned. However, since it was fully argued, albeit mainly on paper, I will deal at least with the principal points raised. Before doing so though, it is important to set out what is the appropriate legal test.

Given that the marking of tenders is something which entails the authority having a discretion or a “margin of appreciation”, it is only where there has been a manifest error that the Court will intervene. Mr Coppel accepted that in his submissions, but in any event, in my judgment, the applicable approach is correctly stated by Silber J in Letting International v Newham LBC [2008] EWHC 1583 (QB); [2008] LGR 908 at paragraph 115:

“it is not my task merely to embark on a re-marking exercise and to substitute my own view but to ascertain if there is a manifest error, which is not established merely because on mature reflection a different mark might have been awarded.”

I also agree with Mr Howell that what Varney has to demonstrate to satisfy the test is that the mark given was manifestly wrong. Much of the case advanced on behalf of Varney was on the basis that there were inconsistencies or unfairness in elements of Mr Shaw’s reasoning in his notes. However, that in itself is beside the point: what has to be demonstrated is that the mark given was in manifest error.

A number of the allegations originally made in the Particulars of Claim were ultimately abandoned by Varney and other allegations were not put to either Mr Shaw or Mr King in cross-examination. I propose to deal in detail only with those matters put to the Council’s witnesses. Furthermore, some of the “marking” complaints I have already dealt with elsewhere, such as the complaints about the Schedule of Rates in relation to Fourways and the additional quality marking and I do not propose to repeat those matters.

The first series of allegations concern Return Schedule 2 which related to customer service. Varney received 1 out of 5 on that Schedule. The complaints made are that (i) two of the tenderers (Fourways and Edwards) were rewarded for stating that they would provide trained fire marshals and first aiders, whereas Varney did not so state because, it is said, Mr Varney felt no need to do so, given that, since he was running sites already, the Council knew that Varney would provide such fire marshals and first aiders; (ii) Varney was criticised by Mr Shaw for the fact that it made no mention in its tender of how training was to be carried out and by whom, whereas Varney says it did refer to external and internal training being carried out and its internal training procedures which the Council had reviewed; (iii) Fourways was commended for its staff induction programme which was not included with its tender but with its PQQ submission, whereas Varney was penalised for not supplying documents with its tender which had been provided with the PQQ; (iv) Edwards received 4 out of 5 marks for what is alleged to have been a broadly comparable submission, the particular complaint being that Edwards had one dedicated customer liaison officer across all sites, whereas Varney was promising one customer liaison officer per site.

Given that the context of the complaint here is that Varney received only 1 out of 5 marks and the onus is on Varney to establish that this marking was a manifest error, it seems to me that the evidence of Mr Varney in cross-examination is fatal to this complaint. He agreed that he could see why Russ was marked more highly than Varney, he agreed that Edwards’ submission was better directed than his and he also agreed that his submission was not comparable with that of Edwards. In the light of those admissions, it is difficult to see how any of this particular complaint can survive, but certainly the complaint at (iv) in the previous paragraph (another veiled allegation that the Council favoured Edwards) is wholly unsustainable.

To the extent that any of the allegations can survive those admissions, I am quite satisfied there is nothing in them. Mr Shaw explained in cross-examination that he considered that Varney’s submission was not very comprehensive when compared with others, which Mr Varney appeared to accept.

As for the point that the Council knew that Mr Varney would provide first aiders and fire marshals without his having to say so in his submission, there is a faint irony in this aspect of the complaint. In opening Varney’s case at the trial, Mr Coppel referred to the fact that, according to him, marking of tenders was usually done independently, i.e. by more than one person. Of course if that is right, the person marking would not necessarily have known about Varney’s then current arrangements. In any event, as Mr Shaw explained, the failure to stipulate first aiders and fire marshals, even though it was a legal requirement, was a source of legitimate concern on his part.

The next area of criticism concerned Return Schedule 6, Health and Safety, where it is said that the Council was wrong to penalise Varney for not providing the risk assessments which were required to be attached to the tender, in circumstances where they had been attached to the PQQ. It is said that Varney was treated unfairly because, in contrast, the Council had regard to Fourways’ staff induction procedure even though that was only provided with the PQQ. The short answer to that point is that the staff induction procedure was under Return Schedule 2, which did not require any such programme to be attached, whereas Return Schedule 6 did require the health and safety risk assessment to be attached, which in Varney’s case it was not.

Varney also complains that GRR should have been marked down for its failure to provide a risk assessment for contractor based plant and equipment, but as Mr Shaw pointed out in his second witness statement, that related to Return Schedule 8 not Return Schedule 6. In any event Varney did not seek to challenge Mr Shaw in cross-examination about the mark of 2 out of 5 which he gave Varney on this Return Schedule and Varney has not even begun to show that there was any manifest error in giving this mark.

In relation to Return Schedule 8: Plant and Equipment, Varney complains first that it was penalised for not providing a risk assessment in circumstances where none had been requested, but as Mr Shaw clarified in unchallenged evidence in his second witness statement, this is incorrect. The next complaint is that the Council was harsh in marking Varney down in failing to list basic equipment such as brooms and shovels. It is said that Mr Varney thought this Schedule only required non-standard equipment to be listed, but it is apparent that other contractors did not read it that way, since they did list such standard equipment in detail.

In any event Varney received 2 out of 5 for its submission on this Return Schedule as did two other contractors, with the other contractors receiving 3. In circumstances where Mr Shaw was not challenged about that marking in cross-examination, Varney has not even begun to establish that it was a manifest error to award that mark.

The complaint about the marking of Return Schedule 9: Staffing, was that it had been assessed on a global basis rather than a site by site basis. I have already indicated in dealing with the factual background that it seems to me that there is force in this criticism, at least on an academic basis. The marking was on a global basis, whatever Mr Shaw and Mr King may have thought, but it is difficult to see what if any prejudice or loss this caused Varney. I agree with Mr Howell that this cannot be seriously described as a “manifest error” requiring some revisiting of the marking process in circumstances where Varney cannot demonstrate that it advantaged or disadvantaged any particular tenderer, let alone that it disadvantaged Varney.

The pleaded case in the Amended Particulars of Claim is that the Council “has permitted Edwards to fail to provide the services which it had offered to provide and/or would reasonably be considered to be component parts of an economically advantageous tender”. So far as this case relates to services which Edwards was not contractually obliged to provide, it is obviously hopeless and was not pursued at trial.

I agree with Mr Howell that the pleaded case of having “permitted” Edwards to fail to perform its contractual obligations connoted a conscious decision by the Council. Once again this was part of the case asserted by Mr Varney in his witness statement to the effect that the Council had deliberately favoured Edwards. That case was ostensibly particularised in a schedule which was Exhibit JAV 11 to Mr Varney’s statement headed “List of Edwards’ Non-compliances” but what emerged in cross-examination of Mr Varney was that there was very little evidence he could actually give about that schedule, which was clearly a lawyer’s construct, a matter to which I return below.

At trial, the case that the Council had deliberately allowed Edwards not to perform its obligations did not feature. Rather Mr Coppel’s Skeleton Argument put the case on the basis that there must come a point where failure by the Council to enforce contract performance leads to the conclusion that contractors have been permitted to depart from the promises which secured them the contracts in the first place, this being alleged to have happened with Edwards. This somewhat different case from the pleaded case was elaborated in oral opening submissions by Mr Coppel, who said that it was not necessary for Varney to show that the Council had deliberately permitted Edwards to fail to provide services under the contract, but enough to show a “sufficient degree of non-enforcement” for the Court to infer that the effect of what had happened was that Edwards had been permitted to get away with not complying with its contractual obligations. In other words, what seems to be being contended by Varney is that the Council can somehow be taken to have constructively permitted breaches by Edwards.

Before considering the relevant legal test and the actual facts in relation to contractual enforcement, two matters should be emphasised. First, to the extent that Varney is trying to keep alive a case that the Council had permitted Edwards to breach its contractual obligations, it is important to note that there is no evidence whatsoever to support this allegation, as with all Varney’s other extravagant allegations about the Council deliberately favouring Edwards. On the contrary there is a great deal of evidence from Mr Allen and the documents (minutes of meetings, inspection reports and the like) that the Council has been concerned to ensure proper performance of the contracts by Edwards and other contractors. Furthermore, this case of having “permitted” Edwards to breach its obligations was not put to Mr Allen in cross-examination, which it would have had to have been if this allegation was being pursued.

Second, I agree with Mr Howell that this latest case advanced by Varney has a potentially bizarre consequence. Even if the relevant authority had a first class system of supervision of contracts, the argument appears to be that if the authority fails to detect a breach of contractual obligations by the operator, it will nonetheless be liable for that breach on some sort of constructive basis. In my judgment, short of actual knowledge by the Council of a breach by the contractor and deliberate condoning of that breach by the Council, it is difficult to see on what basis it can be contended that the Council is in breach of the principles of transparency and equal treatment.

It is fair to say that it remained unclear throughout the trial exactly what Varney’s case was as regards this complaint. When I asked Mr Coppel in his closing speech exactly what his case was, he said that it was that the Council has not enforced the contract against Edwards, with the result that Edwards has continued to be able to fail to meet the requirements of the contract and that there must come a point (which evidently Varney submits has been reached) where a failure to enforce the contract leads to the conclusion that there has been a de facto amendment to the contract.

Mr Howell submitted that the correct legal test is that the principles of equal treatment and transparency will only be breached as regards subsequent performance of the contract if there has been a material amendment to an essential condition of the relevant contract, relying on Commission v Succhi di Frutta SpA [2004] ECR I-3801 at paragraphs 116-117 and Pressetext v Austria (2008) 19^th June at paragraphs 34-37, 59-60 and 63. Neither of those cases is directly in point, in the sense that they are dealing with actual amendments rather than non-enforcement, but I agree with Mr Howell that they state the correct legal approach to a case such as the present.

The fundamental problem which this aspect of Varney’s case faces is that, for the reasons I will elaborate below, Varney cannot even begin to demonstrate either that the Council has “permitted” Edwards to breach the contract or that by virtue of what has occurred there has been a material amendment of an essential condition of the contract.

In opening submissions Mr Coppel said that the focus of Varney’s complaint was the period between the start of the contract in October 2008 and the date of issue of the Claim Form, 12 December 2008, and that the complaint related to three issues: staffing levels, provision of uniforms and provision of staff welfare facilities. This complaint was ostensibly supported by evidence in Mr Varney’s first witness statement and an attached Appendix JAV 11 headed: “List of Edwards’ Non-Compliances”. However what emerged during Mr Segan’s cross-examination of Mr Varney was that he could give no evidence about alleged non-compliance in the period from October to December 2008. His allegations all related to later dates and, as I observed at the time, the Appendix is not his evidence but a lawyer’s construct prepared by his solicitors. In the light of this and the acceptance by Mr Varney in cross-examination (albeit somewhat reluctantly) that many of the matters complained of were teething problems which had been ironed out, it seemed to me after his evidence that very little, if anything, remained of this complaint.

That view was confirmed after the evidence of Mr David Allen, the Council’s Waste Contracts Manager. He monitors the operation of the contracts and said that he spends a minimum of 2 to 3 days a week at the sites. There are two Operations Supervisors who work under his management and also visit sites regularly. There are also an Assistant Waste Manager and a Waste Operations Manager who also regularly visit sites. All the sites operated by all the contractors are thus visited regularly and inspected both generally and specifically in relation to health and safety issues. Written reports of inspections are completed. All contractors are required to attend regular health and safety meetings and minutes are kept. Likewise there are monthly meetings with each contractor, of which minutes are kept. The Council also hold audits of compliance by Return Schedules by each contractor.

It is clear from this and was confirmed by Mr Allen, who was a straightforward and truthful witness, that far from permitting any contractor to ignore the terms of the contract, he and the Council go to considerable lengths to ensure compliance. As Mr Allen put it when Varney’s various complaints were put to him, there were bound to be teething problems at the outset of the contracts but that the Council was trying to get the contracts performed. He and his colleagues did this by having regular meetings with the contractors and putting pressure on them that way. This was all perfectly reasonable as an approach and at no stage was the point reached where it was necessary to invoke the Escalation Procedure in Clause 66 of the contracts. The other point which emerged loud and clear from Mr Allen’s evidence is that he treats all contractors equally and there is simply no question of his having given Edwards favourable treatment. Indeed it was not suggested to him in cross-examination that he had. In the light of that, this complaint fails in any event.

Turning to the specific matters relied upon, by closing speeches, the real focus was on staffing levels. As I have already indicated, there was in fact no evidential foundation for the allegation made in the Particulars of Claim at the time the Claim Form was issued. The complaint as now advanced rests in large measure on site diaries and inspection reports. Site diaries have to be treated with some circumspection as they are likely to understate the number of staff on site. As Mr Varney said himself in evidence given to an Employment Tribunal, not all employees sign in.

However, as Mr Allen fairly accepted in cross-examination, there were issues of understaffing on certain Edwards sites in the first few months of the contract. The Council raised these issues at the regular meetings and as he said they were given excuses to do with matters such as logistics and leave which were not satisfactory. The Council pressed for understaffing to be addressed and it is clear that this pressure did lead to considerable improvement in terms of the days when there were staff shortages on Edwards’ sites between October and December 2008.

Mr Allen’s evidence was that he thought the cause of the problem was the need for re-scheduling of staff, which seems to me a cogent explanation given that there were a number of sites which were overstaffed on a number of days. This over-staffing rather gave the lie to Mr Varney’s explanation for staff shortages, that Edwards was trying to cut corners and save money, hardly likely if some sites were overstaffed.

A schedule produced by Mr Allen from site diaries shows that although problems with understaffing did continue during 2009, the situation did improve. It also shows that occasional understaffing was an issue with all contractors, not just Edwards. Equally the schedule showed that there were days when contractors were overstaffed. Indeed in the case of Edwards there were more days when they were overstaffed than when they were understaffed.

Mr Coppel put to Mr Allen that the Council had not taken any enforcement action against Edwards and Mr Allen made the point that the Council had not taken enforcement action against any of the contractors and that they were all treated equally. He said if the Council spent the whole time on staffing issues, other things would lose out. Contractual staffing was important but you had to have in mind how sites actually operate day by day. The Council would be criticised if staff were standing around with nothing to do. Staffing was a priority, but not the first priority, which was making sure the residents of Hertfordshire got a good service. It seemed to me that this was a good explanation of how the sites operate in the real world, something that many of Varney’s criticisms overlook. A glimpse of what happens in the real world was provided by Mr Kevin Varney, manager of the Edwards site at Potters Bar who said that occasionally they were short staffed but that he did not regard it as a problem.

In his closing speech, Mr Coppel also raised issues about Edwards having employed agency staff and floating staff which he contended they were not entitled to do and about Edwards not complying with the minimum requirements of the waste licence at Waterdale. I was unimpressed by these points which were not raised in opening or in Mr Varney’s Appendix. In any event there is simply no basis for any allegation that the Council has failed to enforce the contract against Edwards as regards these matters or anything else to do with staffing. There is no evidence that the sites are not operating satisfactorily or that members of the public are dissatisfied. In my judgment, Varney’s complaints about staffing whether taken individually or together are a very long way indeed from establishing the amendment of the contracts for which Mr Coppel contends.

As I have indicated, in his closing speech, Mr Coppel indicated that the main area of complaint was staffing and he made very little of the other matters raised in opening, staff uniforms and staff amenities. That is scarcely surprising since by the time Mr Varney himself and Mr Allen had given evidence, it is difficult to see what if anything was left of those complaints.

As regards uniforms, there had been a fire at Edwards’ head office in early October 2008 as a result of which they had to place a new order for uniforms. There was undoubtedly a delay in those arriving and the Council pressed Edwards consistently about uniforms at the regular meetings. Indeed Mr Varney accepted that the picture which emerged was of the Council consistently pressing Edwards. It is also clear that by the meeting in February 2009 the new uniforms had been delivered.

The other pleaded complaint was about a failure by Edwards to provide adequate staff rest areas at its sites, the principal deficiency being that staff were expected to rest in an area to which members of the public have access. Mr Varney was unable to explain how that was a breach of contract and certainly in relation to the sites which Edwards had taken over from Varney, if Edwards was in breach, that would suggest that Varney had been in breach of the previous contracts for five years.

When Mr Coppel cross-examined Mr Allen, the point about public access to rest areas was not pursued and Varney’s complaint seemed to be about the fact that there were not lockers and washing machines at all Edwards sites and that there had been an HSE improvement notice served at Ware relating to the adequacy of staff rest areas. Mr Allen explained the problems there which had led to the notice and said it had been complied with. It is difficult to see how any of those matters were permitted by the Council and in any event, in his closing speech Mr Coppel accepted that issues about uniforms, lockers, washing machines and the HSE intervention had all been sorted out now. On the basis that the problems have been remedied, it seems to me hopeless for Varney to seek to argue that what happened in the past was somehow a de facto amendment to the contract.

The reality is that none of the matters complained of, individually or collectively, was permitted by the Council and far from having permitted them, I am satisfied that the Council does seek to enforce the contracts against Edwards and all other contractors. There is no basis whatsoever for any suggestion that Edwards has received favourable treatment. Overall, this particular complaint is devoid of merit.

The factual background to Complaint (9) has been set out above. The pleaded complaint is that there was a unilateral amendment to the contracts by the Council which amounted in law to the award of new contracts. It is alleged that Varney has lost the opportunity to tender for those new contracts and thereby suffered loss and damage.

I agree with Mr Howell that there are a number of fallacies in this argument. The first is that there was in fact no unilateral amendment to the contracts by the Council. Under clauses 21.1 and 21.3 of the contracts, all amendments had to be in writing and any variation had to be in the form of an Addendum. There never was any such Addendum drawn up, the process of trying to agree amendments to the contracts having halted because (i) several of the contractors never responded to the Council’s email and letter and (ii) Varney raised its complaint in its solicitors’ letter of 11 November 2009 and matters were then put on hold.

In an attempt to overcome this hurdle, Mr Coppel sought to argue that an Addendum was not required in the present instance because the changes to Appendix 13 were not a variation to the contract. With all due respect to Mr Coppel’s ingenuity, this contention is hopeless. “Variation” is defined so far as relevant in Clause 1 of the contract as “any change to (i) the terms and Conditions of Contract or Schedules”. It seems to me that Mr Howell is correct that the RIBS is part of the terms of the contract, not least because Clause 69 dealing with Recycling Performance refers to details of the RIBS being set out in Appendix 13 and thereby incorporates it into the contract by reference. More simply perhaps, to suggest that an Appendix to a contract is not a term of the Contract seems to me to amount to casuistry which defies commercial commonsense.

It was then argued on behalf of Varney that there was a de facto change to the contracts because the Council had made payments of RIBS bonuses to the contractors on the revised basis and those sums had not been recovered. I am not convinced by that argument. Given that the contractual position is that matters have reverted to the original contract and the payments were only made in anticipation of amendments which never happened, it may well be that the Council can recover any monies paid. However, whatever the position as regards recovery of the monies, it seems to me that as a matter of contractual analysis, there has been no change to the contracts. In the circumstances, this complaint by Varney fails at the first hurdle.

The second fallacy in Varney’s argument, as I see it, is the suggestion that Varney has lost the opportunity to tender for a new contract. Even on the assumption that the contracts were unilaterally amended and that was a breach of public procurement law, it does not follow that there would have to be a competition for a new award as Varney contends. Under the terms of the 2008 contracts, the Council would have no right to terminate the contracts in order to have a new competition. The termination provisions of the contracts simply do not cover this situation and any attempt by the Council to terminate would be a breach of contract.

In so far as Varney had a remedy at all in such a situation, it would be to have the amendments to the contracts effected by the change in the RIBS payments quashed by way of an application for permission for judicial review of the Council’s decision to change the RIBS payments. Of course, the practical reality is that, faced with such a challenge, the Council would in all probability recognise that whatever arrangements were made to change the payments would have to be unravelled, in which case Varney has not suffered the loss of a right to tender: there would never have been a new tendering procedure. It seems to me that none of Mr Coppel’s submissions provided any answer to this point. I agree with Mr Howell that the basic fallacy in Varney’s complaint is the assumption that a breach of public procurement law necessarily causes loss to someone in the position of Varney to whom none of the existing contracts was awarded.

In addition to its claim for breach of the Regulations, Varney contends that the ITT and Varney’s response to it gave rise to an implied contract between it and the Council which included terms that the Council would give fair, reasonable and objective consideration to the tender. The same matters which are alleged to constitute breaches of the Regulations are said to amount to breaches of those terms of the implied contract. Varney does not seek to advance a different measure of damages and the only significance of this claim is that it is an attempt to get round the three month time limit for bringing a claim under Regulation 47(7). Since I have concluded that irrespective of that time limit, the relevant claims fail because there was no breach of the Regulations, the question of whether Varney has an alternative claim under an implied contract is wholly academic, since it inevitably follows that there was no breach of contract either. Accordingly, this alternative claim can be dealt with shortly.

In my judgment, there is no basis for the implication of this contract for two reasons. First, the Regulations create their own regime imposing duties on the Council in relation to any tender submitted. Given that legal regime, it is unnecessary to imply a contract and none will be implied. In the context of public procurement, albeit under the previous Regulations, in Lion Apparel Systems Ltd v Firebuy Ltd [2007] EWHC 2179 (Ch) Morgan J decided that there was no scope for the implication of a contract: see paragraph 212.

Second, it is well-established that the Courts will not enforce rights at common law which are inconsistent with statute. As Arden LJ put it in Munro v HMRC [2009] Ch 69:

“the authorities give clear guidance that if Parliament creates a right which is inconsistent with a right given by the common law, the latter is displaced. By ‘inconsistent’ I mean that the statutory remedy has some restriction in it which reflects some policy rule of the statute which is a cardinal feature of the statute.”

In the present case, the relevant statutory provision, the Regulations, has a cardinal feature which is the need for prior notice before a claim is made and the relatively short period of time of three months within which the claim must be brought. In my judgment, there is no scope for the implication of a contract. As Morgan J said at paragraph 212 of Lion Apparel in the context of Regulation 32 of the 1993 Regulations, the predecessor of Regulation 47 of the 2006 Regulations:

“...given that Regulation 32 of the 1993 Regulations imposes important limits on a bidder’s ability to take against [the authority] for breach of such obligations, I do not think it could possibly have been intended that those obligations would co-exist by way of a contract, where the limitations of Regulation 32 would not apply.”

The upshot is that, save in the limited respect identified in paragraphs 129 to 131 above, Varney has not established any breach of the Regulations by the Council. As regards that limited instance of breach, it would have made no difference to the outcome of the tendering process so far as Varney is concerned and, therefore, it is difficult to see what, if any, damages Varney has suffered as a consequence of that breach.

—(1) A contracting authority using the restricted procedure shall comply with this regulation.

—(1) Subject to regulation 27 and paragraph (2), in assessing whether an economic operator meets any minimum standards of economic and financial standing required of economic operators by the contracting authority—

—(1) Subject to regulation 18(27) and to paragraphs (6) and (9) of this regulation, a contracting authority shall award a public contract on the basis of the offer which—

—(1) The obligation on—