High Court concludes that HS2 procurement process was lawful

In Siemens Mobility Limited v High Speed Two (HS2) Limited [2023] EWHC 2768 (TCC), the Technology and Construction Court held that there was no manifest error in the rolling stock procurement run by High Speed Two (HS2) Limited ("HS2"). HS2 was found not to have breached the key principles of equal treatment, non-discrimination and transparency.

The judgment provides helpful guidance for public authorities running public procurements as to the approach taken by the Courts when scrutinising procurement processes. It also provides an indication of what a claimant must demonstrate in order to make out a claim of manifest error.

Key points

• The Court reaffirmed its supervisory role in procurement disputes. Its "role is not to carry out an assessment…and substitute its own scores" or decision.
• This is particularly important for scoring challenges, which feature prominently in many procurement claims. It is not sufficient for a claimant to "rely on deficiencies" in the winning tenderer's bid to sustain a claim for manifest error. A claimant must identify some other factor that the public authority did not consider, or did consider but which was a breach of the invitation to tender.
• Utilities have a wide discretion to negotiate changes to a winning tenderer's bid, although their freedom to do so is not unlimited. A change to address a breach of the invitation to tender would not be permitted, and utilities will need to ensure that they consider the impact of any change on the tender. However the mere exploration of a change (including where formal proposals are made but scope or price is not agreed) will not be enough to demonstrate a substantial change such that the contract is materially different and a utility must run a new procurement process.
• A pension held by virtue of previous employment is too remote a financial interest to constitute a conflict of interest. Utilities and other contracting authorities should nevertheless ensure their procurement process is structured in a way which guards against conflicts of interest having any impact on decision-making (such as a layered governance structure and tenderer anonymisation).
• Contracting authorities should take care when communicating with tenderers and should ensure that this is in writing. Phone calls to tenderers even if with the intention of expediting action or providing information (which are then followed up in writing) may "give rise to a perceived lack of transparency".
• The Court cautioned against bringing judicial review claims in a procurement context, where a remedy is available under the procurement regulations. Claimants are not entitled to invoke public law duties in support of a claim under the Utilities Contracts Regulations; further, judicial review is a remedy of last resort and these claims typically address a commercial competition without a public law element.

Background

HS2 ran a procurement process for the manufacture and maintenance of 54 high speed trains (the "Procurement") between 2017 and 2021. This would result in the award of two contracts with an estimated value (in 2017) of approximately £2 billion. Five tenderers participated in the competition, which was organised into five stages. Stages 1 – 4 concerned technical questions, and Stage 5 concerned pricing. In order to go through to Stage 5, a tenderer had to pass stages 1-4. At the conclusion of stage 4 two bidders, namely Siemens Mobility Limited ("Siemens") and a joint venture between Bombardier Transportation UK Limited ("Bombardier") and Hitachi Rail Limited ("the JV") passed through to Stage 5. In May 2021, HS2 notified Siemens that, following Stage 5, it had identified the JV as the 'Lead Tenderer' and would pursue negotiations with the JV only. In October 2021, HS2 notified the JV and Siemens that it had decided to award the contracts to the JV.

Siemens issued proceedings against HS2 in June 2021, including a Part 7 claim and a parallel judicial review claim. Over the course of the next 18 months, Siemens issued a further 15 claims (comprising eight Part 7 claims and seven judicial review claims) which alleged that the Procurement was unlawful in a number of ways, that HS2's decision to contract with the JV was manifestly flawed, and that Siemens should be entitled to damages as a result. The wide-ranging claims included:

• Scoring: A challenge to HS2's scoring of the JV's bid;
• Shortfall tender discretion: A challenge to the exercise of HS2's discretion to deem the JV's bid to have met an evaluation threshold;
• Tenderer change of circumstances/Communications with tenderers: A challenge to HS2's communications with tenderers in the context of the acquisition by Alstom S.A. of the parent company of Bombardier;
• Stage 5 Evaluation and abnormally low tender: A challenge to the conduct of the Stage 5 evaluations and the exercise of HS2's discretion to make corrections to the JV's Stage 5 tender submission in the event of error, and an allegation that HS2 wrongly concluded that the JV's pricing was justified following an abnormally low tender review;
• Pre-contract checks: A challenge to the pre-contract technical and financial checks conducted by HS2, to verify whether it was content to contract with the JV on both a technical and financial basis;
• Substantial modifications: An allegation that HS2 made a 'decision' prior to contract award to pursue an unlawful substantial change to the contracts following contract award; and
• Conflicts of interest: Allegations that conflicts of interest arising from two HS2 assessors' pensions with Bombardier pervaded HS2's procurement process.

Judgment

Mrs Justice O'Farrell DBE found for HS2 on all grounds, holding that:

• Scoring: Siemens had not established any manifest error in HS2's evaluation.
• Shortfall tender discretion: HS2 exercised its discretion lawfully and reached a conclusion "that could not be said to be irrational".
• Tenderer change of circumstances/Communications with tenderers: Although the Court found a technical breach of the invitation to tender, in that the HS2 Head of Rolling Stock Procurement should not have made phone calls to tenderers to provide information, this did not give rise to any unfairness. The process undertaken by HS2 to consent to Bombardier's change of circumstances was not unfair.
• Stage 5 Evaluation: All of the deficiencies raised by Siemens were dismissed. The Court recognised that matters including the scores at earlier stages of the competition and the JV's general financial performance were extraneous matters not to be considered as part of the Stage 5 evaluation. The corrections made to the tender submissions were minor and within HS2's margin of discretion. HS2 further applied an appropriate methodology and criteria to its abnormally low tender review and it was not for the Court to substitute its own view.
• Pre-contract checks: There is no obligation on contracting authorities to carry out pre-contract checks, but having decided to do so, HS2 was required to do so rationally. It did so – Siemens' subjective disagreement with the outcome of those checks was insufficient to show manifest error.
• Modifications: HS2 did not make any decision to change the JV's train design prior to contract award. Further, the JV's train design did not put HS2 in breach of the Department for Transport's requirements. There were other mitigations HS2 could rely upon to meet those requirements, and in any event the agreement between the Department for Transport and HS2 did not form part of the procurement rules. Any decision to modify the design was also not inevitable.
• Conflicts of interest: A pension held by virtue of previous employment with a tenderer is too remote a financial interest to constitute a financial interest. HS2 had adequate procedures in place to comply with its obligation to identify, manage and remedy any conflicts of interest. In relation to a further conflicts of interest claim brought after the close of evidence in the trial, the Court determined that this had no prospect of success. It was relevant that the claim had been brought very late, and
• Judicial reviews: Where a remedy is available under the procurement regulations, it is not appropriate to bring a judicial review claim. Siemens was not entitled to invoke public law duties in support of its claims under the regulations; their claims concerned a commercial competition with no public law element; and judicial review is a remedy of last resort.

Comment

This judgment is a helpful restatement of the core legal principles applicable to procurement processes. It serves as a reminder that the Court plays a supervisory role and will not substitute its own view of what a public authority should have done. Where the authority has made a decision within the range of reasonable responses open to it, the Court will not interfere.

The judgment contains useful guidance for public authorities as to how to structure their procurement processes. A layered governance structure – whereupon decisions are reviewed by multiple review panels – ensured that HS2's decision making in many of the areas challenged was fair and transparent. However, authorities should review their policies as to how communications with tenderers are conducted. Authorities should also be careful to ensure that their process protects against any allegations of assessor conflicts of interest and any one person being deemed to exert undue influence over the process.

Herbert Smith Freehills LLP acted for HS2 in this litigation.