Last month I commented on the decision in the McLaughlin & Harvey case in which Mr Justice Deeny held that the firm had been wrongly excluded from a framework of contractors selected to implement various construction projects over the next four years at a cost of £500 to £800m.

This month I wish to examine a further decision — this time from Mr Justice Coghlin on a case in which Henry Brothers and two other local building contractors were held to have been wrongly excluded from a framework for the modernisation of schools in Northern Ireland pursuant to the Northern Ireland Schools Modernisation Programme.

This framework was also to last four years with an estimated total value of projects being £550 to £650m.

With this sort of money at stake it is little wonder we are seeing legal challenges from contractors who feel they have been treated unfairly.

In the Henry Bros case it was all about the manner in which the Department of Education assessed the most “economically advantageous” tender. This is the term used in the regulations.

And there is a move towards assessing tenders on this basis rather than the traditional method of awarding contracts simply on the basis of the lowest price.

There is a feeling that to award simply on the basis of lowest price can encourage artificially low bids which are then followed by high claims during the course of the contract in order to make it profitable: the ‘low bid/high claim’ culture.

The problem in the Henry Bros case was that in assessing tenders the Department used a method of assessing fee percentages supplied by tenderers in relation to a number of bands of hypothetical contract values.

This appears to have been based on an assumption that the cost to build a scheme will always be the same for all contractors.

Therefore the differential in fee percentages is the distinguishing factor in terms of whether a tenderer is the most economically advantageous.

However, Henry Bros argued that it was not realistic to assume the build cost would be the same across all contractors. In a competitive market different contractors will have different build costs for doing the same work.

The example was given of contractor A with a fee percentage of 4% and a defined cost of £1m having a total price of £1,040,000.

Whereas contactor B with a fee percentage of 6% but a defined cost of £980,000 has a total price of £1,038,800. In this example the contractor with the higher fee percentage actually produces a lower overall price because his build costs are less.

The court’s view ultimately was that the assumption that build costs would always be the same for all contractors was an incorrect assumption sufficient to amount to a manifest error, such that the decision to exclude Henry Bros and the other two contractors from the framework on this basis was unlawful.

As with the McLaughlin & Harvey case there has as yet been no decision on the remedy. Can the framework be enlarged to accommodate those wrongly left off?

Or is the remedy simply damages?

Michael McCord is a partner with Tughans, solicitors who advise upon a range of specialist topics. For further information contact Michael by phone on (028) 9055 3314 or by email at michael.mccord@tughans.com