De La Rue Challenges Passport Procurement Decision – Does The Firm Stand Any Chance?

De La Rue, the firm that lost out on the decision to produce the new UK post-Brexit passports, has announced that it will challenge the Home Office procurement decision. The procurement is in the formal “standstill period”, post decision but pre-formal contract award, during which time losing bidders can launch a challenge. Indeed, it has been reported that the government has given De La Rue an additional two weeks to obtain further information from the Home Office.

The BBC reported a spokesperson for De La Rue saying: "We can accept that we weren't the cheapest, even if our tender represented a significant discount on the current price. It has also been suggested that the winning bid was well below our cost price, which causes us to question how sustainable it is."

How could they know how expensive the other bid was? That's interesting in itself - either they have a mole, or we guess they may have been able to work that out from the feedback they will have received in the tender de-briefing process.

Some reports have suggested that the evaluation was based on a 60:40 weighting for quality and price, which would not be unusual in contracts of their nature, and certainly does not seem to over-state the importance of cost. There is no feasible reason to challenge purely on the grounds that “you shouldn’t weight price so highly” in any case.  However, challenges can be made on various grounds. The most common are probably;

  1. Lack of a level playing field – one supplier getting to know more about the nature of the work than others perhaps, or getting more access to key staff on the buyer side.
  2. Lack of clarity in the evaluation process – for instance, bidders not understanding exactly how marks would be allocated.
  3. An illogical evaluation process, for instance including evaluation criteria unconnected with the nature of the work, or the scheme for marking “price” not really reflecting true economic advantage.
  4. The procurement process not following the definition laid down in the documentation – the classic case being the NDA fiasco where the process defined that suppliers would be excluded if they failed to meet certain thresholds in some technical areas, but then that was ignored the actual evaluation. (Scores were also changed after marking, without a clear audit trail explaining why).
  5. Unfeasibly low bids; the winning suppliers bidding an unsustainable or unrealistically low price to “buy” the business, perhaps with support from their own government or because they expect to be able to increase returns once the contract gets going.

Now we don’t know what marking process the Home Office used, and there is a vulnerability in that the way many public bodies score “price” is in our opinion illogical and arguably “illegal”. But even if the Home Office used that method, it is unlikely to have skewed the results here, we suspect. So assuming that the buyer hasn’t messed up in terms of the level playing field, clarity and so on, it looks like De La Rue will be challenging on the basis of it being an unrealistically low bid from Gemalto.

That is quite a tough argument to make. A court would have to look at detailed production costs, examine overhead allocations, profit margins and so on. In some cases, such as how overheads are allocated to particular contracts within a business, are very judgemental, so unless Gemalto really have positioned this as an obvious “loss leader”, we don’t hold out much hope for De LA Rue.

The most recent EU regulations actually tightened up the rules on rejecting low bids to ensure that buyers had to give bidders the chance to explain why their proposals were apparently low cost. But it does say:

“Where a contracting authority establishes that a tender is abnormally low because the tenderer has obtained State aid, the tender may 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 compatible with the internal market within the meaning of Article 107 TFEU. Where the contracting authority rejects a tender in those circumstances, it shall inform the Commission thereof”.

If Gemalto relies on “state aid” to subsidise their bid in some way, then that might give De La Rue some hope. But we would be surprised if that was the outcome, to be honest.



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Voices (2)

  1. Dan:

    So, they’re claiming that they had the best quality submission when quality was worth 60%? How would they know that without seeing the winning tender?

    They have two grounds for challenge as I see it, based on what they’ve said so far – the winning tender was unrealistically low, or the evaluation panel made a manifest error in assessing the quality and security proposals. I don’t see either one winning.

    I suspect this is them going down the ‘Bombardier route’ by creating such a stink in the media that it pressures the politicians to either redo the tender or settle out of court just to shut them up. Just another sign that public procurement is becoming more and more politicised.

    1. Peter Smith:

      Actually, it may be that the feedback told them they had the best quality because some buyers do give quite direct comparisons between bidders as part of the formal feedback. So a “comparison with the winning offer” might be laid out for each evaluation criterion – that is not unusual and might tell them that they scored 10% more on quality but 20% less on price, hence lost overall even with the weightings. That’s my suspicion.

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