Neutral citation: Henry Brothers (Magherafelt) Ltd v Department of Education for Northern Ireland [2007] NIQB 116, [2008] NIQB 105                 

NEC contract topics: Defined Cost, fee percentage, allocation of risk under the main options

Form of contract: NEC3 Main Option A and C

Main areas of law: Public procurement law, remedies in procurement disputes, judicial discretion under the Judicature (Northern Ireland) Act 1978 for interim relief.

 

The dispute arose from the procurement process initiated by the Department of Education for Northern Ireland (the “Department”), acting through the Central Procurement Directorate (CPD), for a major construction framework under the Northern Ireland Schools Modernisation Programme (NISMP). This framework, intended to run for four years with a total value between £550 and £650 million, was based on the NEC3 form of contract and envisaged appointing eight contractors following a two-stage competitive process.

The plaintiffs, Henry Brothers (Magherafelt) Ltd, were not among the selected eight contractors. They challenged their exclusion, asserting that the Department’s reliance on fee percentages alone at the primary competition stage did not permit a fair or lawful assessment under Regulation 30 of the Public Contracts Regulations 2006. The framework’s selection criteria were weighted 80% qualitative and 20% commercial, with the commercial component limited to fee percentages rather than actual or indicative project pricing.

NEC3 was central to the dispute. Specifically, the cost structure under NEC3 Option C where Defined Cost plus the fee forms the basis of payment and the price paid by the employer. However, no assessment of Defined Cost was made at the primary stage.

Five key legal matters were put before the court:

• Whether using fee percentages without assessing Defined Costs could satisfy the requirement for identifying the “most economically advantageous tender” under the 2006 Regulations.
• Whether the procurement model adopted breached fundamental EU principles of transparency, objectivity, and equal treatment.
• Whether the court had jurisdiction to grant remedies other than damages once the framework agreement had been concluded.
• Whether the assumption that all contractors’ Defined Costs would be the same was a “manifest error” in the procurement assessment.
• Whether specific pricing discussions held post-selection violated procurement norms by effectively bypassing competitive pricing at the award stage.

Justice Coghlin delivered judgments in two stages. In [2007] NIQB 116, the court refused to grant interim relief to suspend the framework agreement process but recognised the gravity of the legal issues involved. The substantive judgment in [2008] NIQB 105 determined that the Department’s reliance solely on fee percentages was flawed. The court found that the assumption that contractors would incur similar Defined Costs was not supported by evidence. It concluded that contractors vary in procurement efficiencies, supply chains, and operational structures. Identifying the “most economically advantageous” tender required a more detailed evaluation that considered both fees and underlying costs.

The lack of competitive pricing or detailed cost assessments at the primary stage rendered the process non-compliant with the 2006 Regulations and EU law. The process failed to ensure equal treatment, transparency, and effective competition, particularly as actual pricing discussions were deferred to one-to-one negotiations after the framework award.

Crucially, the court found that although Regulation 47(9) of the Regulations limited remedies to damages where a contract had already been concluded, this restriction did not generally extend to framework agreements. Therefore, the court retained discretion to set aside the framework agreement, whilst also recognising the importance of the school's modernisation programme and significant expenditure of public money.

 

This case is a significant caution for public authorities and consultants engaged in NEC-based procurements. The Department’s approach, focusing solely on percentage fees and assuming uniform Defined Costs, was found to be an oversimplification inconsistent with the commercial realities of NEC3 contracts. Under NEC3 Option A and C, costs can vary significantly depending on how contractors allocate staff, negotiate materials, or structure project delivery.

The ruling indicates that in public procurement competitive tension and economic assessment must be preserved when establishing frameworks. Reliance on fee percentages alone may not provide a defensible or transparent basis for contractor selection.

Clients and project managers must also ensure that procurement models reflect the actual structure of NEC contracts, particularly in distinguishing between cost, overheads and profit. Evaluation methodologies must allow for comparative cost assessment either through model pricing exercises, use of historical benchmarks, or other mechanisms that do not circumvent competitive principles.

The judgment highlights that even framework agreements which may lack specific contractual guarantees, can be subject to judicial intervention if the procurement process is legally deficient. This may lead to increased scrutiny and documentation requirements for all parties involved in NEC framework procurement. Practitioners advising on NEC-based procurements must ensure that evaluation criteria are transparent, comprehensive, and genuinely reflective of economic advantage. A failure to do so risks invalidating the procurement process and undermining public confidence in framework delivery.