Stagecoach East Midlands Trains Ltd & Ors v The Secretary of State for Transport

In a public procurement, a contracting authority may allocate substantial, uncertain or exogenous commercial risks to bidders, particularly where the allocation reflects policy choices about public resources. The authority is not required to provide a financial robustness test, but any test adopted must be stated clearly and applied consistently. A discretion to disqualify non-compliant bids is lawful if it is exercised rationally, proportionately and consistently with equal treatment and transparency. Bidders departing from basic tender terms may properly be disqualified where accepting their bids would undermine objective comparison with compliant bids or expose the procurement to serious equal-treatment risks. The court’s review of complex financial and policy assessments is restrained and intervention requires manifest error.

The claims arose from three competitive rail-franchise procurements conducted by the Secretary of State for Transport. The claimants submitted bids that rejected the contractual allocation of pension risk and proposed mechanisms transferring additional risk to the Secretary of State. They were disqualified from the competitions. The claims challenged the legality of the tender terms, the pensions risk allocation, the disqualification decisions, the financial robustness testing and the reasons given for the decisions.

The central questions were whether the procurements breached transparency, equal treatment, proportionality or relevant provisions of EU law, and whether the Secretary of State had unlawfully relied on additional financial analysis when deciding whether to continue or cancel the competitions.

1. Claims dismissed. The pension-based challenges failed.
2. The tender documents clearly required bidders to accept the Franchise Signature Documents and prohibited amendments transferring risk from the franchisee to the Secretary of State. Those were basic tender terms. The discretion to disqualify was not unlimited: it was constrained by rationality, proportionality, equal treatment, transparency and the policy underlying the procurement. The terms were sufficiently clear to a reasonably well-informed and normally diligent tenderer.
3. The allocation of pension risk, including substantial and uncertain risk, was not inherently unlawful. The Railway Regulation did not require the Secretary of State to retain that risk or to provide a particular level of protection. The limited Pensions Risk Sharing Mechanism was lawful. The risks were capable of commercial estimation and pricing, although their ultimate outcome could not be predicted with certainty.
4. The applicable proportionality scrutiny was context-specific. The procurement involved policy choices and the allocation of public resources, without unlawfully restricting Treaty freedoms. The Secretary of State therefore enjoyed a wide margin of appreciation and intervention required manifest error. No such error was shown.
5. Disqualification was a lawful and proportionate response to deliberate and serious departures from basic contractual terms. Repricing, a further rebid or cancellation would have created acute equal-treatment and transparency risks, and could not reliably have produced a like-for-like comparison with compliant bids. The Secretary of State was not legally required to adopt those alternatives.
6. The Financial Robustness Test was limited but transparent. EU or UK law did not require comprehensive testing of every downside pension risk. The adoption of the WTW illustrative figures as the most credible financial outcome was reasonable. The PwC analysis was used only to inform the separate discretion whether to continue or cancel the competitions, not to evaluate bids, disqualify the claimants or determine the awards.
7. The reasons given for disqualification were clear and sufficient. The claimants knew that they had been disqualified because their bids rejected the specified pension-risk allocation and sought to transfer risk to the Secretary of State. The reasons enabled both them and the court to understand and challenge the decisions.