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SMITHKLINE BEECHAM BIOLOGICALS S.A. AND ANOTHER
v.
STATE PHARMACEUTICAL CORPORATION OFSRI LANKA AND OTHERS
SUPREME COURT.
DR. AMERASINGHE, J..
WADUGODAPITIYA, J. ANDDR. GUNAWARDENA, J.
S.C. (F.R.) NO. 89/97.
MARCH 27, 1997.
APRIL 16. 18, 1997.
Fundamental rights – Award of contract on tenders – Right to equality ~ Duty ofthe Tender Board to act fairly in awarding contract – Article 12(1) of theConstitution.
Offers were invited worldwide by the State Pharmaceutical Corporation on behalfof the Director of Health Services for the supply of Rubella Viral Vaccine. Therewere five offers. Of them. SmithKIine Beecham Biologicals S.A. Belgium (fourthlowest tenderer) was the only person who had made a responsive bid conformingwith the tender document at the relevant date. In particular, its product had beenregistered with the Cosmetic Devises and Drugs Authority of Sri Lanka, which wasa requirement of the tender conditions. It was also a past supplier; and therewas no past complaint with regard to the previous tender. None of the othertenderers who were scheduled and considered were registered; nor were theypast suppliers. Accordingly, the Cabinet Appointed Tender Board decided toaward the tender to SmithKIine Beecham Biologicals S.A. Thereafter, wiihoutcommunicating that decision to the tenderers and requesting them to makeany representations to the Tender Appeal Board, as required by the Guidelines onGovernment Tender Procedure, the Tender Board allowed time to tenderersto obtain registration. Pending such registration, the lender board altered itsoriginal decision and made a limited award to SmithKIine Beecham BiologicalsS.A. for 2.5 million doses of vaccine. Thereafter the Tender Board proceededto award 2 million doses of vaccine to Biocinie S.P.A. Italy (which hadsince registered its product) on the basis that the price quoted by it was "Thelowest offer”.
Held:
The submission of the counsel for the respondents that the application shouldbe dismissed in limine as the acts in question relate to purely contractual rights ofparties cannot be accepted.
SmithKIine Beecham Biologicals S.A. and Another v. State
SC Pharmaceutical Corporation of Sri Lanka and Others (Amerasinghe, J.)21
(Per Dr. Amerasinghe, J.)
“The complaint of the petitioners is not that there has been a breach ofcontract; their complaint is that they were not awarded a contract becausecertain officials had acted unfairly."
In view of the fact that the product of Biocine S.p.A. had not been registeredwhen the tender closed, its offer was the lowest offer, but not the lowestresponsive offer; and therefore. Biocine S.p.A. was not qualified to tender. Thedecision to award it 2 million doses of vaccine was in breach of the Guidelines onGovernment Tender Procedure which provided equal opportunity for persons toparticipate and compete on identicle terms and conditions. Consequently, theimpugned decision of the Tender Board relating to the procurement of 4.5 milliondoses of Rubella Viral Vaccine was violative of Article 12(1) of the Constitution.
Cases referred to:
Roberts v. Ratnayake (193Q) 2 Sri LR 36. 45.
Wijenaike v Air Lanka Ltd. (1990) 1 Sri LR 293.
Radhakrishna Agrawal v. State of Bihar AIR (1977) S.C. 1496.
Palihawadana v. Attorney-GeneralFRD Vol. 1 -1. (1978-79-80) 1 SLR 65.
Jayanetti v. Land Reform Commission (1984) 2 Sri LR 172. 184.
Srilekha Vidyarthi v. State ofU.P. AIR (1991) S.C. 537. 550.
F.C.I. v. Kamdhenu Cattlefield Industries (1993) 1 S.C.C. 71,
MahabirAuto Stores v. Indian Oil Corporation AIR (1990) S.C. 1031.
9(a). Vitarelli v. Seaton (1959) 359 US 535, 79 S.Ct 968 3 L. Ed. 2d 1012(1959).
9(b).Kiriwanthe and Another v. Navaratne and Another 1990 3 SLR 11 at 15.
Roman Dayaran Shetty v. The International Authority ol India and OthersAIR (1979) S.C. 1628.
Barbier v. Connolly 113 U.S. 27 (1885).
APPLICATION for relief for infringement of fundamental rights.
ShiblyAziz, PC. with Nigel Hatch for the petitioner.
Saleem Marsoof, D.S.G. with Shavindra Fernando, acting. S.S.C. for therespondent.
Cur. adv. vutt.
May 20. 1997.
DR. AMERASINGHE, J.
Offers were invited worldwide by the State PharmaceuticalCorporation, on behalf of the Director of Health Services, on the 14th
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of May 1996, inter alia, for the supply of Rubella Viral Vaccine. TheTender (DHS/27/6/97) closed on 3rd July 1996. The bids wereopened on the 3rd of July 1996. Offers were received from (1) HubutPharmaceuticals Ltd. of China; (2) Institute of Immunology Croatia;(3) Serum Institute of India; (4) SmithKIine Beecham Biologicals S.A.Belgium; (5) Biocine S.p.A, Italy. The offers of (1) Institute ofImmunology Croatia; (2) Biocine S.p.A. Italy; (3) Serum Institute ofIndia; and (4) SmithKIine Beecham Biologicals S.A., were scheduledand evaluated on the 12th of August 1996 by the TechnicalEvaluation Committee appointed by the Secretary to the Treasury.The Technical Evaluation Committee reported and recommended thateach of the following, namely, The Institute of Immunology Croatia,Biocine S.p.A. Italy and the Serum Institute of India was “notregistered, not a past supplier, not acceptable." The Committeestated that SmithKIine and Beecham Belgium, was “Acceptablesubject to supplying with cold chain monitors and renewal ofregistration in 1997.” It was noted by the Committee that SmithKIineBeecham Biologicals S.A. Belgium was (1) a registered (2) previoussupplier, and (3) that there were no past complaints with regard tothat tenderer.
On the matter of specifications, the Committee made the followingentry in respect of three of the suppliers, including SmithKIineBeecham Biologicals S.A.: "Specs conform except details of coldchain monitors.”
The State Pharmaceutical Corporation on the 27th of August 1996sought confirmation that the product would be supplied with coldchain monitors. Confirmation was made on the 29th of August 1996by SmithKIine Beecham Biologicals S.A. that cold chain monitorswould accompany each shipping box.
Since it was required of suppliers that the product should beregistered under the Cosmetic Devices and Drugs Act, and theregistration of the product of SmithKIine Beecham Biologicals S.A.was valid only up to the 22nd of March 1996, whereas the productwas required to be supplied in January and in May 1977, SmithKIineBeecham Biologicals S.A. were required to renew the registration of
SmithKIine Beecham Biologicals S.A. and Another v. State
SC Pharmaceutical Corporation of Sri Lanka and Others (Dr. Amerasinghe, J.j 23
their product. Accordingly, the registration was extended for fiveyears from the 23rd of March 1997,
The Cabinet Appointed Tender Board (CATB) on the 2nd ofSeptember 1996 recorded the following:
“The Tender Board after considering the T.E.C. recommendationdecided to award the tender to SmithKIine Beecham – Belgium thefourth lowest tendered for U.S. $ 990,000. The three partiesthat were lower viz – Messieurs Institute of ImmunologyCroatia, Biocine Italy and Serum institute of India are notregistered parties. The T.B. noted that SmithKIine Beecham isregistered up to March 1997."
On November 1st 1996, the Managing Director of the StatePharmaceuticals Corporation wrote to Dr. Dudley Dissanayake,Secretary Ministry of Health, Highway^ & Social Services, the thirdrespondent, with a copy to the Chairman of the StatePharmaceuticals Corporation and Advisor to the Cabinet AppointedTender Board, the fifth respondent, as follows:
“I would like to make the following suggestions with regard to twoitems due to be taken up at the Cabinet Appointed Tender Board,meeting, today.
PARACETAMOL TABLETS
II. RUBELLA VACCINE –
This refers to my letter dated 18.9.96 on Rubella Vaccine. .Theearlier decision was to award to a particular Company to the valueof approximately Rs. 54 Million. However, according to theschedule there were three other companies who had quoted muchless, but unfortunately they are not registered. If one of themare (sic.) registered there will be a substantial amount of saving.
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Therefore we have written to the CDDA asking for the registrationstatus of these three companies. We have been informedthat two companies have submitted their samples for testingand reports are awaited. Therefore Tender Board may considerto take this matter up at the next meeting within (sic.) next2/3 weeks.
I spoke to Dr. Samaranayaka – Director – Medical SuppliesDivision on the above two suggestions. These suggestions areacceptable to him."
The Cabinet Appointed Tender Board recorded its decision asfollows:
“The T.B. recommends the tender of M/S SmithKIine BeechamBelgium for 2.5 million doses to be delivered in January 1997at U.S. $ (illegible) by the lowest acceptable tenderer andregistered party. The T.B. considered the letter of M.D. S.P.C.dated 1/11/96. In the course of discussion it became apparent thata delay in placing orders could lead to stocks running out.Therefore M/S Smith Kline Beecham’s offer is recommended.The T.B. also noted that there are 2 million more doses tobe ordered in 1997. By that time it is hoped that more partieswould be registered."
The offers for the supply of the Rubella vaccine, lapsed on 3rdNovember 1996 upon the expiry of the 120-day period of validitystipulated in Tender Condition (6). In response to a request from theState Pharmaceutical Corporation dated the 12th of November 1996,SmithKIine Beecham Biologicals S.A.. the Serum Institute of India,and Biocine S.p.A. (the 7th respondent) confirmed the extensions oftheir offers and bid-bonds on November 14th, November 13th andNovember 21st 1996, respectively.
The State Pharmaceutical Corporation published the “World widetender results of High Value items from 1.1.96 to 30.9.96” in the DailyNews of the 25th of November 1996. Among the 23 items listed,there is the following:
SmithKIine Beecham Biologicals S.A. and Another v. State
SCPharmaceutical Corporation of Sri Lanka and Others (Amerasinghe, J )25
Tender No.ItemQuantitySupplierValueDHS/26/9/96Rubella1.2SmithKIineUSD 256.250
VaccinemillionBeechamSLR 13.43
LivevialsBiologicalsmillion
SA Belgium
On the 3rd of December 1996. the Managing Director of the StatePharmaceutical Corporation sent the following "note” to the CabinetAppointed Tender Board, with a copy to the Chairman of theCorporation:
“Further to my letter to the Secretary dated December 2, 1996 andour submission to the Cabinet Appointed Tender Board datedDecember 5, 1996. Now the following two companies haveregistered:-
Biocine S.p.A., Italy
Serum Institute, India
These two company's tenders are much lower than the 3rd lowest.However, none of the items of Biocine, Italy have been purchasedin the past by us while Serum Institute, India is a past supplier formany vaccine types. Therefore I suggest to award:
25% (i.e. 1,125 million doses) as a sample order to Biocine,Italy
75% (i.e. 3,375 million doses) to be awarded to Serum Instituteof India."
The Cabinet Appointed Tender Board met on the 10th ofDecember 1996. In recording its decision, it referred to its decisionon the 2nd of September, the fact that it had met again on the 1st ofNovember to consider the letters of the Managing Director of theState Pharmaceuticals Corporation to the Secretary /Health Dated18.9.96 and 1.11.96 and its decision on that date. The CabinetAppointed Tender Board then stated as follows:
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“At today’s meeting (10.12.96) of the CATB it was revealed that theCATB recommendations of 2.9.96 and 1.11.96 have not gone up toCabinet. As a result they were confronted with the mattersmentioned in the note by MD/SPC to the CATB dated 9.12.1996.Under the present circumstances and given the fact that two otherparties are now registered, CATB recommends that an award of2.0 million doses be made to Biocine, Italy, the price being thelowest responsive offer.
Only 2.0 million doses is being recommended in this instance asBiocine, Italy is a new supplier. This is recommended on the basisthat each consignment would be suitably tested before despatchto hospitals,
If supplies of this vaccine are timely and in order and complied“with quality assurance tests, CATB recommends that the balancequantity (2.5 million doses) should also be awarded to Biocine,Italy.”
It is stated in the Preface to the Guidelines on Government TenderProcedure that they were designed, inter alia, "To keep the processfully transparent and honest.” Paragraph 2 (h) of Part I ofthe Guidelines states that the Tender process should ensuretransparency. Transparency requires at least that tenderers shouldbe informed of decisions so that they might see what hadbeen decided and have the opportunity of demonstrating why thedecision was incorrect. And so, paragraph 136 of Part I ofthe Guidelines requires the Secretary to the Ministry concerned,within one week of the determination of a Cabinet AppointedTender Board to inform in writing, all Tenderers who responded to theTender Call, the intention to award the Tender to the successfulTenderer and request that if there are representations tobe made against the determination, such appeals should besubmitted in writing to the Tender Appeal Board with a copy to theMinistry concerned.
The Secretary to the Ministry concerned did not comply with therequirements of paragraph 136 of Part I of the Guidelines. WhenSmrthKIine Beecham Biologicals S.A wrote a letter dated the 13th ofDecember 1996 to the Chairman of the Tender Board C/o the State
SmithKIine Beecham Biologicals S.A. and Another v. State
SC Pharmaceutical Corporation of Sri Lanka and Others (Dr. Amerasinghe, J.)27
Pharmaceutical Corporation stating that the firm was awaiting acommunication of the decision of the Tender Board, there was noresponse to that letter.
SmithKIine Beecham Biologicals S.A. became aware of the latestdecision of the Cabinet Appointed Tender Board, as they say in theirletter dated the 22nd of January 1997 and in paragraph 14 ofthe affidavit of the Managing Director of SmithKIine BeechamMackwoods Ltd, through "highly placed officials”/ “senior officialsof the 1st respondent corporation.” They then wrote to the Chairmanof the Cabinet Appointed Tender Board C/o The StatePharmaceuticals Corporation on the 22nd of January 1997 allegingthat Biocine S.p.A. had failed to comply with the “fundamental andmandatory requirements of the tender conditions", and warned that,unless there was confirmation that SmithKIine Beecham BiologicalsS.A. would be awarded the contract, it would be compelled to takelegal action. There was no reply to that letter.
The duty of the Secretary was, in terms of paragraph 136 of theGuidelines, to inform tenderers that if there were representations tobe made against the decision of the Tender Board, they should besubmitted to the Tender Appeal Board. The Secretary did not do so.In the circumstances, the letter, which contained representationsmade against the determination of the Tender Board, ought to havebeen forwarded by him to the Tender Appeal Board, so that in termsof paragraph 138 the Cabinet could have been informed of thedecision of the Appeal Board. These matters were not mentioned inthe Cabinet Memorandum dated the 28th of January 1997 which hasbeen produced in evidence by Mr. M. D. D. Pieris, the Chairman ofthe Cabinet Appointed Tender Board and the 2nd respondent in thematter before us. (See paragraph 14 (n) of his affidavit dated 5thMarch 1997).
In the Memorandum to Cabinet, the Hon. Minister of Health,Highways and Social Services stated that he concurred with therecommendation of the Cabinet Appointed Tender Board andrecommended that Cabinet Approval be granted to award 2.0 milliondoses of Rubella Viral Vaccine to M/S Biocine Italy at a total cost ofU.S.$ 360,000; SL Rs. 19,923,300/00. "Also to award balance of 2.45million Rubella Viral Vaccine to same supplier if supplies of 2.0 million
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doses Vaccines are timely and in order and complied with qualityassurance tests at a total cost of US $ 450,000 SL Rs. 24,904,125/00.
On the 29th of January 1997 SmithKIine Beecham Biologicals S.A.and SmithKIine Beecham Mackwoods Ltd. filed a petition in thisCourt alleging the infringement of their fundamental rightsguaranteed by Article 12 and/or Article 12(2) of the Constitution. Onthe 30th of January 1997 the Court granted the petitioners leave toproceed for the alleged violation of Article 12 (1) of the Constitution.The Court issued interim orders restraining the import of the RubellaVaccine from Biocine S.p.A. and restraining the respondents fromtaking any steps to prevent SmithKIine Beecham Biologicals S.A.being awarded the contract for the supply of the Vaccine in terms ofprayers 'g‘ , and ‘h‘ of the petition, which orders were extendedpending the final hearing and determination of this matter.
Learned Counsel for the respondents submitted that theapplication should be dismissed in limine, since the acts in questiondid not constitute ‘administrative’ or ‘executive’ action “as they relateto purely contractual rights of parties”. He submitted that only aninfringement of a fundamental right can be redressed through anapplication made under Article 126 of the Constitution. In support ofhis submission learned counsel cited Roberts v. Ratnayake(1): at p 45.
"… where the rights and obligations of parties to such agreementhave to be determined according to the ordinary law of contract,then even the State has to be treated in the same way as any otherordinary party … where the rights and obligations of the parties tosuch a contract fall to be determined by the ordinary law ofcontract, then the provisions of Article 12 (1) of the Constitutionhave no application, and cannot be invoked."
The decision in Roberts (supra) was followed in Wijenaike v. AirLanka Ltd. and Other® at p. 293. Wijenaike also followed the viewexpressed in certain Indian decisions which had held that, althoughacts of the State at the threshold stage or at the stage of granting acontract would attract the constitutional guarantees of equality andequal protection of the law, yet, where there was a contract in force,Article 12 would apply only if the rights and liabilities were statutory:e.g. see Radhakrishna Agrawal v. State of Bihar™.
SmithKIine Beecham Biologicals S.A. and Another v. State
SCPharmaceutical Corporation of Sri Lanka and Others (Amerasinghe, J.)29
Article 12(1) of the Constitution states that "All persons are equalbefore the law and are entitled to the equal protection of the law”.With great respect, I am unable to accept the view that “law” inArticle 12 (1) is confined to enactments of Parliament: In my view“law” includes regulations, rules, directions, instructions, guidelinesand schemes that are designed to guide public authorities. If theycontain provisions that are impermissible in terms of the provisions ofArticle 12(1), or if in their application the guarantees of Article 12(1)are violated, they must be declared to be unconstitutional: ThisCourt has consistently proceeded on that basis from the time ofPalhihawadana v. Attorney-General,3) See also Jayanetti v.Land Reform Commissionl5) at p. 184.1 am also unable to agree withthe view that a distinction should be drawn between cases in whichthere is a contract and those in which the matter is at a theresholdstage or some stage before the making of the contract: In my view,where there is a breach of contract and a breach of Article 12 (1)brought-about by the same set of facts and circumstances, it cannotbe correctly said one of the remedies only can be availed of,the other being thereby extinguished; nor can it be correctlysaid that the aggrieved party must be confined to his remedyunder the law of contract, unless there is a violation of statutoryobligations: In Srilekha Vidarthi v. State of UP. A.I.R.™ at p. 550, theSupreme Court of India considered contracts vis-a-vis Article 14 ofthe Indian Constitution, which corresponds with Article 12 ofour Constitution. Verma, J (as he then was) speaking for theCourt said:
"The state cannot be attributed the split personality of Dr. Jekylland Mr. Hyde in the contractual field so as to impress on it all thecharacteristics of the State at the threshold while making acontract requiring it to fulfill the obligation of Article 14 of theConstitution and thereafter permitting it to cast off its garb of Stateto adorn the new robe of a private body during the subsistence ofthe contract enabling it to act arbitrarily subject only to thecontractual obligations and remedies flowing from it. It is really thenature of its personality as State which is signigficant and mustcharacterize all its actions, in whatever field, and not the nature offunction, contractual or otherwise, which is decisive of the nature
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of scrutiny permitted for examining the validity of its act. Therequirement of Article 14 being the duty to act fairly, justly andreasonably, there is nothig which militates against the concept ofrequiring the State always to so act even in contractual matters.There is a basic difference between the acts of the State whichmust invariably be in public interest and those of a privateindividual, engaged in similar activities, being primarily forpersonal gain, which may or may not promote public interest.Viewed in this manner, in which we find no conceptual difficulty oranachronism, we find no reason why the requirement of Article 14should not extend even in the sphere of commercial matters forregulating the conduct of State activity.”
A similar view was taken by the Indian Supreme Court in F.C.I. v.Kamdhenu Cattlefield Industries
The petitioners are before this Court complaining that they havebeen denied equal treatment and that they have been denied theequal protection of the law guaranteed by Article 12 (1) of theConstitution. The complaint of the petitioners is not that there hasbeen a breach of contract: their complaint is that they were notawarded a contract because certain officials had acted unfairly.Public functionaries must ensure that the guarantees of Article 12 ofthe Constitution are observed in the discharge of their duties and inthe exercise of their powers, regardless of whether there is a statuteor contract on which the rights of a petitioner may be based: SeeMahabirAuto Stores v. Indian Oil Corporation A.I.R.m. For the reasonsI have explained, the submission of learned counsel for therespondents that the petition must be rejected in limine cannotbe accepted.
Chapter XIII of the Financial Regulations and various circularsissued from time to time by the Ministry of Finance prescribe theprocedures to be followed in obtaining goods and services byGovernment bodies. On the 30th of September, 1996, The GeneralTreasury issued a most important document: Guidelines onGovernment Tender Procedure. In the Preface to that document,
SmilhKIine Beecham Biologicals S.A. and Another v. State
SCPharmaceutical Corporation of Sri Lanka and Others (Amerasinghe, J.)31
the following observations are made by President of Sri Lanka andMinister of Finance and Planning:
“Though the Tender procedure adopted at present iscomprehensive, it has not prevented the occurrence ofirregularities. Due to its complexity, the finalization of tenders hastaken unusually long periods. It is observed that our proceduretakes the longest in this region.
Therefore, the Government decided to prepare Guidelines onTender Procedure, introducing amendments to the presentprocedure where necessary, in order to achieve the followingobjectives:-
To keep the process fully transparent and honest.
To speed up the process.
To obtain financially the most advantageous and qualitativelythe best services and supplies for the country.
At present it takes 24-36 months to bring a tender process toconclusion. This adversely affects development work and oftenleads to cost escalations.
Constant allegations of corruption and lack of transparency havea debilitating effect on the Government administrationand Government officers. The objective of formulatingthese guidelines is to eliminate the weaknesses by collating allthe instructions, strengthening the procedures and assistingusers by introducing features like check lists, standard documentsetc.
Therefore, this document attempts to reduce the time taken for theprocess to six (6) months, while keeping the whole processtransparent and ensuring a level playing field to all tenderers …
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I hope these guidelines will help tenderers to offer their serviceswith the minimum of problems and delays. These guidelines willmake the officer’s task easier in completing the processexpeditiously and accurately …
I sincerely hope that this document will serve to streamline thepurchasing and selling procedures of Government, in order toachieve speed, efficiency and transparency and to provide a levelplaying-field for all citizens who participate in the economicprocess of the country.”
Paragraph 6 of Part I Chapter I of the Guidelines stipulatesthat “The Tender process should be concluded in the shortestpossible time.” As observed in the Preface to the Guidelines, delay“adversely affects development work and often leads to costescalations." In the matter before us, yet another undersirableconsequence has been highlighted, namely, the possibility thatstocks of essential items may run out, a fact, as we have seen, thatwas noted by the Cabinet Appointed Tender Board. In paragraph 15of the affidavit dated the 5th of March 1997, Mr. M. D. D. Pieris, whowas Chairman of the Tender Board, states as follows: "… Rubellavaccine is administered on potential mothers to prevent the birth ofdeformed children … the current annual requirement of the vaccinein Sri Lanka is 4,500,000 doses whereas what is available in stock atpresent is only 600,000 doses. I state that in these circumstances,irreparable loss and damage would be caused to the Republic ofSri Lanka if the interim order already granted is extended any further.”The interim order was granted to ensure that pending a determinationof whether the procedures adopted in dealing with tenderDHS/27/6/97 were in violation of the Constitution, the procurement ofthe vaccine under that tender would be suspended. Any damagethat might be caused by a shortage of stocks is referable to thefailure of the Tender Board and certain officials to adhere to theprocedures prescribed by the Government designed, inter alia, toeliminate delays.
In the matter before us, the process started when the Secretaryof the Cabinet of Ministers on the 6th of March 1996 informed
SmithKIine Beecham Biologicals S.A. and Another v. State
SCPharmaceutical Corporation of Sri Lanka and Others (Amerasinghe, J.)33
the Secretary of the Ministry of Health, Highways and SocialServices that Her Excellency the President had approved theappointment of the Tender Board to determine the procurement ofpharmaceuticals for the State Pharamaceutical Corporation in 1996.However, it was not brought to a finality. The Cabinet AppointedTender Board, accepting the recommendations of the TechnicalEvaluation Committee, made a decision on the 2nd of September1996: However, the Secretary of the Ministry of Health neither tookaction to pursue residual action for the completion of the tenderaward, nor did he inform tenderers of the decision that had beenmade, nor was a Cabinet Memorandum submitted under the handof the Minister, forwarding the reports of the Tender Board andthe Technical Evaluation Committee with the recommendations ofthe Minister.
In my view, it was the failure of the Secretary of the Ministry ofHealth to take necessary action that not only caused the delaybut also opened the door to the Cabinet Appointed Tender Board,eventually misdirecting itself, The Cabinet Appointed TenderBoard, as we have seen, at its meeting on the 10th of December1996 noted that at that meeting that “it was revealed thatthe CATB recommendations of 2.9.96 and 1.11.96 had notgone to Cabinet. As a result they were confonted with thematters mentioned In the note by MD/SPC to the CATB dated9.12.1996.
The emphasis is mine.
In my view, the “confrontation" would have been avoided if thesalutary directions given in paragraphs 135 and 136 of theGuidelines had been followed:
The determination of the Tender Award will be notified by theChairman of the Tender Board to the Secretary of the Ministryconcerned or the Head of the Department concerned, as the casemay be, who will thereafter pursue within one week residual actionfor the completion of the tender award.
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In the case of A CATB, the Secretary to the Ministryconcerned will, within one week of the determination informin writing, all Tenderers who responded to the Tender Call,the intention to award the Tender to the successful Tendererand request that if there are any representations to bemade against the determination, such appeals shouldbe submitted in writing to the Tender Appeal Board with a copy tothe Secretary of the Ministry concerned. Simulataneously,a Cabinet Memorandum should be submitted underthe hand of the Minister, forwarding the Reports of theTender Board and the TEC, with the recommendation ofthe Minister.
An appeal against an award should be lodged with theAppeal Board within one week of the intimation of thedetermination. The appeal should contain all materials required tosupport the averments and should be self-contained for the 8oardto arrive at a conclusion …
The Appeal Board shall report to the Cabinet, through theSecretary to the Cabinet withiri two weeks of an appeal beinglodged …"
There was an appeal dated the 29th of November 1996against the award of the contract to SmithKIine & BeechamBiologicals S.A. by the Country Manager of Biocine S.p.A.but this was not dealt with in the manner prescribed in paragraphs136, 137 and 138 of the Guidelines: Biocine S.p.A. did succeedeventually, in so far as it became the tenderer recommendedby the Minister acting on the recommendations of the CabinetAppointed Tender Board but, as we have seen, not because itsappeal had been considered by a Tender Appeal Board whosedecision had been reported to the Cabinet, as required bythe Guidelines.
The Chairman of the Cabinet Appointed Tender Board does not inhis affidavit of the 17th of February 1997 state that either he or theCabinet Appointed Tender Board were influenced by the fact that the
SmithKIine Beecham Biologicals S.A. and Another v. State
SC Pharmaceutical Corporation of Sri Lanka and Others (Amerasinghe, J.)35
Government of Sri Lanka owed the State Pharmaceutical Corporationover Rs. 300 million on account of the supply of medical productswith the result that the State Pharmaceutical Corporation hadto borrow from Commercial Banks at the market rate of interestto maintain supplies of products. Nor does this appear as astated reason for any of the several decisions of the CabinetAppointed Tender Board. However, in his second affidavit dated the5th of March 1997 the Chairman of the Cabinet Appointed TenderBoard seeks to justify the decision made by the Tender Board on thatground. The Managing Director of the State Pharmaceutical doesnot advert to this matter in any of the documents placed before us,although he does refer to the matter of savings. Cost, per se, isno doubt one of the matters the Tender Board may have legitimatelytaken into account in arriving at its decision. However,the indebtedness of the State Pharmaceutical Corporationwas another matter.
Learned counsel for the respondents, whilst conceding that theprovisions of the Guidelines had not been followed in the matter ofsubmitting the recommendations to the Cabinet, submitted that the“omission is understandable as the Guidelines were issued only on orabout 30th September." This can hardly be pleaded as an excuse, forat teast by the time of the second decision on the 1st of Novemberthe Secretary concerned, as the chief accounting officer of hisMinistry, might reasonably have been expected to be acquainted withthe contents of a document of prime importance to the properdischarge of his duties. Moreover, somewhat curiously, learnedcounsel for the respondents sought to justify the alteration of theviews of the Cabiner Appointed Tender Board on the ground thatsince the first decision, the Guidelines had been issued, in terms ofwhich “the foremost objective” of the tender process, when it relatesto procurements, is the achievement of “maximum benefit to theGovernment” at the "least cost". Either the Secretary to the Ministry ofHealth was unaware of the Guidelines and, therefore, did not complywith them, or he was aware of them and, therefore, followed them. Ifthe Tender Board was in fact guided by the so-called foremostobjective of the tender process set out in the Guidelines, then the
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Secretary of the Ministry of Health, as a Member of the CabinetAppointed Tender Board, was aware of the Guidelines, in paragraph17 of his affidavit dated the 17th of February 1997, the Chairman ofthe Cabinet Approved Tender Board admits "that the tender boardhaving considered all relevant matters … recommended to theCabinet of Ministers in terms of the Financial Regulations (1992) andGuidelines on Government Tender Procedure (1996) that the tenderwith respect to the Rubella Vaccine ahould be awarded to the 7threspondent …" In the circumstances, the failure on the part ofthe Secretary to the Ministry of Health, the third respondent, tocomply with the Guidelines, is neither "understandable” norexcusable. Although he has been duly given notice, he hasnot filed an affidavit explaining his failure to comply with theprescribed procedures.
Part I of the Guidelines deals with "Government Procurement”.Chapter I of that part deals with matters “General”. Paragraph 2 ofthat Chapter sets out what the “Tender process should ensure". Theyare stated to be as follows:
The least cost and maximum benefit to the Government.
Adherence to prescribed standards, rules and regulations.
Optimum Economic Advantage to the nation.
Maximum income in the disposal of assets or in granting ofrights, concessions or exclusive benefits.
Equal opportunity for interested parties and persons toparticipate and compete on identical terms and conditionsand emergence of competence and efficiency.
Expeditious execution of works and delivery of goods andsupplies.
Compliance with local laws and international obligations.
Transparency and uniformity of the evaluation procedure.
Confidentiality of information provided by tenderers.”
SmithKiine Beecham Biologicals S.A. and Another v. State
SC Pharmaceutical Corporation of Sri Lanka and Others (Amerasinghe, J.)37
The explanation of the respondents for the change of thedecision of the Cabinet Appointed Tender Board is that itwas compelled to do so by the Guidelines issued by the GeneralTreasury in September 1996 since, as the learned Deputy Solicitor-General stated in his written submissions, “the foremost objectiveof the tender process when it relates to procurements is theachievement of ‘maximum benefit to the Government’ at the‘least cost’. He said that "the award in favour of the 7th respondent[biocine S.p.A.] would save the Government approximately Rupees9,937,800." In support of his submission, the learned DeputySolicitor-General cited paragraph 14 (j) of the Affidavit, dated,5th March 1997, of the second respondent who was the Chairman ofthe Cabinet Appointed Tender Board, wherein it was statedas follows:
"… the tender board was conscious of the saving of approximatelyRs. 9,937,800/- that could be made by accepting the tender of the7th respondent, which was the lowest responsive offer as againstthe offer of the 1 st petitioner."
Admittedly, “The least cost and maximum benefit to theGovernment" is, as we have seen, placed by paragraph 2, Chapter1, Part 1, of the Guidelines at the head of the list of what the "tenderprocedure should ensure". There is no evidence to support theview that the arrangement was on a hierarchical basis. Moreover, “theleast cost” is not referred to as the ultimate or sole criterion: thecriterion of “least cost" is subject to the criterion of “maximum benefitto the Government". If “maximum benefit to the government"meant “maximum financial benefit" in the sense of saving rupees andcents, the reference to “maximum benefit to the Government” istautologous. It is not: “Maximum benefit to the Government" refers toother, quite distinct, notions: obvously, the cheapest, as commonexperience shows, may not procure the best product. On the otherhand, affordability is always an important consideration, and, inrelation to some matters, perhaps, having regard to our limitedresources, it may be appropriate to settle for something lessdesirable: but when any authority is dealing with a productconcerned with the lives of the people, including the unborn citizens
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of Sri Lanka – as in the case of Rubella Vaccine which, as we haveseen, according to the Chairman of the Tender Board, is to beinjected into pregnant women to immunize their babies – would theGovernment compromise, may it gamble? Can it afford to do withless than the best available in terms of efficacy? Specifically, in thiscase, the Government acted with care: It appointed a TechnicalEvaluation Committee of four persons including Dr. T. A. Kulathilaka,Epidemiologist, Dr. (Mrs) N. Vithana, Virologist, and Dr. J. M. J.Munasinghe, Pharmacologist. Financial considerations were also tobe considered, and so, the fourth member of the Committeenominated by the Secretary to the Treasury was Mr. M. Piyasena,Director Public Finance, General Treasury.
Instead of stating that the objective of the Guidelines was toprocure the cheapest services, the President and Minister of Finance,in the Preface to the Guidelines said that the prescribed procedurewas "To obtain financially the most advantageous and qualitativelythe best services and supplies for the country.” What the "Tenderprocedure should ensure" is, inter alia, stated in the Guidelines to be"optimum Economic Advantage to the nation”: I understand this tomean that the procedure relating to Government procurementsshould ensure the most favourable conditions for the advancement ofthe People by obtaining "financially the most advantageous andqualitatively the best supplies for the country." What is “financially themost advantageous and qualitatively the best supplies for thecountry" is pre-eminently a matter of policy that the Government,which is accountable to the People, must decide. In order to assist itin making an informed decision in the best interests of the People,the Government has, through the Financial Regulations, Circulars,and the Guidelines of 1996, laid down procedures to be followed inthe matter of Government procurements. Unless they are followed,the Government is liable to be misled in making its decisions.Therefore, there must be scrupulous adherence to procedures laiddown by the Government. Part I Chapter I paragraph 2 (b) states thatthe tender process should ensure "adherence to prescribedstandards, rules and regulations."
SmithKIine Beecham Biologicals S.A. and Another v. State
SC Pharmaceutical Corporation of Sri Lanka and Others (Amerasinghe, J.)39
The respondents' claim that cost was the decisive factoris inexplicable in the light of the fact that in respect of oralpolio vaccine (Tender No. DHS/R/VAC/96), which was awardedunder the same world-wide tender (P 1) that dealt with the Rubellavirus vaccine (Tender No. DHS/26/9/96), the contract was awardedto SmithKIine Beecham Biologicals SA despite the fact that itsquotation was not the lowest. It was awarded the contract, asthe Marketing Director of the 2nd Petitioner explains in paragraph 8of his affidavit because “inter alia it was the sole registeredsupplier thereof".
Answering the averments of the Marketing Director, the Chairmanof the Tender Board, in paragraph 9 of his affidavit dated the 5thof March 1997, said: “I state that the question of registrationof the product was only one of the matters taken into considerationin awarding the 1st Petitioner the tender for the supply of vaccinesin question, and I reiterate the averments of paragraph 13and 16 of my affidavit dated 17th december 1996. I further statethat in view of the financial difficulties now faced by the Governmentof Sri Lanka as well as the 1st Respondent Corporation,and the existing budgetary constraints, the price factorhas become extremely important if not crucial in tenderdeliberations,"
As we have seen, Mr. M. Piyasena, the Director of PublicFinance of the General Treasury, was a member of the TechnicalEvaluation Committee that recommended the award of the contractfor the supply of Rubella vaccine to SmithKIine Beecham BiologicalsSA. Was he unaware of or unmindful of the financial difficultiesreferred to by the Chairman of the Cabinet Appointed TenderBoard? Was Mr. V. S. Amaradasa, Director of Public Financeand a Member of the Cabinet Appointed Tender Board, the fourthrespondent, unmindful or unaware of the financial difficulties referredto by the Chairman when the board decided on the 1st of November1996 to award the contract to SmithKIine Beecham BiologicalsS.A.? Were the financial difficulties of the Government less whenthe Board decided in September and November 1996 to awardthe contract to SmithKIine Beecham Biologicals SA than in Decemberwhen it decided to award the contract to Biocine S.p.A.? What
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was the explanation for the award of the previous contract onTender No. DHS/26/9/96 for the supply of Rubella vaccine toSmithKIine Beecham Biologicals S.A. in 1996 when it was the thirdlowest tenderer? It was not cost, but the fact it was the onlyregistered responsive bidder.
The Chairman of the Tender Board is unable to explain whythe cost factor was decisive in the case of the Rubella vaccinebut not in the case of the polio vaccine. The truth of the matter is that,being the only registered supplier, the only responsive bid for thepolio vaccine was made by SmithKIine Beecham BiologicalsSA. However, although that supplier was also the only responsivebidder for the Rubella vaccine, the Tender Board, which had earliercorrectly decided on the recommendations of the TechnicalEvaluation Committee to award the Tender to SmithKIine BeechamBiologicals SA, later decided to award the contract to Biocine S.p.A.by misdirecting itself to believe that it was obliged or entitled todo so.
Learned counsel for the respondents submitted that the TenderBoard had "a clear discretion”.
Specifically, in the matter before us, he said, because:
"the tender conditions marked P1 provide that-
The Tender Board reserves to itself the right without question toreject any or all offers, the right to accept any part of a quotation,or order only such quantities and items as may be required.”
This provision reiterates and expressly reserves the basis ‘power’(this term is used in the 'Hohfeldian sense) of the offereerecognized by Financial Regulation 697 (2) and Part I Chapter Xparagraph 131 of the Guidelines … to deal in whatever wayhe pleases with an offer received by him under the law ofcontract."
SmithKIine Beecham Biologicals S.A. and Another v. State
SCPharmaceutical Corporation of Sri Lanka and Others (Amerasinghe, J )41
If learned counsel for the respondents was right in asserting that aprivate individual may act as he pleases with an offer, he is, in myview, mistaken in treating the State (including its agencies) as beingon the same footing as a private individual. The State is not inthe same position. In contractual matters, State action, such asthe procurement of drugs for its health services, having as it doesa public element, must be transparent, timely, and financiallythe most advantageous and qualitatively the best for the country: Seethe Preface to the Guidelines of 1996. In order to achieve thoseends, it has been provided in paragraph 2 of Chapter 1, Part, I ofthe Guidelines certain things that the “tender process shouldensure". They include "equal opportunity for interested parties andpersons to participate and compete on identical terms andconditions": Paragraph 2 (e) of the Guidelines; and “transparencyand uniformity of the evaluation procedure": paragraph 2(h) of theGuidelines.
Recognizing its unique role and special responsibilities, theGovernment has prescribed procedures to be followed in the matterof procurement in its Financial Regulations and the Guidelinesof 1996. It is stated in paragraph 2 (b) of the Guidelinesthat the tender process should ensure "adherence to prescribedstandards, rules and regulations". Paragraph 2(g) of the Guidelinesrequires that the tender process should ensure “compliance withlocal laws": this would, of course, include compliance with Article12 of the Constitution that guarantees equality before the lawand equal protection of the laws. In determining whether therewas conformity with the procedures laid down for the purpose, interalia, of ensuring equal protection of the law by providing, whatwas twice described in the Preface to the Guidelinesas, “a level playing field", what is relevant are the norms laiddown by the State. The Financial Regulations provide in regulation697 that
(D -(2) The Board shall have power
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“(a) To accept any tender, or portion of a tender;
To accept portions of more than one tender;
To reject a!! or any tenders;
…
…
The Tender Board shall, in every case, record the reasons for its
decision.
…Tender Board should compare tenders received withdepartmental cost estimates. Tenders which are considerablyhigher than the departmental estimate should normally berejected. If the tenders are all excessively high, action shouldbe taken under (2) (e) above (i.e. direct that fresh tenders becalled for].
By and large a Tender Board should accept the lowestevaluated tender … which satisfies all conditions, specificationsetc. of tender; and except with the … approval of the Cabinet inthe case of tenders in excess of Rs. 5,000,000 in value no tenderother than the lowest… should be accepted; and that too only ifsuch lowest… tender satisfies all requirements.
All tenders which are not in conformity with the stipulatedspecifications and conditions of tender should be rejected; but aTender Board is not precluded from accepting a tender, if
the specifications are better than those prescribed;
the specifications or conditions offered conform substantiallyto those in the tender documents and vary only in minor details.
If negotiations in regard to the variation of any conditions orspecifications, or in regard to any other matter pertinent to the finaladjudication have to be conducted after the tenders have beenopened, the Tender Board should conduct such negotiation
SmithKIine Beecham Biologicals S.A. and Another v. State
SCPharmaceutical Corporation of Sri Lanka and Others (Amerasinghe, J.)43
only after notice to all the tenderers. A full record of allsuch negotiations should be maintained. The final adjudicationfollowing on such negotiation should not be made by the TenderBoard without the approval of the appropriate authority underF.R. 799.
…"
It is evident from the foregoing provisions of the FinancialRegulations that, although a Tender Board does have very widepowers, it does not have uncontrolled, and unrestricted powers. Itcannot, for instance, accept any tender that fails to conformsubstantially to the specifications and conditions of the Tenderdocuments.
The Guidelines provide as follows in Part I Chapter X:
“131. The Tender Board shall have power to:—
accept any tender, or portion of a tender;
accept portions of more than one tender;
reject all or any tenders;
direct that fresh tenders be called for
…
The authority for the determination of the Award is subject to theapproval of the appropriate higher authority.
…
If a Tender Board recommends a deviation of non-criticalnature from the tender conditions, the reasons for such deviationshould be recorded clearly on the minutes of the proceedings …
Only the bids which are responsive and qualifiedsubstantially conforming in accordance with the tender documentsare considered for detailed evaluation.
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Therefore, after the detailed evaluation, the Tender Board shouldrecommend the lowest, evaluated, responsive, qualified bid foracceptance. Where the Tender Board does not agree with therecommendations of the Technical Evaluation Committee, thereasons for such disagreement should be clearly stated."
Therefore, the Guidelines too make it clear that a Tender Boardmay only consider bids which are responsive and qualified bysubstantially conforming with the tender documents. The State andits agencies are bound by and must rigorously and scrupulouslyobserve the procedures laid down by them on pain of invalidation ofan act in violation of them. Justice Frankfurter in Vitarelli v. Seafoml9!a))said: “An executive agency must be rigorously held to the standardsby which it professes its action to be judged ; Accordingly, if …[an action] is based on a defined procedure, even though generousbeyond the requirements that bind the agency, the proceduremust be scrupulously observed … This judicially evolvedrule of administrative law is now firmly established and, if I may add,rightly so. He that takes the procedural sword shall perish withthe sword."
The State Pharmaceutical Corporation called for tenders for thesupply of certain products required by the Department of HealthServices on a world wide basis. It set out the terms and conditions ofthe tender and the specifications relating to each of the products in adocument issued to those who wished to tender. (P1). Clause 9{a)states as follows:
“All drugs imported to Sri Lanka must be registered with theCosmetics Devices and Drugs Authority of Sri Lanka andTenderers should attach photocopies of the currentRegistration Certificates with their Tender Offers. Registrationnumbers should be indicated on Schedule II. Tenderersmust advise their local agents to attend to productRegistration."
The underlining appears in the document itself. Some othermatters, not germane to the matter in dispute, are also similarly
SmithKiine Beecham Biologicals S.A. and Another v. State
SC Pharmaceutical Corporation of Sri Lanka and Others (Amerasinghe, J.)45
underlined. The registration of certain products is required under theCosmetic Drug Act No. 27 of 1980. Registration is to ensure that theproduct meets required standards. Clause 29 of the tender document(PI) states as follows:
"Awards are made to suppliers taking into consideration amongother factors: price quoted, past performance, quality of samples,delivery offered, product registration etc., and the decision of theTender Board is final. No, correspondence will be entertained fromunsuccessful tenderers.”
Clause 34 of the document (P1) states: "Prospective tenderersshould acquaint themselves fully with these terms and conditions…"
In paragraph 8 of his affidavit dated the 5th of March 1997, theChairman of the Cabinet Appointed Tender Board states, inter alia,that “the past practice in regard to the award of tenders for thesupply of medical supplies shows that the registration of the drug atthe time of closing of tenders was not treated as a mandatoryrequirement as what was required by the Cosmetic Devices andDrugs Act was that the drug should be registered at the timeof importation.”
Whatever his interpretation of the law may be, the fact is thatregistration was stated, and stated with emphasis, in the tenderdocument (P1) to be a condition of the award.
Learned counsel for the respondents submitted that therequirement of registration was not mandatory and that the failure toregister was not a fatal flaw. He cited Kiriwanthe and Another v.Na/aratne Anothermna p. 15, in support of his submission, I do notthink that the dicta he referred to assist him in this case.
Admittedly, where the specifications or conditions offered conformsubstantially to those in the tender documents and vary in only minordetails, a Tender Board is not precluded from accepting a Tender:See F.R. 697 (6) (b). Considering the broad policy of the conditionand the critical and substantial nature of the mischief to which it isdirected, namely, assurance of the quality of the product, I am of the
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view that the requirement of registration was mandatory and couldnot be treated as a mere formality or technicality, or minor detail thatcould have been waived or ignored either by the Technical EvaluationCommittee or by the Tender Board. The necessary consequence of afailure to comply with the condition relating to registration is therejection of the tender. (See F.R. 697 (6) and Guidelines, Part I,clause 134).
If a Tender Board recommends a deviation of a non-critical naturefrom the tender conditions, the reasons for such deviation should berecorded clearly on the minutes of the proceedings. (Guidelines,Part I, clause 133.) There is no record of the Tender Board havingregarded registration as being a matter of a non-critical nature.The Tender Board does not recommend a deviation at all:On the other hand, it proceeds on the basis that registration isessential.
In paragraph 14 (i) of his affidavit, the Chairman of the Boardstates that the decision was made "… in accordance with therelevant tender conditions and regulations taking into considerationall relevant matters including the price quoted, the past performance,quality of samples, delivery offered and product registration." He wasrepeating the criteria set out in clause 29 (1) of the tender documentwhich we have set out above. Whatever the alleged “past practice"may have been, there is no doubt that as far as this tender wasconcerned, registration was necessary, and therefore, the TenderBoard, quite properly took that into account.
The Chairman of the Tender Board states in paragraph 14 (i) of hisaffidavit dated the 5th of March 1997 that the Tender Board took pastperformance and quality of samples into account in arriving at itsdecision to award the contract for the supply of Rubella vaccineto Biocine S.p.A. The Technical Evaluation Committee does not in itsreport that samples were received from all the tenderers, but itstates nothing with regard to their quality. Whereas SmithKIineBeecham Biologicals S.A. had supplied that vaccine in the previousyear, and had their product registered at the date of the openingof the tenders, viz. 3rd July 1996, Biocine S.p.A. had neither supplied
SmithKline Beecham Biologicals S.A. and Another v. State
SCPharmaceutical Corporation of Sri Lanka and Others (Amerasinghe, J.)47
Rubella vaccine earlier, nor was its product registered at the relevanttime. The Technical Evaluation Committee in its report said thatthe product of SmithKline Beecham Biologicals S.A., were registered,but stated that none of the other tenderers had registeredtheir products. The Technical Evaluation Committee in its reportstated that SmithKline Beecham Biologicals S.A., had been aprevious supplier and in the column “Past Complaints" stated“No complaints”. With regard to the other tenderers, includingBiocine S.p.A., the Committee states that they were not previoussuppliers and in the column “Past Complaints" states “Notapplicable". The Managing Director of the State PharmaceuticalCorporation in his note dated the 9th of December 1996, whicheventually persuaded the Tender Board to change its mind, statesthat “none of the items of Biocine, Italy have been purchased in thepast”, and “therefore" suggests that 25% (i.e. 1,125 million doses) beawarded to Biocine, Italy, as “a sample order". The CabinetAppointed Tender Board decided to award a contract for supplyrestricted to 2 million doses to Biocine, Italy, for the stated reason thatit was a “new supplier". In the circumstances, how could theChairman of the Tender Board truthfully say that the Tender Boardtook account either of the past performance and the quality of theproduct of Biocine S.p.A. to whom the contract was awarded?The Tender Board was unable to recommend the acceptance of theBiocine S.p.A. bid with confidence, and therefore recommendsacceptance “on the basis that each consignment would be suitablytested before despatch to hospitals." The balance quantityof supplies are to be awarded to Biocine S.p.A. “If the supplies ofthis vaccine are timely and in order and complied with qualityassurance tests.
In his letter dated the 1st of November 1996, the ManagingDirector refers to the fact that “two companies have submittedtheir samples for testing and reports are awaited." The CabinetTender Board at its meeting on 10th December 1997 found itself, as itsays in its minutes, “confronted with the matters mentioned in thenote by MD/SPC to the CATB dated 9.12.1996.” Although inhis letter dated November 1 1996, the Managing Director of the
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State Pharmaceutical Corporation acknowledged the fact that thethree other companies which had quoted were “unfortunately … notregistered", in his note dated the 9th of December 1996 he statedthat "Now the following two companies have registered: (1) BiocineS.p.A., Italy (2) Serum Institute India," The emphasis is mine.
Although the Managing Director had recommended that 25% (i.e,1, 125 million doses) be awarded as "a sample order" to Biocinefrom whom no products had been previously ordered, and that 75%{i.e. 3,375 million does) be awarded to Serum Institute India which hesaid was "a past supplier for many vaccines", {but not advertingto the relevant fact that its Rubella vaccine had not been registeredwhen the tender closed) the Tender Board decided to make an awardof 2.0 million doses to Biocine, Italy, “the price being thelowest responsive offer." It was the lowest offer, but not thelowest responsive offer, for the product of Biocine S.p.A. wasnot registered, and therefore. Biocine S.p.A. was not qualifiedto tender.
Quotations were called for 4.500.00 doses to be delivered asfollows: 2.5 million doses in January 1997 and 2 million doses inMay 1997. The tender submitted by SmithKline Beecham BiologicalsSA on 19th June 1996 was for 4,500,000 doses. The Tender Board atits meeting on the 2nd of September 1996, recommended the awardof the contract to Smithkline Beecham Biologicals without anyvariation of the total doses or the manner of delivery. However,at its meeting on the 1st of November 1996, whilst confirming itsearlier decision that SmithKIine Beecham SA’s offer should berecommended, it stated as follows: "The T.B. also noted that thereare 2 million more doses to be ordered in 1997. By that time itis hoped that more parties would be registered. The emphasisis mine.
Three things should be pointed out:
It is not the parties but the drug that must be registered, for itis the quality of the drug that matters.
SmithKIine Beecham Biologicals S.A. and Another v. State
SC Pharmaceutical Corporation of Sri Lanka and Others (Amerasinghe, J.)49
The decision of the Tender Board on the 2nd of September
was to recommend the acceptance of the Tender of SmithKIineBeecham Biologicals S.A. as the only tenderer whose productwas registered, for the delivery of the entire required quantitystipulated in the tender document, namely 4.5 million doses,which, according to the tender document were required tobe delivered as follows: 2.5 million doses to be delivered in January
and 2 million doses in May 1997. However, the Tender Boardat its meeting on the 1st of November 1996, took account of theletter of the Managing Director of the State PharmaceuticalCorporation dated the 1st November 1996 in which it was stated that,although other tenderers who had quoted less were "unfortunately …not registered”, moves were afoot to have them registered.The Managing Director suggested that the Tender Board shouldtherefore postpone its decision for two or three weeks. However, theTender Board, fearing that "a delay in placing orders could leadto stocks running out” recommended the acceptance of the offerof SmithKIine Beecham Biologicals S.A., as the “lowest acceptabletender of a registered party", but limited the supply to the 2.5million doses required by the tender document to be delivered inJanuary 1997.: See the minutes of the meeting of the TenderBoard dated 1st November 1996 and paragraph 3.3 of the CabinetMemorandum. The tender document had called for the supplyof a quantity of 4.5 million doses. In terms of Financial Regulation697 (2) (a) a Tender Board has the power to accept any tenderor portion of a tender. However, it is required to record the reasonfor its decision. There is no record in the minutes of the Tender Boardfor limiting the award to 2.5 million doses. However, the minutesdo state as follows: “The T.B. also noted that 2 million more doses[are] to be ordered in 1997. By that time it is hoped that moreparties (sic.) would be registered." While the view of the ManagingDirector of the State Pharmaceutical Corporation that the decisionof the Tender Board should be postponed so as to enable some ofthe unsuccessful tenderers to have their products registeredwas not accepted because stocks of supplies might run out,the Tender Board, shared the Managing Director’s hope thatthe unsuccessful tenderers would in time have their productsregistered so that the contract for the supply of the balance
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quantity of 2 million doses could be awarded to one or moreof them. This is made clear in paragraph 3.3 (d) of the CabinetMemorandum which states as follows:
" Considering State Pharmaceuticals Corporation ManagingDirector's letters Tender Board considered, the other parties whohad applied for registration could register for the balance quantityof 2 million doses to be delivered in may 1977.’
The award of a tender must be based on compliance withthe terms and conditions of the tender documents on the dateand at the time apecified for the closing of the tender. An offerthat does not comply with the terms, conditions and specifications atthat date and time must be rejected in the same way as a late offer. Ifthere are to be negotiations in regard to the variations in conditions orspecifications or to any other matter pertinent to the final adjudicationother than clarifications, they may be made only after due noticebeing given to all the tenderers: See paragraph 132, Part I, of theGuidelines, 1996. It is in that way that a “level playing-field” on whichthere is equal opportunity for persons to participate and compete onidentical terms and conditions, and transparency and uniformity ofthe evaluation procedure of the tender process can be achieved: Cf.paragraph 2 (d), (e) and (h) of the Guidelines, 1996. It cannot bepermitted that if, by some stratagem or neglect, the decision of aTender Board to the Cabinet is not made in due time as required byparagraph 136 of the Guidelines, a position of advantage could begained for a party.
At the relevant date, namely, the 3rd of July 1996, none of thetenderers for the supply of Rubella vaccine had their productsregistered except SmithKIine Beecham Biologicals S.A.. SmithKIineBeecham Biologicals S.A. was, therefore, the only person who hadmade a responsive bid conforming with the tender document at therelevant date.
The Tender Board, when it was “confronted" by the informationfurnished by the Managing Director of the State PharmaceuticalCorporation by his note dated the 9th of December 1996that "now two companies have registered: (1) Biocine, S.p.A., Italy
SmithKtine Beecham Biologicals S.A. and Another v. State
SCPharmaceutical Corporation of Sri Lanka and Others (Amerasinghe, J.)51
(2) Serum Institute, India", misdirected itself in believing that thereforethe products of those two tenderers could also be considered.The level playing-fieid principle enunciated in the Preface tothe Guidelines required that the claims of tenderers shouldbe decided as at the date stipulated, and not as and whenthey satisfied the conditions of the tender document. There is noother way in which Government procurements can be made in afair manner, ensuring “equal opportunity for interested partiesand persons to participate and compete on identical terms":Paragraph 2 (e) of the Guidelines; and ensuring “transparency anduniformity of the evaluation procedure": Paragraph 2 (h) ofthe Guidelines.
It is also in that way that equal treatment required by Article 12 (1)of the Constitution can be meted out. Paragraph 2(g) of theGuidelines, 1996 states that the Tender process should, inter alia,ensure compliance with the law. There must be compliance withrequirements that ensure an equal opportunity for persons toparticipate and compete on identical terms and conditions (seeparagraph 2(e) Part I Chapter 1 of the Guidelines, 1996) if there is tobe compliance with Article 12 (1) of the Supreme Law – theConstitution.
In Roman Dayaran Shetty v. The International Airport Authority ofIndia and Otherst,0), a notice inviting tenders was issued bythe International Airport Authority of India, a statutory publiccorporation. The notice stated in paragraph (1) that “sealed tendersin the prescribed form are hereby invited from Registered 2ndClass Hoteliers having at least 5 years’ experience for putting up andrunning a 2nd Class Restaurant and two snack bars at the Airportfor a period of three years." The latest point of time up to whichthe tenders could be submitted was stipulated in the notice to be12 p.m. on the 25th of January 1977 and it was stated thatthe tenders would be opened on that date at 12.30 hours. There weresix tenderers. Five of them were found to have submitted incompletetenders in that they had failed to comply with clause 9 of theterms and conditions of the tender document by not furnishingwith their tenders some or all of the following documents: income tax
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certificates, affidavits concerning their immovable propertiesand solvency certificates. The only tender which fully compliedwith the terms and conditions set out in the tender form was thatof the 4th respondent. Moreover, the offer of the 4th respondentwas the highest. While submitting his tender, the 4th respondenthad pointed out in a letter that they had ten years experience incatering to reputed commercial houses, training centres, banksand factories and that they were also doing considerable outdoorcatering for various institutions. However the letter showed thatthe 4th respondent had experience only of running canteens andnot restaurants and that they did not satisfy the descriptionof “registered llnd Class Hotelier having at least 5 years experience”as set out in paragraph (1) of the Notice inviting tenders. In responseto letters from the Airport Authority inquiring whether the4th respondent was registered and requiring the 4th respondent tofurnish supporting documentary evidence, the 4th respondent, afterdescribing its services, stated that its proprietor had “experienceequivalent to that of a 2nd Class or even 1st Class hotelier."This satisfied the Airport Authority which proceeded to acceptthe tender of the 4th respondent. The appellant, who was nota tenderer, challenged the award. Bhagwati, J, (as he then was) saidat pp. 1633-1634:
‘Now it is true that the terms and conditions of the tender formdid not prescribe that the tenderer must be a registered 2ndclass hotelier having at least 5 years experience nor was any suchstipulation to be found in the form of agreement annexed tothe tender but the notice inviting tenders published in thenewspapers clearly stipulated that tenders may be submitted onlyby registered 2nd class hoteliers having at least 5 yearsexperience and this tender notice was also included amongst thedocuments handed over to prospective tenderers when theyapplied for the tender forms … Now, here the expression used inparagraph (1) of the Notice was “registered 2nd class hotelier"and there can be no doubt that by using the expression the 1strespondent intended to delineate a certain category of personswho alone should be eligible to submit a tender. The1st respondent was not acting aimlessly or insensibly in insisting
SmithKIine Beecham Biotogicals S.A. and Another v. State
SC Pharmaceutical Corporation of Sri Lanka and Others (Amerasinghe, J.)53
upon this requirement not was it indulging in a meaninglessor futile exercise. It had a definite purpose in view when it laiddown this condition of eligibility in paragraph (1) of the Notice …The test of eligibility laid down was an objective test and not asubjective one … Now, unfortunately for the 4th respondents,they had over 10 years experience of running canteens but at thedate when they submitted their tender, “(the emphasis is mine)”they were not running a II grade hotel or restaurant. Even ifthe experience of the 4th respondents in the catering linewere taken into account from 1962 onwards, it would not cover atotal period of more than 4 years 2 months so far as cateringexperience in 2nd Grade hotels and restaurants is concerned.The 4th respondents thus did not satisfy the condition of eligibilitylaid down in paragraph (1) of the notice and in fact thiswas impliedly conceded by the 4th respondents in theirletter dated 26th February 1977 where they stated that theyhad “experience equivalent to that of a 2nd Class or even1st Class hotelier". The 4th respondents were, accordingly, noteligible for submitting a tender and the action of the 1strespondent in accepting their tender was in contravention ofparagraph (1) of the notice."
The Tender of Biocine S.p.A. was incomplete in that it failed toannex a photocopy of the current registration certificate totheir tender as required by clause 19 of the tender document.Nor could it furnish a registration number in the Schedule as requiredby clause 19. It was unable to do so for the reason that its productwas not registered as required by clause 19. Compliance with theconditions of the tender had to take place by the 3rd of July1996 – the prescribed final date for the submission of tenders. If latecompliance was to be permitted only in some cases, that wouldplace burdens on some while conferring an unfair advantageon others and that would be in violation of the guarantee of equalityof treatment and the equal protection of the law enshrined inArticle 12 of the Constitution. Over a century ago JusticeField observed that "no greater burdens should be laid uponone than are laid upon others in the same calling and condition":Barbier v. Connolly'"'.
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[1997] 3 Sri LR.
The Tender Board stated that it was recommending the offer ofBiocine S.p.A. because it was the lowest quotation. Had theopportunity been given to others, there might, perhaps, havebeen even lower quotations. What was the new date for qualification?In order to expeditiously and fairly deal with the matter, it wasimperative to fix a definite date at which eligibility should bedetermined. Such a date was fixed. That date was the 3rd of July1996. Only complete tenders from tenderers who had complied withthe terms, conditions and specifications set out in the tenderdocument could have been evaluated and accepted. The othersshould have been rejected. That is how the State, in its defined andpublicly announced procedures, had stated its procurements, orthose made on its behalf, should be obtained: Paragraph 134Guidelines; Financial Regulation 697. Those procedures, inter alia,profess the standards by which the State in the procurement ofRubella vaccine in the tender under consideration were to be judged.The State (and its agencies) were obliged to scrupulously observethem and must be rigorously held to them, not only because, as wehave seen it is a requirement of administrative law, but also because,conformity with Article 12 of the Constitution requires it. In general,that Article requires (1) the law, including the standards by which theState (or its agencies) have professed to govern itself as set out inregulations, rules, procedures, guidelines, directions, schemes andso on, should be uniform; and (2) that such law should beadministered uniformally, according to the stated criteria andmeasures, with evenness in respect of all persons similarly situated;unless, either in the formulation of the law or in its application thereare rational explanations for differentiation.
In Roman Dayaran Shetty, (supra) the appellant who objected tothe award of the contract to the 4th respondent was himself not atenderer. Bhagwati, J observed at pages 1650-1651 as follows:
“If there was no acceptable tender from a person who satisfied
the condition of eligibility, the 1st respondent could have rejected
the tenders and invited fresh tenders on the basis of a
SmithKiine Beecham Biologicals S.A. and Another v. State
SC Pharmaceutical Corporation of Sri Lanka and Others (Amerasinghe, J.)55
less stringent standard or norm, but it could not depart fromthe standard or norm prescribed by it and arbitrarily acceptthe tender of the 4th respondents. When the 1st respondententertained the tender of the 4th respondents even thoughthey did not have 5 years experience of running a 2nd classrestaurant or hotel, it denied equality of opportunity toothers similarly situate in the matter of tendering for the contract.There might have been many other persons, in fact the appellanthimself claimed to be one such person, who did not have5 years experience of running a 2nd class restaurant, but whowere otherwise competent to run such a restaurant and they mightalso have competed with the 4th respondents for obtainingthe contract, but they were precluded from doing so bythe condition of eligibility requiring five years experience.The action of the 1st respondent in accepting the tender ofthe 4th respondents, even though they did not satisfy theprescribed condition of eligibility, was clearly discriminatory sinceit excluded other persons similarly situate from tendering for thecontract and it was also arbitrary and without reason. Theacceptance of the tender of the 4th respondents was, in thecircumstances invalid as being violative of the equality clause ofthe Constitution as also of the rule of administrative law inhibitingarbitrary action."
In the matter before us, on the relevant date, namely, the 3rdof July 1996 – the date when the Tenders were closed, the onlytenderer who was qualified was SmithKiine Beecham Biologicals S.A.since only its Rubella Viral Vaccine was registered as required bythe Tender document (P1). The only responsive bid was therefore thatof SmithKiine Beecham Biologicals S.A. although it was not thelowest bid. The only tenderer who was able to comply with therequirement in Clause 19 that a copy of the certificate of registrationshould be annexed to the Tender was SmithKiine BiologicalsBeecham S.A.Therefore the only complete tender was thatof SmithKiine Beecham Biologicals and therefore it was the onlytender that qualified for evaluation. The Tender Board misdirecteditself by believing that it was obliged to recommend the acceptance
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[1997] 3 Sn LR
of the tender of Biocine S.p.A. because its price was "the lowestresponsive offer". It may have been the lowest offer, but at therelevant date, namely the 3rd of July 1996 it was not a "responsive"offer at all, for Biocine S.p.A. had failed to comply with the conditionof registration.
For the reasons stated in my judgment, I declare that the decisionsand recommendations of the Technical Evaluation Committee on the12th August 1996 and the decisions and recommendations of theCabinet Appointed Tender Board on the 2nd of September 1996 arein conformity with the procedures prescribed by the Government forthe procurement of 4.5 million doses of Rubella Viral Vaccine Live BP93 referred to as Item SR 9165 in the Schedule to the TenderDocument (P1) under and in terms of Tender Ref. DHS/27/6/97, andthat those decisions are in conformity with Article 12(1) of theConstitution.
For the reasons stated in my judgment, I declare that the decisionsand recommendations of the Cabinet Appointed Tender Board on the1st of November 1996 and on the 10th of December 1996 relating tothe procurement of 4.5 million doses of Rubella Viral Vaccine Live BP93 referred to as Item SR 9165 in the Schedule to the TenderDocument (P1) under and in terms of Tender Ref. DHS/27/6/97 violateArticle 12(1) of the Constitution and are therefore of no force or availin law.
I make order that the State shall pay a sum of Rs. 25,000 to eachof the petitioners as costs.
WADUGODAPITIYA, J. -1 agreeDR. GUNAWARDENE, J. -1 agree.
Relief granted.
