Chapter 3 Managing the main risks of tendering
The greatest risk in a tender process is a lack of clarity that can lead to uncertainty and misunderstanding. The onus for principals is to make sure that the tender process is fully and clearly documented and for tenderers to make sure that their tenders meet all the requirements to be a conforming tender.
What aspects should the tender conditions cover?
Common tender conditions should:
- give a clear and full description of the tender documents and describe which ones will form part of the contract with a successful tenderer;
- make the use of certain tender forms and pricing schedules mandatory;
- specify the time and method for lodgement of tenders (including procedures for late tenders);
- specify the criteria for assessing tenders;
- require acceptance of the conditions of contract and other documents to be made part of the contract;
- state that the principal is not bound to accept the lowest or any tender;
- state the process for dealing with non conforming or alternative tenders;
- state the process for answering questions, providing additional information, conducting negotiations, making presentations and visiting site locations;
- state the process for awarding and finalising the contract;
- specify intellectual property rights and confidentiality requirements;
- deal with tender costs;
- specify the principal’s rights to terminate the tender process; and
- specify the period in which a tender is valid for acceptance.
Tender documents will usually contain the principal’s disclaimers regarding which tender documents will not form part of the final contract (such as information documents, background reports, codes of practice).
Principals need to be wary about relying on these disclaimers as the courts have shown a distaste for them and a willingness to overcome them, particularly if the reality is that tenderers had little option but to put some reliance on the disclaimed documents.
Principals need to be careful about including tender conditions that they do not really want. Principals like to make many conditions mandatory for tenderers to comply with. This means that a single failure to comply with a mandatory requirement will immediately invalidate a tender and the failure is not able to be corrected without starting the tender process again.
Changes to the tender process or to tender documents
If a principal proposes to change a tender document or amend the tender process in any way, the proposal should be sent to all tenderers, even though a change may have been initiated because of something raised by one tenderer.
The same policy should be adopted for all communications with tenderers that give clarification or explanation of something in the tender documents or in the tender process. A good practice is to send each tenderer both the question that has been asked and the answer.
The assessment criteria will vary considerably for different tender processes, but a key criterion is usually ‘provides best value for money’.
Disputes can arise as to how well a tender has been assessed against the published assessment criteria (see Chapter 3 – Tender process contracts).
A principal should maintain a sufficient paper trail of the assessment process including weightings and markings, etc to ensure that a later review will confirm that the criteria were properly applied.
Pratt Contractors Ltd v Transit New Zealand  UKPC 83
- Pratt’s roadworks tender was the lowest by almost $1M.
- The assessment team looked at Pratt’s performance record and decided it was so bad that Pratt should be excluded from any further consideration.
- Past performance was not a published assessment criteria.
- Transit was concerned enough to recall tenders with new criteria that included past performance.
- Pratt was beaten under the new weightings-attributed assessment methodology.
- The UK Privy Council held that the assessment team had acted honestly and reasonably, even by using existing knowledge of a tenderer’s past performance, and had otherwise tried its best to assess value for money.
- Public authorities should be able to choose what they consider is in their best interests and not be hobbled by judicial procedural rules.
- Transit had acted in good faith even though they had not strictly followed their own assessment rules. Good faith requires no more than acting honestly and treating all tenderers equally.
Australian Consumer Law
A tenderer is able to bring a claim under section 18 of the Australian Consumer Law (formerly known as section 52 of the Trade Practices Act 1974 (Cth)) if a principal has engaged in conduct that was misleading or deceptive or was likely to mislead or deceive.
For example, silence and non disclosure of proposed changes to the tendering process could be misleading and deceptive conduct, as was also found in the Hughes Aircraft case.
J S McMillan v Commonwealth of Australia  FCA 619
- The RFT required tenders for printing services to include pricing for all services within particular groups.
- McMillan’s tender had pricing mistakes.
- McMillan was then invited to correct those mistakes but it decided not to make any corrections.
- McMillan was then removed from the shortlist of tenderers.
- The court held that the Commonwealth had misled McMillan by not saying that the failure to correct the pricing errors would result in its tender being dismissed as non conforming.
Generally, a tenderer will not be entitled to payment for the work involved in preparing an unsuccessful tender. A possible exception is where a tenderer may be entitled to restitution (payment) for work done in anticipation of a contract being entered into where the principal has received a benefit from the work being done and it would be unjust for the tenderer not to receive compensation.
Tenderers must ensure that any electronic submissions are complete, a submission is not left to the last moment and there are back up options in case of IT issues. Tenderers must inform themselves of the requirements to successfully submit a complete tender, particularly if the tender is to be submitted by a ‘once-only upload’.
JB Leadbitter & Co Limited v Devon County Council  EWHC 930 (Ch)
- Devon Country Council (DCC) issued a notice for expressions of interest for a tender.
- The deadline for submission of tenders was 12 noon, 16 January 2009, with each tender to be submitted electronically to a secure portal.
- One tenderer experienced a power failure, and the deadline for all tenders was extended by 3 hours.
- Each tenderer was required to submit case study templates (case studies) with its tender.
- JB Leadbitter (JBL) realised it failed to upload any case studies prior to the extended deadline.
- JBL sent the case studies to DCC by email 26 minutes after the deadline.
- DCC rejected JBL’s tender on the ground that it was incomplete.
- JBL claimed that in rejecting its tender, DCC was in breach of community obligations to treat tenderers equally and in a non-discriminatory way and that DCC owed an obligation to act proportionally.
- JBL’s claim was dismissed. The court held that JBL knew case studies were a key element to any tender submission and tenderers were responsible to ensure all documents were uploaded in full. Even though DCC had extended the submission deadline for another tenderer, the inability of that tenderer to submit was due to circumstances outside its control.
- DCC did not breach any obligation of proportionality by refusing to accept JBL’s case studies by email.
Privilege clause and the duty of fairness
A party calling for tenders should include a privilege clause in any tender conditions to ensure flexibility so that it may, in its discretion, accept a tender, cancel the tender process and/or call for additional tenders. Tenderers should carefully review the tender conditions to determine whether the conditions contain a privilege clause and if so, the extent of that clause.
- Halifax Regional Municipality (HRM) issued a tender for the upgrade of a sanitary pumping station.
- HRM reserved the right to reject all tenders if none were considered satisfactory and, in that event, to call for additional tenders. HRM also reserved the right to cancel any tender request without recourse by a tenderer. The tender stated no term or condition shall be implied which is inconsistent with or conflicts with the conditions of the tendering provisions.
- Amber’s tender was the lowest and the tender price was reduced in post tender negotiations.
- HRM cancelled its original tender and subsequently re-tendered the project.
- HRM awarded the contract to a company which had not submitted a tender in the original call for tenders.
- Amber brought an action against HRM on the grounds that it was in breach of its duty to act fairly. The judge at first instance found that HRM had breached its duty of fairness by engaging in ‘bid shopping’.
- HRM appealed on the basis that the privilege clauses affected the implied duty of fairness.
- HRM’s appeal was successful. The court held that in determining the nature and extent of the duty of fairness, due regard must be given to the contractual terms of the particular tender conditions and that a tendering authority has the right to reserve privileges to itself.
JJ Richards & Sons Pty Ltd v Bowen Shire Council  QCA 16
- JJ Richards & Sons Pty Ltd (JJ Richards) submitted a valid tender to Bowen Shire Council (Bowen).
- The tender document provided that Bowen may elect to terminate the tender process at any time at no cost to Bowen or to not accept or consider any tender.
- Bowen received a late tender from Cleanaway.
- Bowen then terminated the tender process and invited new tenders.
- JJ Richards sought judicial review of Bowen’s decision to terminate the tender process and institute a new process. JJ Richards argued that Bowen had failed to take account of the principles in the Local Government Act 1993 (Qld). JJ Richards was unsuccessful at first instance and subsequently appealed.
- JJ Richards’ appeal was dismissed. The court held that the power to terminate the tender process was expressly reserved to Bowen under the tender document.
Letter of intent
Sometimes principals have not concluded a tender process and awarded a contract but have reached a point where they feel compelled to confirm to a tenderer that it is the preferred tenderer and that a contract will be awarded when everything is agreed.
There is no surer way of introducing uncertainty into a tender process than issuing a letter of intent.
A simple letter of intent will rarely amount to a binding contract as it is generally taken to be a mere expression of an intention to enter into a future contract. Most problems arise when the letter also authorises commencement of an activity which would normally be expected to be paid for under the future contract. This type of letter is really an early work agreement. See also chapter 1 – Contract Law – letter of intent.
An early work agreement should make clear:
- that final agreement is yet to be reached;
- that in the meantime, the principal is authorising the tenderer to commence an activity;
- the detailed nature of the activity, including relevant specifications, time for completion, etc;
- the relevant payment terms;
- any other conditions to apply; and
- the principal’s right to terminate the arrangement at any time and the impact of termination on payments.
Commonwealth Code for Tendering
The Code for the Tendering and Performance of Building Work 2016 (Cth) applies to building contractors or building industry participants who have tendered for or expressed interest in Commonwealth funded building work since 2 December 2016.
The code requires any such building contractor or industry participant to meet eligibility criteria for tendering requirements and to ensure subcontractor compliance with the code. For example, the code requires enterprise agreements to meet certain requirements and that tenderers are not subject to any sanctions under the code.
For Commonwealth funded building work of a certain value, drug and alcohol testing and work place management plans are required.
The Australian Building and Construction Commissioner can in certain circumstances grant an exemption from compliance with the code for the provision of essential services related to supply of electricity, natural gas, water, waste water, or telecommunications and essential infrastructure services.
The code is available here.