When principals engage with the market for the procurement of goods and services, careful consideration and time is normally spent reviewing conditions of contract to ensure that the document adequately manages risk and addresses the specific requirements of the principal.
The recent case of IPEX ITG Pty Ltd (in liq) v State of Victoria (2010) VSC 480 highlights the importance of adequate review and drafting of the invitation to tender document to ensure that the drafting of the terms of the invitation to tender minimise any exposure to process contract risk.
On 20 May 2002, the Parliament of Victoria issued a written request for tender (RFT) for system integration services to implement a new desktop standard operating environment for the parliament. The plaintiff, Ipex, was one of a number of suppliers that submitted a tender in response.
The RFT document was detailed and included an overview of the selection process and evaluation criteria, the terms and conditions, description of parliament's existing IT environment and a list of parliament's requirements.
A tender evaluation plan was prepared at the same time as the RFT, but this was not made available to tenderers.
Recipients of the RFT were invited to attend a briefing session, which clarified a number of matters and answered questions. Prior to the closing of the tenders, various questions (69 in total) were asked by tenderers. Each question and answer was circulated to all tenderers, including Ipex.
After the close of tenders, the evaluation and selection process took place. A qualitative functional evaluation was followed by a cost evaluation. After this, a value-for-money analysis took place, resulting in a short list of two and finally selection of the successful tenderer.
On 16 July 2002, Ipex was told that its tender had been unsuccessful and was invited to attend a 'detailed debrief'.
On 9 September 2002, Ipex instituted proceedings against the State of Victoria. Ipex claimed that as the lowest-priced tenderer, it should have been awarded the contract.
The issues to be determined by the court were:
- Whether Ipex's submission of a tender in response to the RFT gave rise to a process contract.
- Whether parliament acted fairly, reasonably and in good faith and complied with the criteria and approach referred to in the RFT.
Sifris J of the Supreme Court of Victoria dismissed Ipex's claim, despite having found that a process contract existed between the parties, as parliament did not depart from the RFT.
Ipex alleged that as a consequence of it having submitted a conforming tender, Ipex and the State of Victoria entered into a process contract, which comprised the terms set out in the RFT together with further terms that were to be implied.
His Honour stated that to determine whether the parties intended to bind themselves contractually to comply with the proposed tender process depended on the intention of the parties as disclosed by the tender documents.
Having reviewed the relevant case law on process contracts, his Honour stated that the authorities suggested that courts are more willing to find process contracts as governing the relationship of the parties pre-award in cases where a timeline and detailed process, including evaluation criteria, are set out to suggest that an obligation (promissory in nature) to follow the timeline and process had been incurred.
His Honour stated that it was abundantly clear that each case must be considered on its own facts. Each request for tender and the relevant context and circumstances must be examined separately in order to determine whether there is any intention to create an immediately binding contract as to process.
At the conclusion of such an examination, his Honour concluded that the presumed intention of the parties was to enter into a legally binding process contract. The RFT was not simply a document that provided relevant information, but rather included in some detail the specific criteria that would form the basis of the evaluation. The decisive factor was a clause in the RFT that contained detailed evaluation criteria that parliament said 'will' or 'must' be applied. This clause and others suggested a commitment, promissory in nature, to abide by a process, particularly in relation to the evaluation of tenders.
Accordingly, the parties were found to be bound by the process contract.
Conduct of parliament
The question as to whether parliament acted fairly, reasonably and in good faith - and complied with the criteria and approach referred to in the RFT - required a detailed analysis of its conduct.
The essence of Ipex's complaint was that the State engaged in conduct that departed in a number of respects from the RFT, including:
- reliance upon flawed evaluation criteria in the assessment of tenders;
- failure to do a proper value-for-money analysis;
- failure to inform Ipex of the evaluation criteria weightings;
- failure to inform Ipex that tenderers would be shortlisted;
- reliance upon matters that would particularly influence the evaluation of the tenders, which were not incorporated into the RFT and were not communicated to Ipex; and
- failure to comply with the evaluation process set out in the RFT.
Having reviewed each of the alleged departures by parliament, his Honour found:
- That the evaluation procedure and weightings complied with the RFT and the evaluation plan.
- An obligation to assess tenders on the basis of value-for-money does not compel the selection of the cheapest tender (in any event, parliament had expressly reserved the right not to accept the lowest quotation in the RFT, and given this express term, there was no basis for Ipex to contend that the lowest quotation gave it any entitlement to be selected).
- There was no obligation to inform the tenderers of the actual weightings to be applied to the criteria.
- As the RFT expressly reserved the right to continue to negotiate with one or more selected tenderers, parliament did not breach the process contract, but on the contrary it acted pursuant to the contract.
- The RFT properly defined the scope of the project and all tenderers were treated equally and in accordance with the terms and condition set out in the RFT.
- As all tenderers were judged by equivalent criteria, the decision not to take the financial, privacy and legal criteria into account did not affect the outcome of the evaluation process.
His Honour concluded that none of the conduct complained of was anything other than conduct specifically permitted and contemplated by the RFT as clarified by the industry briefing and 69 questions. The parliament did what it said it would do. It did not depart from the RFT in any of the respects identified, and any departure was either minimal, irrelevant or specifically permitted by the process contract.
His Honour further stated that in any event, there were express terms in the RFT to the effect that parliament reserved the right to not accept the lowest quotation, negotiate with tenderers and change any details of the RFT. Accordingly, within any of the above reserved rights departure was specifically permitted.
Ipex argued that it took a minimalist approach in its tender, which focused on cost, as it relied on what an individual employee of the parliament had told Ipex - that 'cost, cost, cost' would be the major determinant.
It was an express condition of the RFT that tenderers should not rely on information provided by any person, including employees, agents and consultants of parliament, with the exception of matters expressly set out in the RFT or advised in writing. His Honour held that if Ipex misunderstood the selection criteria it was not due to any fault of the parliament or as a result of anything contained in the RFT.
This case represents a further entrenchment of the process contract in Australia. It serves as a reminder to those issuing invitations to tender to carefully consider that the tender process may give rise to contractual rights and obligations. It is important to understand the legal implications of the tender conditions. This case demonstrates the need to adequately train all personnel involved in the tender process in relation to the relevant risks to ensure that representations, such as the one that gave rise to this claim, are not made.
Additionally, it highlights that tender documents must be reviewed and drafted to ensure they give principals the widest discretion possible and express rights to vary the tender process at the principal's sole discretion.
- Hughes Aircraft Systems International v Airservice Australia (1997) 76 FCR 151; Pratt Contractors Ltd v Palmerston North City Council  1 NZLR 469; Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council (1990) 1 WLR 1195; Transit New Zealand v Pratt Contractors Ltd  2 NZLR 313; Cubic Transportation Systems Inc v New South Wales (2002) NSWSC 656; Dockpride Pty Ltd & Anor v Subiaco Redevelopment Authority (2005) WASC 211.
© DLA Phillips Fox
DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit www.dlaphillipsfox.com
This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.