UK: Rights And Obligations in Private Tendering

Last Updated: 19 May 2005
Article by Matthew Holt

1. SYNOPSIS

This paper considers whether there are rights and obligations attaching to parties involved in a purely private tendering process. Surprisingly there appears to be no direct authority on this point, all case law to date having arisen in the context of contract procurement by public bodies.

It will be argued that tenderers and procurers of private contracts can be subject to rights and obligations arising from preliminary "tender" contracts. Such contracts may be more rare than in the public procurement sphere given the absence of legislative regulation of private contracting as compared with contracting by public bodies. Such rights may usually be limited to (for example) a right to have a properly submitted tender considered.

In principle however, it may be possible to imply duties to act reasonably in carrying out a tendering process where such a process forms part of the terms agreed by the parties to the tender contract.

2. THE CONCEPT OF THE TENDER CONTRACT

See Craig: Developments in the law of tenders: radical or evolutionary development? Construction Law Journal 2003 Vol. 19, No. 5, pp 237-257.

R in Right of Ontario v Ron Engineering and Construction Eastern Ltd [1981] 119 DLR (3d) 267

Established that a tenderer may be bound by rules agreed by way of a preliminary "tender contract". The tenderer was not entitled to the return of a deposit which had been forfeited on the withdrawal of a tender in breach of the terms of the tender contract.

Blackpool Aero Club v Blackpool Borough Council [1990] 3 All ER 25 Court of Appeal

"the council's invitation was, to this limited extent, an offer and the club's submission of a timely and conforming tender an acceptance".

"the invitee is in my judgment protected at least to this extent: if he submits a conforming tender before the deadline he is entitled, not as a matter of mere expectation but of contractual right to be sure that his tender will after the deadline be opened and considered in conjunction with all other conforming tenders or at least that his tender will be considered if others are".

Fairclough Building v Port Talbot Borough Council [1992] 62 BLR 86 Court of Appeal

Although the Court of Appeal upheld the Council's entitlement to remove Fairclough from the list of tenderers to avoid a conflict of interest arising from the wife of a Fairclough director being on the tender appraisal team, they confirmed the trial judge's view that the Council had a basic obligation towards tenderers to act reasonably:

"it was the duty, in my judgment, of the defendants honestly to consider the tenders of those whom they had placed on the short-list, unless there were reasonable grounds for not doing so".

Summary

In each of these cases the procurer was a public authority. However, the obligations placed on tenderers (Ron Engineering) and on procurers (Blackpool and Fairclough) arose from ordinary contracts implied from the facts. The "public" nature of the procuring authority does not appear to have been a significant factor. It is easy to imagine such contracts arising between private parties.

However, it is not made very clear in Fairclough how and why an obligation to act "reasonably" in dealing with tenders arose. Arguably this may have been influenced by the fact that the procurement was by a local council subject to public law obligations.

3. THE EU PROCUREMENT REGIME

Procurement in the public sector has undergone a revolution following enactment into English law of the EU harmonising legislation.

The EU procurement regime places detailed obligations upon public authorities to conduct the tender and award processes transparently and fairly and confers remedies upon those dissatisfied with decisions which are alleged to infringe the rules.

Three basic processes are allowed:

  1. Open (an open invitation to tender - tender documents sent to applicants on request)

  2. Restricted (a restricted list of persons invited to tender)

  3. Negotiated (exceptional - only permitted where the nature of the work does not allow overall pricing. Terms negotiated with selected tenderers)

Remedies are of two basic kinds:

  1. non-financial;

  2. financial.

Non-financial remedies, comprising injunctive/set-aside relief will only be available where claimed before the contract is executed, to avoid prejudicing the rights of third parties, namely the successful tenderers, as in Ealing Community Transport Ltd v London Borough of Ealing [1999] COD 492 Court of Appeal.

But if applied for timeously, they can be effective in preventing an award of a contract in breach of the procurement rules:

Severn Trent Plc v Dwr Cymru Cyfngedig (2001) CLC 107 Commercial Court

Financial remedies take the form of damages.

4. INTERACTION BETWEEN EU LEGISLATION AND THE "TENDER CONTRACT" CONCEPT

Harmon CFEM Facades UK Ltd v The Corporate Officer of the House of Commons [2000] 67 Con LR 1 Technology and Construction Court

The House of Commons was found to be in flagrant breach of the rules and principles of the EU procurement regime. Quaere whether the existence of that regime precluded the existence of a parallel "tender contract"?

HH Judge Humphrey LLoyd QC (para 216):

"[House of Commons] in soliciting new or revised tenders under the European public works regime (to which effect is given by the Regulations) impliedly undertook towards any tenderer which submitted a tender that its submission would be treated as an acceptance of that offer or undertaking and: (a) that the alternative submitted by any tenderer would be considered alongside a compliant revised tender from that tenderer; (b) that any alternative would be one of detail and not design; and (c) that tenderers who responded to that invitation would be treated equally and fairly. These contractual obligations derive from a contract to be implied from the procurement regime required by the European directives, as interpreted by the European Court, whereby the principles of fairness and equality form part fo a preliminary contract of the kind that I have indicated…[S]uch a contract may exist at common law against a statutory background which might otherwise provide the exclusive remedy...[I]t is now clear in English law that in the public sector where competitive tenders are sought and responded to, a contract comes into existence whereby the prospective employer impliedly agrees to consider all tenderers fairly (see the Blackpool and Fairclough cases)".

[Emphasis added]

Note - HHJ Lloyd implies the tender contract from the EU legislation and seems to limit his comments to the public sector. Since both Blackpool and Fairclough pre-date this legislation it seems unlikely that the basis of those tender contract can be found there. The duty of "fairness" or "reasonableness" found in Fairclough would seem to have arisen independently of the "public" nature of the contract.

5. The Privy Council decision in Pratt Contractors and its implications

Pratt Contractors Ltd v Transit New Zealand [2003] UKPC 83 Privy Council

Transit NZ were a public body bound by New Zealand procurement legislation to observe certain rules and principles. Transit NZ created internal rules and procedures to implement this legislation.

Pratt (as a tenderer) complained of breaches of these internal rules and of bias in the tender process (in that some members of the judging panel had allegedly formed an adverse view of Pratt based on previous contracts).

The existence of a tender contract was conceded: the issue was as to the nature of the rights and obligations imposed.

Cases cited to the Privy Council: Pratt Contractors Ltd v Palmerston North City Council [1995] 1 NZLR 469

Gallen J:

"in selecting a particular tenderer, the council is in my view bound by the terms it has itself imposed, as well as the requirements of fairness and equity which may well have an application".

Hughes Aircraft Systems v Air Services Australia [1997] 145 AR1

Finn J:

The duty in cases of preliminary procedural contracts for dealing with tenders is "a manifestation of a more general obligation to perform any contract fairly and in good faith".

Lord Hoffman regards these more general notions of fairness as a "somewhat controversial question into which it is unnecessary for their Lordships to enter because it is accepted that in general terms, such a duty existed in this case".

The content of the obligation in this case:

  • The evaluation ought to reflect the views honestly held by the members of the panel.

  • All tenderers should be treated equally.

  • Where tenderers' attributes are the same, they cannot be marked differently.

  • It would be bad faith if a panel member sought to reject information which might show his opinion was wrong.

What would not be included in the obligations of the awarding authority:

  • No obligation on panel to give the same mark if it honestly believed the attributes of tenderers to be different.

  • No obligation to appoint to the panel only members without views on the individual tenderers.

  • No obligation on the panel to act judicially.

  • No obligation to grant a tenderer a hearing to explain or justify itself.

Summary

The tender contract obligations in Pratt were set at a relatively low threshold. "Public law" obligations did not apply (e.g. bias, duty to act judicially, right to a hearing). The PC does not identify clearly the source of the duties that were found to act fairly/reasonably. Presumably they must be ordinary implied contractual duties.

6. CONCLUSIONS

  • Tenderers to public sector contracts have rights under EU procurement rules and principles.

  • However there is now clear authority that the existence of legislative regulation of public sector tendering does not preclude the existence of a "tender contract" at common law.

  • There are two lines of authority on tender contracts:

    • One line (Ron Engineering, Blackpool, Fairclough) does not seem to require any legislative regulatory background

    • The other line (Harmon, Pratt) does appear to be influenced by the existence of statutory rules governing public procurement

  • The Pratt Contractors case gives the most detailed guidance to date as to what is, and what is not, required of clients in considering tenders and awarding contracts.

  • However, all of the authority to date deals with public procurement. Based on this authority the following tentative propositions in respect of private procurement can be made:

    • A tender contract is simply a contract formed by offer and acceptance. There is therefore no reason in principle why a person putting a private contract out to tender may not make a binding promise to conduct the tender process in a specific manner. Similarly a tenderer may agree to submit the tender upon certain terms (for example, as regards payment of a deposit as in Ron Engineering).

    • Where such a promise imposes clear and "hard" obligations (e.g. to consider compliant tenders; to respond within a certain time) there is no obvious difficulty. Such obligations will either have to be express or clearly implied on the facts.

    • It is less easy to see why an obligation to act "fairly" or "reasonably" should arise. It is submitted that no such obligation will arise in a private tendering process unless in relation to other "hard" obligations which have been agreed. For example, if a procurer has agreed to consider all tenders according to a specified procedure, there might be an implied obligation to complete that procedure within a reasonable time).

The articles and papers published by Keating Chambers are for the purpose of raising general awareness of issues and stimulating discussion. The contents must not be relied upon or applied in any given situation. There is no substitute for taking appropriate professional advice.

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