SECTION 2 – RULES BY AGREEMENT
This section examines the rules on an employer which it agrees to by seeking tenders.
Put simply, the courts will recognise the existence of a contract in relation to the tender. This is sometimes referred to as the Two Contract Theory, Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council  1 WLR 1195 CA. The theory is that when an employer invites a bid and a tenderer submits a valid bid, which if accepted would form the primary contract, there is created a second contract, or a tendering contract. It is the terms of this second contract that imposes obligations on the employer.
The terms may be that in consideration for submitting a valid bid, the employer shall consider the bid. As will be seen, this is a developing area of law and the terms imposed on the employer, in the absence of express terms, are still not clear.
Set out below is a review of the authorities on this point and then a summary that sets out the current state of the law.
The Existence of the Second Contract
The basic requirements for a contract are an intention to create legal relations, capacity, certainty, consideration and agreement. The agreement will often come from the acceptance by one party of an offer from the other party.
A shop advertising goods for sale at a particular price is not making an offer but an invitation to treat. That is a statement that the shop is prepared to receive offers for the purchase of the goods at the price stated, Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd.  1 QB 410. This distinction is of importance when considering the rules in relation to procurement.
For most building and civil engineering works, the employer will issue an invitation to tender. Contractors then submit their tenders and the employer may accept one of these tenders.
When this process is fitted into the legal definition of offer and acceptance, the invitation to tender is an invitation to treat, the tender is the offer and the acceptance of a tender is the acceptance. However, the courts have held that the invitation to tender can, in certain situations, be classed as an offer, which is accepted by submitting a tender. This creates the second, or tendering, contract:
|Document||For Main Contract||For Tender Contract|
|Invitation to Tender||Invitation to treat||Offer|
It is only relatively recently that the courts have been willing to adopt this theory of the second contract.
The first case on point was Blackpool and Flyde Aero Club v Blackpool Borough Council  1 WLR1195 CA but the proposition has been followed in many cases since that time (for examples see the cases cited below when looking at the implied terms).
The situation is not quite as clear in the Republic of Ireland. Only one case has come before the Irish Courts namely, Howberry Lane v Telecom Éireann  2 ILRM 232 in which the Two Contract Theory was advanced. It is unfortunate that in that case the plaintiff argued that the Two Contract Theory went so far as to require an employer to enter into a contract with the lowest tender. This argument went significantly further than any of the Courts in Canada, Australia or the UK, and, it is submitted, went beyond the limits of the theory. Unsurprisingly the argument was rejected by the Court. Therefore there is as yet no case before the Irish Courts where the existence of the second contract has been successfully argued.
The leading text on contract law in Ireland suggests that the Two Contract Theory is correct in principle and argues that an Irish Court would accept the theory if ever it is put in argument before it, McDermott, 2001, p.19-30.
The Terms of the Tendering Contract
Firstly there may be express terms as to how the tender is to be considered. An obvious example is the incorporation of a set of rules. Clauses like this are very common, for example “Tenders shall be evaluated in accordance with the NJCC Code of Practice for Single Stage Selective Tendering.”
If such a clause exists then part of the duty on the employer is to follow that procedure. If the procedure is not followed, then that is a breach of the tendering contract. An example of how the NJCC Code may be breached is if an employer receives tenders which are in excess of his budget and then asks the two lowest tenderers to price a Bill of Reductions. The code states that this should not be done. The procedure that should be followed is to hold negotiations with the lowest tenderer only, and only if he is then rejected does the discussion move on to the second lowest and so on. This was the situation in J&A Developments Ltd v Edina Manufacturing Ltd & Ors  NIQB 85.
An implied term is a term of a contract which is not expressly agreed by the parties in words but regarded by the Courts as necessary to give effect to the presumed intentions of the parties. This might be an overly simplistic explanation for contract lawyers but will suffice for the purposes of this guide. The Courts over the years have made various decisions as to the extent of any implied terms of a tendering contract.
Starting with Blackpool and Flyde Aero Club v Blackpool Borough Council  1 WLR 1195 CA the Court of Appeal held that the duty was to consider a tender and that the decision has to be bona fide and honest.
Two years later in Fairclough Building v Borough Council of Port Talbot  62 BLR 82 CA the Court of Appeal referred to and quoted the Judge at first instance who stated that the duty was to act in good faith and to act reasonably.
In Harmon CFEM Facades (UK) v Corporate Officer for the House of Commons  67 ConLR 1 QBD in an extraordinary long judgment, a number of cases from the UK and other commonwealth countries were considered. The Judge concluded that it was clear that where competitive tenderers are sought, and responded to, a contract comes into existence which requires the employer to consider all tenders fairly and equally, paragraphs 214-218:
“… I consider that it 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 Blackpool and Fairclough.
... In my judgment it also broke the implied duty to treat all tenderers fairly and equally by considering an alternative design without giving any other tenderer the opportunity of competing with it on its terms.”
Attention then turns to a case which came to the Privy Council in 2004, Pratt Contractors Ltd v Transit New Zealand (2004) BLR 143 PC. In that case Privy Council reviewed the various authorities from the Commonwealth countries. It held that the duty of good faith and fair dealing required that the evaluation ought to express the view honestly held by the members of the tender evaluation team and that all tenders had to be treated equally. However, the Court made clear that the obligation of good faith and fair dealing did not mean that the tender evaluation team had to act judicially.
The journey now travels over to Belfast for two significant cases, both in 2007.
In the first, Gerard Martin Scott v Belfast Education & Library Board  NICh 4, the Court held that the concept of fairness applies to:
- the application of specified procedures;
- the assessment of tenderers according to any stated criteria; and
- the evaluation of tenders in a uniform manner.
The Court also held that there was an implied term of fairness and good faith which required the absence of any material ambiguity in the tender documents which would significantly affect the tender.
In the second case, Natural World Products v ARC 21  NIQB 19 a separate Judge at the High Court in Belfast reviewed the cases in relation to the tendering contract and again confirmed that an Employer had a duty to act in a way that is “fair and reasonable and in good faith”.
In conclusion it can be said that in the UK:
- a secondary contract will be implied in relation to the tender process;
- this contract may contain express terms agreed between the parties;
the contract may also contain implied terms including:
- a duty to act reasonably, as viewed from the employer’s eyes;
- a duty to consider all tenders equally;
- the duty will extend to good faith and fair dealing; and
- the implied terms will not go so far as to require the employer to act judicially.