Tendering
Contract
Q1. What are the express terms?
A1. 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 [2006] NIQB 85.
Q2. What are the implied terms?
A2. 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 forum.
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 [1991] 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 [1992] 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 [1999] 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 [2006] 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 [2007]
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 the contract
may 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.
Q3. Just what is the tendering contract
and how is it formed?
A3. 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. [1953] 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
Tender Offer Acceptance
Acceptance Acceptance
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 [1991] 1 WLR 1195 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 [1999] 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. |
