Chapter 3 Tender process contracts

For a long time the courts considered that a legally binding contract did not exist between the principal and a tenderer during the tender process period, because there was no intention to create a legal relationship until the principal accepted a tender.

However, since the case Hughes Aircraft Systems International v Airservices Australia [1997] FCA 558, which adopted principles applying in England, Canada and New Zealand, process contracts have become accepted.

CASE STUDY

Hughes Aircraft Systems International v Airservices Australia [1997] FCA 558

Facts
  • To avoid problems with the tender process, the Civil Aviation Authority (CAA) required the final two tenderers to sign a letter that set out the assessment criteria.
  • CAA awarded the contract to one of the final tenderers using different assessment criteria.
  • Hughes argued that the signed letter and the offer it made under the RFT created a contractual relationship with CAA that included an obligation to use the agreed assessment criteria.
Result
  • The court found that a tender process contract came into force when the tender was lodged.
  • There was an implied obligation in the tender process contract that CAA would conduct the tender assessment fairly and in accordance with its agreed criteria.
  • As a matter of law, such an obligation should always be implied where the purchaser is a public body.
  • CAA had breached the tender process contract.

Principals do not like tender process contracts because they give legal rights to tenderers and interfere with the principal’s ability to fully control the tender process. As a result, some principals have tried to specifically exclude the creation of a tender process contract, as illustrated in the following case. The test of whether a tender process contract exists depends on whether the parties showed an intention to create a legal relationship and other ordinary principles of law for determining whether a contract exists.

CASE STUDY

State Transit Authority of NSW v Australian Jockey Club [2003] NSWSC 726

Facts
  • The Australian Jockey Club (AJC) submitted an unsuccessful tender to buy land from the State Transit Authority of NSW (STA) adjacent to Royal Randwick Racecourse.
  • AJC claimed that there was a tender process contract between itself and STA, which STA had breached by not conducting the tender assessment fairly and in good faith.
  • STA claimed that a tender process contract could not exist because one of the conditions of tender said ‘The tenderer acknowledges and agrees that no legal rights or obligations will be deemed to have arisen between the vendor and the tenderer until a tender is, if at all, accepted.’
  • The tender conditions also allowed the STA to accept a non conforming tender and that in any event any unsuccessful tenderer was not entitled to make any claims
Result
  • The court held that STA was always in full control of the tender process with no obligation to follow any particular process or to deal with different tenderers equally.
  • There was no tender process contract.

Whilst tender conditions may make it clear that no contractual relationship is to exist between the principal and a tenderer during the tender process, at the same time, the tender conditions may contain a lot of rules about the conduct of tenderers during and after the tender process. The following case is an example of this issue.

CASE STUDY

Cubic Transportation Systems Inc v New South Wales [2002] NSWSC 656

Facts

  • The NSW Government called for proposals for an integrated public transport ticketing system using smart card technology.
  • The two shortlisted proponents were asked to submit revised proposals before one proponent was confirmed as the preferred proponent.
  • A member of one of the proponents sought an injunction to stop the award of a contract because it said the Government had breached a tender process contract that had an implied condition of fairness and good faith.

Result

  • Although the RFP conditions clearly stated that no contractual relationship was to exist between the Government and a proponent during the tender process stage, the conditions also included obligations as to confidentiality and other issues of conduct that were consistent with having a contractual relationship.
  • The court found that on balance, there was a tender process contract that contained an implied obligation for the Government to act honestly, reasonably and fairly.
  • The court could not find any act of unfairness of the Government that would have breached the implied obligation.

Other issues with the tender process

Although most of the recent case law has been concerned with tender process contracts, there are other issues that have been looked at by the courts that impact on the ability of principals to fully control the tender process (see Chapter 3 – Managing the main risks of tendering).

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