September 30, 2024
Principals and potential contractors need to be weary that procurement and tendering has risks. The final instalment of this article series highlights the main risks of tendering—both in the private and public sector—and provides strategies for how to manage them.
Private and Public Tendering Risks
In the case Hughes Aircraft Systems International v Airservices Australia [1997] FCA 558, tender process contracts were found to be legally binding contracts. Process contracts are beneficial because they allow the principal to specify tender conditions, and they give tenderers legal rights. However, if there is a lack of clarity in the process contract, that can lead to uncertainty and misunderstanding between the parties.
The onus for principals is to make sure that the tender process is fully and clearly documented and for tenderers to make sure that their tenders meet all the requirements to be a conforming tender.
Tender Conditions
Tender documents will usually contain the principal’s disclaimers regarding which tender documents will not form part of the final contract (this could be background information, reports and codes of practice). Principals need to be careful about relying on these disclaimers as the courts have shown a dislike towards them and a willingness to override them, particularly if tenderers had little option but to rely on the disclaimed documents.
If a principal proposes to change a tender document or amend the tender process, the proposal must be sent to all tenderers, even if the change may have been initiated by something raised by one tenderer. The same policy should be adopted for all communications with tenderers that give clarification or explanation of something in the tender documents or in the tender process.
The assessment criteria for tenders will vary for different tender processes. Disputes can arise as to how well a tender has been assessed against the assessment criteria included in the process contract.[1] A principal should maintain sufficient documentation of the assessment process (including documents specifying the weightings of criteria and marking documents) to avoid any potential liability.[2]
Generally, a tenderer will not be entitled to payment for the work involved in preparing an unsuccessful tender. A possible exception is where a tenderer may be entitled to restitution for work done in anticipation of a contract being entered into where the principal has received a benefit from the work being done and it would be unjust for the tenderer not to receive compensation.
Australian Consumer Law
A tenderer can bring a claim under s 18 of the Australian Consumer Law if a principal has engaged in conduct that was misleading and deceptive or was likely to mislead or deceive. For instance, silence and non-disclosure of proposed changes to the tendering process could amount to misleading and deceptive conduct.[3]
E-Tenders
Tenderers should ensure that any electronic submissions are complete, the submission is not left to the last moment and there are back up submission options in case of IT issues. Tenderers must inform themselves of the requirements to successfully complete a tender, particularly if there are no resubmissions allowed.[4]
Privilege Clause
A principal should include a privilege clause in any tender conditions to ensure flexibility so that has the power to, in its discretion, accept a tender, terminate the tender process and/or call for additional tenders.[5] Tenderers should carefully review tender conditions to determine whether the conditions contain a privilege clause and if they do, the extent of that clause.
Letter of Intent
In some circumstances, principals have not concluded a tender process and awarded a contract, but they have reached a point where they feel compelled to confirm to a tenderer that it is the preferred tenderer and that a contract will be awarded when everything is agreed. A letter of intent will rarely amount to a binding contract as it is generally taken to be a mere expression of an intention to enter a future contract.[6] Most problems arise when the letter also authorises commencement if an activity which would normally be expected to be paid for under the future contract. If work is undertaken due to a request in a letter of intent, then payment may be claimed for quantum meruit.[7] Generally, no claim can be made for breach of contract, since there is no contract.
Government Tendering Risks
Government procurement and tendering comes with its own set of risks. As it involves spending public money, government procurement and tendering is vulnerable to fraud and corruption. Hence why it requires stringent adherence to policy and procedures – the policies and procedures in Queensland were outlined in the previous instalment of this article series.
Major corruption risks include:
1. Lack of accountability and transparency mechanisms;
2. Conflicts of interest;
3. Favouritism;
4. Bribes, gifts or benefits;
5. Improper use of information;
6. Failure to monitor and evaluate contractors’ performance; and
7. Small markets and regional communities.
To prevent corruption, government agencies can:
1. Implement clear and effective governance arrangements;
2. Look for any gaps or ambiguity in procurement polices and procedures;
3. Inform potential contracts of their ethical and business responsibilities; and
4. Maintain currency of training and awareness.
Lamont Project & Construction Lawyers
The Lamont Project & Construction Lawyers team has extensive knowledge and experience assisting parties in preparing tenders and submitting responses. With this knowledge and expertise, Lamont Project & Construction Lawyers can provide the required support and advice to assist at any stage in the tender process.
If you would like to discuss any matters raised in this article as it relates to your specific circumstances, please contact Lamont Project & Construction Lawyers.
The content of this article is for information purposes only and does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.
Contact: Peter Lamont or Ashleigh van Meurs
Email: [email protected] or [email protected]
Phone: (07) 3248 8500
Address: Level 2, 349 Coronation Drive, Milton Qld 4064
Postal Address: PO Box 1133, Milton Qld 4064
[1] Hughes Aircraft Systems International v Airservices Australia [1997] FCA 558; J S McMillan v Commonwealth of Australia [1997] FCA 619.
[2] Pratt Contractors Ltd v Transit New Zealand [2003] UKPC 83.
[3] Cubic Transportation Systems Inc v New South Wales [2002] NSWSC 656.
[4] JB Leadbitter & Co Limited v Devon County Council [2009] EWHC 930 (Ch).
[5] The Halifax (Regional Municipality) v Amber Contracting Limited 2009 NSCA 103; JJ Richards & Sons Pty Ltd v Bowen Shire Council [2008] QCA 16.
[6] Turriff Construction Ltd v Regalia Knitting Mills Ltd (1971) 9 BLR 20.
[7] British Steel Corporation v Cleveland Bridge & Engineering Co Ltd [1984] 1 All ER 504.