Although no formal contract is ordinarily entered into between an employer and a contractor regarding the conduct of a tender process, the courts have, for a number of years, accepted that an implied contract may arise upon submission of a contractor’s tender. This places certain limitations on the manner in which the employer is entitled to conduct the tender process. The implied terms provide a level of protection to contractors who may expend a significant amount of time and money in tendering. The much more prescriptive rules that apply to tendering in public procurement are a subject in their own right and are not considered here.
In private sector tendering, the courts have made it clear that employers must comply with any specific procedures set out in the tender documents. Failure to do so may lead to a claim by an unsuccessful contractor that its tender was not considered in accordance with the rules. In such a situation, the employer may look to recover sums from the architect if it assisted in the preparation and implementation of the tender process.
In Gerald Scott v Belfast Education and Library Board the court confirmed the principle that an implied contract may arise upon submission of a tender. The judge stated that the contract may be inferred from the manner of the tendering process and the presumed intention of the parties. How do we know what the terms of this implied contact are though? Fortunately the judge shed some further light on this issue, making clear that the implied contract requires the employer to act both fairly and in good faith. The judge identified three areas in which the concept of fairness applies:
- fairness in the nature and application of the tender procedures;
- fairness in the assessment of tenders according to the tender criteria; and
- fairness in the evaluation of tenders in a uniform manner and as intended by the tender documents.
The judge went on to identify two particular areas where unfairness may be caused to a tendering contractor. The first is if there is a mistake in the tender documents which leads the contractor to adopt an approach to the tender that is different to that intended by the documents. This may result in unfairness as different contractors may respond to the mistake in different ways. Any distortion in tenders is potentially unfair.
The second area is if there is an undetected ambiguity in the tender documents. This too may lead to differing responses from contractors, rendering the tender process unfair. Not all ambiguities will however result in the fairness of the tendering process being questioned. An ambiguity in the tender documents must be material and have a significant effect on the tender. In order to give rise to a claim, the ambiguity must cause the contractor to submit a tender which is more than negligibly different from what he would otherwise have submitted.
If a tender process is not conducted fairly the employer risks a claim from any unsuccessful contractor and may look to an architect who has been involved in the tender process for any losses it suffers. If a successful claim is brought, the employer may be required to pay the contractor its loss of profit on the project. Careful attention therefore needs to be paid to this early stage in the letting of contracts. Particular care needs to be taken to treat tenders fairly and avoid mistakes and ambiguity in tender documents which could give rise to a claim.
In a claim for damages for breach of contract, the claimant has to show that it has mitigated its losses. The principle of mitigation prevents the claimant from recovering losses that it could have avoided by taking reasonable steps. This means the claimant has to take steps to avoid unreasonable costs and take steps to minimise those losses it has incurred. The courts will reduce damages to the extent there has been a failure to mitigate. Under an indemnity, by contrast, the claimant does not have to show that it has mitigated its losses. Under an indemnity, losses are recoverable on a pound for pound basis.
Source: RIBA Journal