Rights and Obligations in the Tender Process

Peter Campbell and Jacqueline Chua - September 2012

KEY POINTS Courts recognise the creation of contractual relationships which establish rights and obligations in respect of the pre-selection tender process Officers involved in issuing Requests for Tender need to be aware of confidentiality issues and other express and implied terms that can apply

Process Contract Requests for Tender are a common pre-contractual step. However, for the purposes of contract formation, a Request for Tender does not constitute an offer. Instead, it is an invitation to treat or a mere request to negotiate or make an offer. This creates issues for bidders as, unless their bid is accepted, they may have no direct contractual relationship with the party requesting tenders. Accordingly, the Courts have recognised the creation of a process contract. This is not the tender contract formed when a successful bidder is chosen but rather a separate contractual relationship which exists to protect the integrity of the bidding system - R v. Ron Engineering & Construction (Eastern) Ltd [1981] 1 SCR 111. The creation of the process contract is subject to a consideration of the circumstances and the obligations expressly or impliedly accepted - Pratt Contractors Ltd v Palmerston North City Council [1995] 1 NZLR 469. Where a Request for Tender sets out guidelines for the conduct of the tender process, it is arguable a process contract will be formed. Where those guidelines are not followed, it can then be contended that a breach of the process contract has occurred and affected bidders may be able to seek compensation for not only the costs of the tender process but also for loss of profit. In Hughes Aircraft Systems International Inc v Airservices Australia (1997) 76 FCR 151, guidelines were established

in respect of a Government tender process including fairness between the tenderers. The Federal Court found that Hughes Aircraft was entitled to rely on this representation and the tender selection process was required to follow the procedures and be in accordance with the criteria specified. Failure to disclose an intention to depart from this guideline represented a breach of the process contract and a basis for the award of damages to Hughes Aircraft. Following the Hughes Aircraft Systems decision, it became commonplace for Requests for Tender to include provisions designed to exclude the creation of a process contract. The status of those exclusion clauses has been the subject of conflicting decisions. However, regardless of the existence of an exclusion clause, it is likely that bidders will be entitled to expect compliance with express guidelines established in respect of a tender process. Recent Decision A number of these issues were considered in a recent decision of the Supreme Court of the Australian Capital Territory - Wagdy Hanna and Associates Pty Ltd v National Library of Australia [2012] ACTSC 126. Building company Wagdy Hanna and Associates Pty Ltd (Hanna) claimed that the National Library of Australia (Library) breached its obligation of confidence by disclosing Hannas confidential tender information to the successful tenderer. Although Hanna did not have direct evidence of disclosure, it requested that the court infer the breach of confidence based on alleged similarities
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Rights and Obligations in the Tender Process - September 2012

between Hannas unsuccessful tender and the Library facility that was eventually built by the successful tenderer. In finding that the Library had not breached any obligation of confidence, the Court determined that: Not every tender process will give rise to a tender process contract. In this case, the detailed tender regime established by the Library did give rise to a tender process contract. The mere fact of a tender process contract does not, of itself, import a duty of confidentiality. Rather, the Court had to look to all the circumstances of the tender process. In this case, there was no express clause in the tender documentation on confidentiality, but the Library was found to have an implied obligation of confidentiality. The Library had not breached its obligation of confidentiality as there was found to be no disclosure of any of Hannas tender information.

noted that a duty to deal fairly arose not only by reason of the agreed guidelines in that case but should also be implied into the process contract as a necessary incident simply by reason that an agency of government or public body is expected to act fairly with those with whom it deals. Public tendering is further regulated by Procurement Guidelines as part of the responsible conduct of government business. In particular, Commonwealth and State Governments will each be subject to various obligations of confidentiality in relation to tender processes. Notably, the South Australian State Procurement Board lists as a key principle of purchasing, providing for ethical and fair treatment of participants by maintaining confidentiality and respecting rights and obligations. The decision in the Wagdy Hanna case is a reminder for officers involved in issuing Requests for Tender to be aware of the confidentiality obligations and other legal and contractual principles that can apply in the tender process.
This publication is Kelly & Co. Lawyers and is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.

Public tendering Requests for Tender issued by Commonwealth and State governments are undoubtedly subject to these principles. Indeed, the Court in the Hughes Aircraft Systems decision

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