The problem of bid costs in PFI schemes has been highlighted again at Bart's. It therefore makes sense to know when and how you can claw back your cash
Bidding for PFI schemes is an expensive process, as the St Bartholomew's hospital deal showed. Even for schemes given the green light, bidders will have to finance tender costs for much longer than anticipated. For those that are not given the green light, bidders will want to know the prospects of recovering their costs.
Sir Malcolm Bates, in his first review of the PFI process in 1997, recommended that "where a decision is made not to proceed with a project and that decision is not related to the viability of tenders received, contractors' bidding costs should be refunded". Although this recommendation has no legal force, it is assumed that all responsible government organisations will follow it.
However, it only applies where the decision not to proceed is unrelated to the viability of tenders received and there is often room for arguments as to whether or not viability is the reason for cancellation. What options does a bidder have to recover its costs in the event the Bates recommendation does not apply or an authority will not abide by it?
The preferred bidder's letter must be considered first. Most letters, if they deal with recovery of bid costs at all, will follow the Bates formula. This at least gives the bidder a contractually enforceable promise.
In the absence of any contractual right through the preferred bidder letter to recover costs, does the common law offer any solace? There are three areas worth considering:
Has the other party benefited?
For a claim to be successful, the other party must usually have received a benefit. For example, where planning permission has been obtained and the authority can take the benefit, or the other party is entitled to use drawings produced by the bidder. There is also some support for the argument that a party can receive a benefit where it requests services even though those services could be described as preparatory to performance. In Countrywide Communication
Ltd vs ICL Pathway Ltd, a party providing public relations advice to a consortium bidding for a government project was entitled to recompense even though the advice was, ultimately, of no benefit to the consortium.
The estoppel rule
Estoppel is a rule of law that prevents a party alleging a fact in support of its claim if it has previously by word or conduct represented the contrary to the other party. Estoppel is said to be "a shield and not a sword". However, as the judge said in Amalgamated Investment & Property Co Ltd vs Texas Commercial International Bank Ltd: "While a party cannot found a cause of action on an estoppel, he may, as a result of being able to rely on an estoppel, succeed on a cause of action on which, without being able to rely on that estoppel, he would necessarily have failed."
A cause of action must be established before the doctrine can come into play and there may be situations during the preferred bidder stage where some such cause of action arises.
Economic loss is only recoverable in tort if there is a negligent mis-statement by one party where a duty of care existed and the other party relied on and was entitled to rely on the statement.
A duty of care would not generally exist in a tender situation and the invitation to negotiate generally contains disclaimer provisions.
However, in the PFI process, it is not beyond legal principles that such a duty might arise in some situations. In such circumstances, providing false information or deliberately withholding information might give rise to a cause of action.
The only way to be sure of your rights
Having an express contractual right in the preferred bidder letter is the only sure way of recovering bid costs in the event of cancellation of a project. Bidders will also now want to consider negotiating compensation for additional funding of the bid costs where the scheme is delayed through no fault of their own.
Failing any such express contractual right, the Bates recommendation may allow recovery of bid costs ex gratia where a project is cancelled.
If neither of these applies, the circumstances of the deal may give rise to a cause of action for the recovery of some, if not all, wasted bid costs.
Trevor Nicholls is a partner at Kirkpatrick & Lockhart Nicholson Graham