The code breakers

Tendering is risky, and can be a time-consuming and costly. Anti-competitive tendering practices, such as cover pricing and bid rigging, have recently been targeted by the Office of Fair Trading. But there have been fewer cases where the employer is found to have treated contractors unfairly.

The case of J&A Developments vs Edina Manufacturing and others is one example. It demonstrates that employers issuing invitations to tender need to ensure that if they incorporate tendering procedures they comply with them, or risk facing action for breach of contract.

The employer engaged an architect in relation to the development of workshops and offices in Lisburn, Northern Ireland. J&A Developments tendered. The conditions were set out in The Summary Schedule of Work. One paragraph said: “Tendering procedure will be in accordance with the principles of the Code of Procedure for single selective tendering 1996.”

One section of the code quoted by the judge was: “Good tendering procedure demands that a contractor’s tender price should not be altered without justification. In particular the NIJCC strongly deplores any practice that seeks to reduce any tender arbitrarily where the tender has been submitted in free competition and no modification to the specification, quantity or conditions under which the work is to be executed or to be made.”

The employer invited the three lowest bidders to reduce their tender price. J&A Developments had submitted the lowest tender but refused to reduce it; one of the other tenderers agreed and was awarded the contract.

There was a binding undertaking that the tendering procedure would comply with the code. The employer had committed a clear breach

Was there a contractual obligation on the employer to comply with the code and its principles? Previous cases where a contractor argued that a contractual right was established between the tenderer and the employer during the tender process include Blackpool and Fylde Aero Club vs Blackpool Borough Council. In that case it was held that although the tender did not explicitly set it out, there had been a clear intention to create a contractual obligation on the council to consider all conforming and timely tenders. The council was contractually liable to the tenderer whose tender was erroneously declared to be non-compliant through an administrative oversight on the part of the council.

The judge in J&A Developments found particularly helpful the comments of Nolan J in Fairclough Building Limited vs Borough of Part Talbot: “A tenderer is always at risk of having his tender rejected either on its intrinsic merits or on the ground of some disqualifying factor … Provided that the ground of rejection does not conflict with a binding undertaking or representation previously given … to the tenderer the latter cannot complain.”

The contractual arrangements in J&A Developments fell within this provision as there was a binding undertaking or representation that the tendering procedure would be conducted in accordance with the code. The employer had committed a clear breach. J&A Developments was entitled to recover its outlay in preparing the tender and its loss of profit. Note, the loss of profits claim was reduced by an arbitrary 20% on the basis that some of the contractor’s regular employees would have been free to undertake other profitable work for J&A Developments.

One further interesting point: was the employer entitled to a contribution from the architect since the architect had prepared the tender documents but had failed to advise of potential liabilities due to inclusion of the code? The judge’s view was that a competent architect should have warned the employer that the code applied and that the proposed price negotiations were in breach of the code’s principles.

However, the contribution proceedings failed as the employer was unable to establish that it would have changed course had it received such advice from the architect.