Love me tender

In my column of 17 July 1998 I wrote about the case of Hughes Aircraft Systems International vs Air Services Australia decided in the Federal Court of Australia [(1997) 14 ALR1]. In that case, the court decided that the tendering process could give rise to an implied contract imposing an obligation on the client to act fairly. I wondered whether English law was moving in this direction, and Judge Humphrey Lloyd’s decision in Harmon vs House of Commons suggests it might be.

The decision in Hughes reflected developments in common law elsewhere in the world, especially Canada. But the best that the UK could offer was the Court of Appeal decision in Blackpool & Fylde Aero Club Ltd vs Blackpool Borough Council [(1996) 1 WLR 1195]. The club had submitted a tender to the council for a concession to operate pleasure flights. The tender was put into the town hall letterbox, which was not emptied by council staff and the tender was not considered. The Court of Appeal held that the tenderer had a contractual right to expect that this tender would be opened before the deadline.

Fairclough Building Ltd vs Port Talbot Borough Council [(1992) 62 BLR 82] appeared to put the brakes on this. Fairclough was a tenderer for a new civic centre. The wife of one of its directors had become the principal architect for the council. The council had been aware of the relationship prior to inviting the tenders but, after Fairclough had submitted its tender, it was removed from the tender list. Fairclough, naturally, relied on the Blackpool case. The court decided that Blackpool was different. The tender there had not been considered at all, whereas in the Fairclough case the council had given some consideration to the tender. The council had acted reasonably.

Another approach has been to seek judicial review. This enables decisions taken by authorities to be challenged if they are not strictly in accordance with their statutory responsibilities. In Regina vs Lord Chancellor ex parte Hibbit and Saunders [The Times, 12 March, 1993], court shorthand writers had submitted a tender for the provision of court transcripts. They then discovered that there had been a further round of tendering seeking lower bids. They applied for judicial review on the ground that they had a legitimate expectation that other tenderers would not be invited to submit lower bids. The court held that judicial review was not appropriate to dealing with – as here – everyday commercial activity.

On the other hand, in the case of Stannifer Developments Ltd vs Glasgow Development Agency [1999 SLT 430] the Court of Session in Scotland held that judicial review could be applied to the exercise of statutory powers in relation to the sale of land. In this case, Stannifer had complained that Glasgow Development Agency had given another company the opportunity to submit a further bid after it had emerged that Stannifer’s bid was the lowest. Stannifer had argued that the agency had failed to meet a legitimate expectation that the bidding procedure would be complied with and all tenderers would be treated equally.

Now we come to Harmon. Harmon’s complaint was that the House of Commons had entered into substantial negotiations with another tenderer that resulted in a contract with that tenderer containing terms that were materially different from those for which tenderers had been originally sought. If Harmon had had the opportunity to tender on those terms, it would have improved its competitive edge over the other tenderers.

Not surprisingly, part of Harmon’s case was that the submission of its tender gave rise to an implied contract, by which the Commons was under a duty to tender fairly.

•  The tendering process gives rise to an implied contract
•  The contracting authority is under a duty to treat all tenderers fairly
•  Tenders must be assessed on a value-for-money basis

Judge Humphrey Lloyd found “useful guidance” in some of the Canadian cases. For example, in Chinook Aggregates Ltd vs Abbotsford [(1989) 35 CLR 241], a local authority was penalised for its policy that local bidders would get the contract if they were within 10% of the lowest price.

Judge Humphrey Lloyd did not embrace the general notion of good faith and fair dealing in contract performance which had underpinned some of the Canadian decisions. Otherwise, in his view, there would be too much intrusion into commercial freedom to accept or reject tenders or negotiate with whoever appeared best.

Nonetheless, the judge concluded that the upshot of both the Blackpool and the Fairclough cases was that: “In the public sector where competitive tenders are sought and responded to, a contract comes into existence whereby the prospective employer impliedly agrees to consider all tenderers fairly.”

Where – as in this case – the tendering process was governed by the European public works regime, this meant that an alternative submitted by a tenderer would be considered alongside a compliant revised tender from that tenderer; any alternative would be one of detail and not design; tenderers would be treated fairly.

Harmon has now cleared the way for tenderers to challenge awards in relation to all public sector work. The assessment of tenders on a value-for-money basis will enable tenderers to challenge awards where there is evidence that the criteria have not been applied fairly. It does not take a great leap of imagination to conclude that this should also apply to the private sector.