The tender trap

Tendering for building work can be a time-consuming and costly business, particularly if you are unsuccessful, because the opportunity to recover such costs is lost. Pre-contract negotiations usually take place before a contract is awarded. Further work may be necessary to explain the tender, which may have been qualified, a letter of intent is issued or the battle of forms may result.

This is all part and parcel of the tendering process, and at this stage there is no contract-imposing obligations on the parties and none may come into existence.

While a tendering subcontractor will invest time and money, the inviting main contractor does not commit itself to accept the highest or lowest tender or need to give reasons for the acceptance or refusal of a tender.

This distinct advantage enjoyed by main contractors can sometimes lead to abuse or ignorance of the tendering process. On occasions, a subcontractor may be asked to do work such as preparing designs or giving estimates.

However, where does this leave the disappointed subcontractor who is unsuccessful in its tender?

Normally a subcontractor cannot recover its tender costs. These are the speculative costs incurred in tendering for work.

But consider this. You are a medium-sized subcontractor that has recently submitted a tender to a main contractor to undertake some work at several schools. You attend a tender clarification meeting and are informed that you are the lowest tender and it is the intention that you are to be awarded the contract.

Before a contract is awarded, you are requested to provide additional design information and estimates of different build solutions to assist the main contractor in reducing its tendering costs. You happily oblige.

You are subsequently informed that you were unsuccessful, with no reasons given. This would have been a lucrative contract for you.

Is there anything you can do to obtain compensation from the main contractor?

Implied contract

The leading case on this subject is William Lacey (Hounslow) v Davis (1957), where William Lacey, after submitting its tender, was led to believe it would be awarded the contract. On this basis, it carried out estimates at Davis’ request but later did not proceed with the project.

It was held the estimates were outside the normal tendering process, and Davis had to pay a reasonable sum for the work carried out.

This constituted an ‘implied contract’ because the work was outside the contract being tendered for, and an intention to pay was implied, even though no price was agreed. Davis was ordered to pay a reasonable sum.

Restitution

In Marston Construction v Kigrass (1989), Marston carried out work following its tender submission. It was held that the additional work was above the normal tender costs and that Kigrass had derived a benefit from it.

The essence of this claim differs from William because it relied on unjust enrichment. Kigrass was enriched by receiving a benefit at the expense of Marston, so it had to pay a reasonable sum.

Dangers

Whether or not an implied contract or claim in restitution arises is to be found in the wording of the tenders and the process itself.

In Regalian Properties v London Docklands Development Corporation (1995) the tender was accepted ‘subject to contract’. Regalian carried out pre-contract work in the expectation that it would be awarded the contract.

The parties failed to reach agreement, and Regalian brought an action to recover its costs of £2.3m. It was held that the parties had entered into negotiations expressly subject to contract and therefore each party was free to withdraw from negotiations at any time. Thus Regalian incurred costs at its own risk.

The difference between this case and the others is that the work was carried out by Regalian as part of conditions that had to be satisfied to be awarded the contract, whereas in William Lacey and Marston, work was carried out in anticipation of being awarded the contract.

If as a subcontractor you can prove that there was an implied contract or promise that you would be awarded the contract or prove that a main contractor has made profitable use of preliminary work during the tender process, you may be able to claim damages for work done.

But remember, the court has to be convinced that the damages you are seeking represent actual loss. The courts will not entertain spurious claims from disgruntled subcontractors.