article
Clawing Back Costs
17 March 2009
Submitting a tender can be incredibly
time consuming and expensive, particularly given complex
procurement structures. Traditionally, the response from
contractors and consultants who have lost money in an unsuccessful
tender has been to lick their wounds and simply get on with it,
preferring to spend their resources chasing new business than
challenging the tender process itself. However, as the recession
bites and the issue of liquidity becomes ever more
important, such contractors and consultants may be more inclined
than usual to seek repayment of their tendering costs and future
loss of profit.
But are those costs recoverable? Well, as
would be expected, there are differences when dealing with the
heavily regulated public sector as opposed to the private
sector.
In the private sector the tendering process is
not covered by public procurement regulations and traditionally the
courts have had little sympathy for unsuccessful tenderers, taking
the view that they should properly bear the consequences of a risk
they have consciously taken. Except in exceptional circumstances
(usually involving negligent misrepresentation or fraud), the
courts are reluctant to regulate pre-contract negotiations or to
help soften the blow of a disproportionately harsh bargain. That
said, there have been other notable exceptions.
Damages may be recoverable by a disgruntled
tenderer in certain circumstances. The key is to look at the tender
process and, more particularly, what risk has been accepted by the
tenderer. In the absence of a clear agreement that the work
undertaken in the tender process is ‘subject to contract’, damages
may be recoverable depending upon whether the work is of a kind
usually provided free during a tender process; whether the
contractor has accepted that such work would be unpaid; if the
employer has gained any material benefit; and if the failure to
award a contract involves any fault on the part of the employer.
This will turn on the facts of each case.
In addition, where there is unfairness in the
tender process itself, the courts have indicated that they may
offer some relief for the affected tenderer. Such unfairness could
feasibly occur where tenders have not been assessed according to
the stated tender criteria, and if tenders are not evaluated in a
uniform manner.
For example, in the Northern Ireland case of
J&A Developments Limited v Edina Manufacturing Limited
[2006], Edina invited J&A along with 5 other contractors
to tender for works. The tender document provided for the tendering
procedure to be carried out in accordance with the Code of
Procedure for Single Stage Selective Tendering 1996. J&A
submitted the lowest tender, but was not awarded the contract
because Edina subsequently conducted a “dutch auction” – Edina
invited the participating contractors to reduce their tenders
through negotiation. Subsequently, the contract was awarded to the
second lowest tenderer, in breach of the Code. The Court decided
the wording of the tender documents gave rise to a contractual
obligation limiting the manner in which Edina could conduct the
tender process. Edina had breached that obligation. Consequently,
J&A were entitled to recover their costs of preparing the
tender. Further, because on the facts J&A would have almost
certainly been awarded the tender had Edina followed the Code,
J&A were entitled to recover an element of their anticipated
loss of profit.
Additional protection for tenderers is found
in the public sector. Procurement of public works over the current
thresholdin England and Wales is regulated by the Public Contracts
Regulations 2006
Under the Regulations a contracting authority
owes a duty to tenderers to award contracts based on objective
criteria, ensuring compliance with the principles of transparency,
non discrimination and equal treatment in conditions of effective
competition. If an authority breaches that duty to the
detriment of an unsuccessful tenderer, then that tenderer may have
an action against the authority if they suffer, or risk suffering,
loss or damage.. Damages are awarded based on that tenderer having
lost the chance of successfully tendering, had the rules been
followed, and later making a profit plus any abortive tender
costs.
Disgruntled tenderers need to bring
proceedings promptly and in any event within 3 months from the date
when the ground or grounds for bringing the proceedings first arose
(unless the court can be persuaded that there is good reason for
extending this time limit).
With the market conditions being what they are
and the courts leaving the door ajar to tenderers who have not
consciously forgone the right to payment or who have otherwise been
treated unfairly in the tender process itself, this may well prove
to be a growth area for claims in the foreseeable future both in
the private and public sectors. Consequently, tender processes (and
the consultants who run them) may find themselves subject to ever
increasing scrutiny.
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