LOCAL GOVERNMENT BRIEFLY         
March 1999 Issue No 64


The Local Government Bill, 1998 contains an express provision compelling all councils to prepare and adopt policies on contracts and tenders, including policies on the contracting out of services, competitive tendering, the use of local goods and services and the sale or disposal of land and other assets. Policies will also be required to be consistent with any principle or requirement to be prescribed by the regulations to be made pursuant to the new Act.

The tendering process is an important operational issue for councils, and the following article is intended to provide a timely update upon this issue.

THE TENDERING PROCESS

Traps for the unwary

The process of seeking tenders has become fraught with traps for the unwary. Many principals who choose tendering as a method of selecting contractors and consultants are having to defend their decision making processes in Court. This has given the Courts the opportunity to expound their views on the duties and obligations of the principal in areas such as fair play and misleading and deceptive conduct.

The tender process is more risky still if the principal is a government authority dealing with public funds. The Courts have made it very clear that the duties and obligations imposed on governments in relation to the tender process are more onerous than those imposed on non-government entities.

What has changed?

Twenty years ago the Courts took the view that in setting out the terms and conditions of tender, the principal did no more than specify conditions which the tenderers ought to meet in order to have their tenders considered. The conditions of tender did not impose any obligations on the principal.

However, this view has now changed as evidenced by many decisions of the Courts, particularly in Canada and Australia. Many of the disputes heard by the Courts in this area concern claims made by unsuccessful tenderers against the principal arising out of the tender process. These claims usually allege that the principal has failed to follow the tender procedures as laid down in the terms and conditions of tender or has failed to follow the tender evaluation process described in the tender information provided to the potential tenderers.

Many of these claims have succeeded in the Courts. Now more than ever, a failure by the principal to comply with the conditions of tender and other information provided by the principal will leave the principal open to a claim for breach of contract and/or misleading and deceptive conduct. Damages are usually awarded to the disgruntled tenderer for loss and damage suffered.

What are the obligations of the principal when going out to tender?

There has been much legal discussion as to why the principal should be subject to duties and obligations in the course of the tender process. However, it is now fairly settled that the conditions of tender will amount in effect, to a contract between the principal and the respective tenderer. Accordingly, if the tenderer puts in a tender in accordance with the conditions of tender the principal will be obliged to give due consideration to the tender in good faith and in accordance with any tender evaluation process provided by the principal.

Failure by principals to give proper consideration to tenders in these circumstances has resulted in many successful claims, particularly against government and public authorities.

Decisions of the Canadian Courts (which are generally followed by the Australian Courts) have stated that, subject to the terms of tender, only tenders made in accordance with the terms of the tender can be accepted by the principal. Further, no tenderer should be given preferential treatment over other tenderers. Examples of such unacceptable preferential treatment include the principal providing further information to one tenderer at its request without providing such further information to other tenderers.

In addition, it has become clear that tenderers must not be chosen or evaluated on criteria that has not been provided to all tenderers. For example, if it is important to the principal that the successful tenderer be a locally based company, then this must be made clear in the tender documentation. Failure to do so is most likely to result in a successful claim against the principal by unsuccessful tenderers. Likewise, a failure to spell out in the tender documents that selection criteria other than price will be used may result in the principal being required to engage the lowest priced tenderer.

The overall fairness of the tender process has also been taken into account by the Courts when reviewing the tender process as part of a claim. It is essential that the process not only be fair, it must also be seen to be fair.

Finally, the principal must not reject a bid without good reason. For example, rejecting a bid on the grounds of personality or similar grounds will leave the principal in breach of its obligations and liable to the prejudiced tenderer.

Where the principal is a government or government authority

Why have the Courts targeted government and local government authorities in particular? The Courts have stated that generally a term will be implied in every tender process that the process will be conducted fairly. However, the Courts have stressed that this is particularly so in circumstances where the principal is a government or a government authority engaged in the spending of public funds. The Courts expect government to adopt the highest standards in dealing with the public and public funds. What behaviour might be acceptable from other sections of the community will not necessarily be acceptable from government.

What does all this mean for principals?

As a result of the views taken by the Courts in Australia in recent times, the prudent principal will ensure that in all tender processes:

• the pre-award stage of tendering is adequately covered by proper terms and conditions of tender. This is the first and foremost requirement;
  

• if an evaluation framework and evaluation criteria are set out by the principal, the principal will evaluate all tenders using that framework and criteria and not to take into account any other factors;
  

• if additional information is provided to one potential tenderer, the principal will provide such information to all other potential tenderers to avoid the possibility of a perceived advantage being given;
  

• the tender process is not only conducted fairly, but also in a manner which is seen to be fair in every respect;
  

• the entire tender process is conducted so that there is no suggestion of misleading or deceptive conduct on the principal's behalf; and
  

• local government and other government authorities will take particular care in evaluating tenders given the higher duties and responsibilities of governments in this area.
  

Having set out the above rules for principals in relation to the tender process, we point out that these rules also apply to principals when calling for expressions of interest.

For further information on this article or advice on tenders generally, please contact Peter Fisher, Partner on 8210 1208 or via E-mail: pfisher@normans.com.au


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The contents of this newsletter are for information only and should not be taken as advice on the law. This newsletter may be reproduced in whole or in part with the prior permission of Norman Waterhouse and acknowledgement of its source and copyright.