Legal Obligations In Tender Documentation

1. Legal obligations in preparing tender documentation

You are employed as a contract manager for Transport Australia (TA)   you are required to prepare tender documentation for a universal ticketing system the system is quite complex and it requires substantial investment in novel transport modes and associated hardware and software. 

You have a limited budget to prepare tender specification and are told that any failings in the tender package may be covered by a Disclaimer Clause.

1. What are your legal obligations in preparing tender documentation? Describe the obligations and what legal responsibilities you have to the tenderers. Is there are contract with all the tenderers.

2. What are disclaimer clauses and in what circumstances may they be effective

3. You notice that you have in the past done some consultancy to one of the tenderers Dominant Systems (DS) What are your obligations in assessing the tender and duties to other tenderers

4. One of the tenderers provides further information after the tender is closed. What are your legal obligations and options?
 

There were no legal obligations in a tender earlier as they were not considered to be binding legally. But the courts started to recognize the contractual nature of the tender and the relationship of the parties involved in it. There is an implied obligation between the parties to a contract (Hughes Aircraft Systems International v. Airservices Australia, [1997]), if they intended to create a contractual relationship. Tender documents contains conditions of the contract and various other specific criteria’s, these conditions and criteria’s become a part of the contract, and it important that to draft them diligently. The things that need to be kept in mind to draft a tender document as it has been recognized to be as legally binding are (Carter, 2013):

• the rules which will apply to the tender process;
• the rights of the tendering party to terminate the tender and the liabilities of the tenderers.

In IPEX ITG Pty Ltd v State of Victoria, (2010) the courts have revised the implication of drafting of a tender document, the court sets out various points to make a tender document legally binding if there exists a process contract. Key points are:
A process contract arises if the tender document contains the requirements that are to be fulfilled by the tenderers in making the submissions for the tender and the conditions of evaluation (Bailey, Bell and Bell, 2011).

• If the principle does not intend to create a process contract then the draft must be made accordingly.
• The breach of the process contract can be made enforceable by the principal by creating a provision for reserving the rights I such a matter by the principal.
• The tender document must contain the rights of the principal along with the terms and conditions of the contract, along with a negotiations provision.
• The method of evaluation must not be inconsistent with the representations that the principal has made.
• Any departure from the RFT’s process of evaluation must be mentioned in the tender itself.

The process contract is with all the tenderers as the tender has been provided to all those who accepts it. Hence, as the tender is accepted it creates a legal relationship between the parties to the process contract.

2. Disclaimer clauses and circumstances where they may be effective

Disclaimer clauses are those clauses that the principal (tendering party) puts in the tender document to exclude some conditions or a part of the tender document from forming a part of the process contract. Such disclaimer clauses are made to protect the rights of the principal and in case there is a breach of the terms of the contract then the principal has the right to invalidate the entire tender (Ciro and Symes, 2012).

These disclaimer clauses protect the principal when there is a change brought to the tender, because if the principal makes certain representations and they are false or they are not abided by then the principal can get into trouble for misleading and deceptive conduct under section 18 of the Australian Consumer Law. Hence disclaimer clauses for reserving the rights of the parties need to be added.

In J S McMillan v Commonwealth of Australia [1997] FCA 619, the proposal to the tender had pricing mistakes which were later rectified by t tenderer, but the court held that Commonwealth of Australia misled McMillan (tenderer) by not stating that saying that if there is a failure in correcting the errors would invalidate the contract. Hence, the tenderers tender cannot be dismissed.

Disclaimer clauses can also be in the form of a privilege clause, which reserves the rights of the principal to make changes.  In Halifax (Regional Municipality) v Amber Contracting Limited (2009) court held that the tendering party has the right to reserve privileges to it (Haar and Haar, 2010). 

The obligations in assessing the tender are that it must create a legal relationship between the parties and a process contract is created. The duties of the principal towards the tenderers are to maintain fairness, disclosure and not to mislead or deceive them. If the principal receives a benefit from a tenderer whose tender has not been accepted then such a tenderer must be provided with some recitative payment for the work done. In Hughes Aircraft Systems International v. Airservices Australia, (1997) case the court held that silence and non disclosure in case there are some changes to the process of tendering could lead to misleading and deceptive conduct (Latimer, 2010).

Information provided after the tender is closed can lead to breach of the tender and could invalidate the process tender, unless otherwise provided. This is because the principal has a right to terminate if there are any inconsistencies in the tender process contract. In JJ Richards & Sons Pty Ltd v Bowen Shire Council (2008), the tendering party terminated the tender and invited new tender invitations, after one of the tenderer submitter the tender late. Another tenderer claimed that the tendering party cannot terminate it, but the court held that the tendering party reserves the rights of terminating the tender at any time (Turner and Trone, 2013).

• Is there a contract that applies to all the tenderers? Explain

3. Obligations in assessing tender and duties to tenderers

The terms of the tender document shall speak if there is a contract or not as in certain cases it has been held that the principal might not intend to create a process contract. But if there is a process contract then the contract applies to all the tenderers and not to selected tenderers (Vickery and Flood, 2012). 

• Can you claim the costs expended in the preparation of the tender?

A tenderer is not entitled to the costs it expended in preparing an unsuccessful tender but a tenderer might be eligible for restitution of the payment that it incurred for the work done if the tendering party has received some benefit out of that work (Sealy and Hooley, 2009).

• You find that one of the directors of Tickets-R-Us previously worked for the government agency letting the tender. Actions taken in reviewing the tender process and further information required to assess whether it is appropriate to review the tender process

In this situation the tender process can be reviewed and the information about the changes needs to be made to all the tenderers. But such a review is warranted only if the tender document has already reserved the rights of principal for making any change to the process contract. In the pocess of assessment of the tender modifications can be made if the assessment is done in good faith. In Pratt Contractors Ltd v Transit New Zealand (2003), the court held the change in assessment to be valid as it was done in good faith, which means acting honestly and treating all the tenderers equally (Andrews, 2013).

• You also find that Universal Systems was provided with some further information not available to the other two tenderers. What action can you take to review the tender? 

Tender can be reviewed in the light of acting in good faith as to providing all the tenderers an equal opportunity, as was held in Pratt Contractors Ltd v Transit New Zealand (2003) (Adriaanse, 2010). 

References

Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys (2012) FCA (Federal Court of Australia), p. 282

Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) NSWLR, p.210

Aiton Australian Pty Ltd v Transfield Pty Ltd (1999) 153 FLR 236

Von Schultz v Attorney-General (2000) QCA 406

Commercial Arbitration Act 2010

Arbitration (Civil Actions) Act 1983 (NSW)

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