By Paul Emanuelli

This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.

Public institutions worldwide are facing increasing scrutiny over how they evaluate competing bids in the competitive bidding process. With the outcome of high-value contract awards often hanging in the balance, recent legal challenges underscore the importance of conducting fair evaluations to better ensure the defensibility of evaluation and award decisions. These cases illustrate how public institutions face a rising tide of legal scrutiny that is unprecedented in depth and scope that is placing increasing due process pressure on government evaluation teams and exposing government bodies to both financial and procedural remedies.

For example, in its 2012 decision in Roading and Asphalt Ltd v. South Waikato District Council, the High Court of New Zealand awarded a bypassed low bidder lost profit damages after finding that the South Waikato District Council had breached the tender process rules. The case dealt with a municipal solid waste disposal tender. Citing the Supreme Court of Canada’s 2000 Martel v. Canada decision, the Court held that the Council was under an implied duty of fairness during the tendering process and that it breached that duty by relying on hidden factors in making its low bid bypass decision. The Court also found that the Council’s privilege clause did not give it the discretion to apply hidden evaluation factors.

Similarly, by way of an example of a procedural remedy, in its April 2015 ruling in Rapiscan Systems Inc. v. Canada (Attorney General), Canada’s Federal Court of Appeal upheld a February 2014 Federal Court trial decision that set aside a contract awarded by the Canadian Air Transport Security Authority after finding that the contract was unlawfully awarded pursuant to an unfair bidding process. The dispute arose over the procurement of airport security screening equipment and the use of hidden technical criteria. While the Federal Court of Appeal ultimately upheld the trial court’s decision to strike down the contract award, it disagreed with the trial decision regarding the applicable standard of review for government procurement. Rather than adopting the more deferential “reasonableness” standard, the Federal Court of Appeal concluded that the standard of review for procedural fairness in a government procurement process was the stricter correctness standard.

Conversely, in its August 2015 decision in Airport Mart, Inc. v. Westchester County, the New York Supreme Court dismissed the legal challenge of an incumbent airport concession contractor. Rather than extending the existing lease, Westchester County had initiated a new bidding process. The incumbent, who placed third in the new bidding process, challenged the resulting contract award, and won a temporary injunction. However, the Court ultimately rejected the challenge since the incumbent failed to show that the County had acted arbitrarily or capriciously, had abused its discretion, or had made an error in law in deciding to re-tender the lease rather than extend the existing contract.

Similarly, in its October 2015 decision in South Delhi Municipal Corp v. Ravinder Kumar, the Supreme Court of India upheld a municipality’s decision to re-tender a public works contract because the rates offered by the low bidder were too high. The Supreme Court noted that the low bidder’s rates were significantly higher than those offered in similar recent contracts and that as a “custodian of public money” the municipality had a duty to ensure the reasonableness of the rates paid under its contracts. The Supreme Court found that the municipality’s re-tender decision was not arbitrary or unreasonable, but was made to “serve the best interest of the public.”

However, in another example of a procedural remedy, in the November 2015 decision in Electron Lighting Systems PVT Ltd v. Shah Investments Financials Development, the Supreme Court of India struck down the out-of-scope advertising portion of a streetlight infrastructure contract, but preserved the remainder of the contract award. As the Supreme Court noted, when reviewing government contract decisions, the courts should exercise restraint. To discourage litigation, they should only interfere where there is an overwhelming public interest to do so due to arbitrary, biased, or bad faith government conduct. The Supreme Court therefore reinstated the main contract award previously struck down by a lower court and only quashed the out-of-scope portion.

Similarly, by way of another procedural remedy, in the January 2016 determination in Talk Science to Me Communications Inc. v. Canadian Nuclear Safety Commission, the Canadian International Trade Tribunal ordered the re-evaluation of bids in an English writing and editing services Request for Proposals (RFP) after the government relied on hidden criteria to disqualify the complainant. The Tribunal found that the government had relied on undisclosed criteria since the RFP did not set out the qualifications or specify the full-time employee requirements that the government relied on when it rejected the complainant’s proposal. The government was therefore directed to re-evaluate the submissions.

Conversely, in its March 2016 judgment in Shetland Line (1984) Limited v. The Scottish Ministers, the Scottish Court of Sessions rejected a lost profit claim involving a ferry services competitive dialogue RFP. While the plaintiff claimed that the government withheld material information about the scope of the contract award, the Court disagreed, finding that there was sufficient information provided by the government to enable reasonably well-informed diligent bidders to submit responsive proposals. Notwithstanding the close final score of 93.99 to 91.58 between the winning bidder and the second-placed plaintiff, the Court upheld the scoring after finding no evidence of hidden criteria or arbitrary evaluations.

More recently, in another procedural remedy case, the April 2016 decision in Secureco (Pty) Ltd v. Ethekwini Municipality, the High Court of South Africa struck down a contract award for payroll services after finding that Ethekwini Municipality had awarded a contract to a lapsed bid. The incumbent supplier had submitted a bid on the initial tender call and was never notified of the re-tender after the initial bids had lapsed. It failed to submit a second bid. A contract was awarded to a bidder from the second round of tenders after those bids had also lapsed. The Court struck down the contract award after finding that “it is not in the public interest that such a manifest waste of time and effort by Municipal officials should simply be ignored.”

By way of example of a financial lost profit case, in its July 2016 decision in Elan Construction Ltd. v. South Fish Creek Recreational Assn., the Alberta Court of Appeal reversed a trial decision and found the defendants liable for running an unfair bid evaluation process on a $20 million (CAD) community centre expansion project. The trial court ruled against awarding the plaintiff lost profit damages after finding that the winning contractor had actually lost money on the contract award. However, the Court of Appeal found that it was erroneous speculation on the part of the trial court to assume that the plaintiff bidder would have also lost money on the project and awarded the plaintiff $575,000 in lost profits.

Conversely, in its July 2016 ruling in Cevons Waste Management v. The Ministry of Communities, Guyana’s bid protest committee upheld the award of a waste management contract to the lowest compliant bidder. A competing bidder launched the bid protest, arguing that the low bidder’s price was too low and that it should have been awarded the contract due to its superior technical proposal. The Committee disagreed, noting that the Procurement Act required that bids be awarded in accordance with the criteria specified in the solicitation document and that the tender call had set out that the award would go to the lowest compliant bidder.

Yet, in another adverse procedural remedy case, in the September 2016 ruling in Tropical Orchard Products Company Limited. v. The Ministry of Education, Guyana’s bid protest committee upheld a complaint and annulled an evaluation decision after finding that the government unlawfully relied on undisclosed past performance criteria. The case involved a solicitation for boxed juice for children in nursery and elementary schools. The complainant’s bid was deemed non-responsive due to past performance issues, including expiry dates and spoilage. However, after relying on a series of Canadian and UK decisions, the Committee ruled the evaluation breached the Procurement Act and was therefore void.

Similarly, in its December 2016 decision in All India Power Engineer Federation v. Sasan Power Ltd., the Supreme Court of India ruled against a power company in a pricing dispute. The case dealt with a bidding process for a 25-year power supply contract. The winning bidder quoted low rates in the first two years, after which its rates increased significantly. The parties disputed when the lower rate period expired. The question turned on the timing of the acceptance testing conducted by the tendering authority. The Court ultimately ruled that the initial supply period conducted during a preliminary testing period occurred prior to formal acceptance testing and ruled against the power supply company.

In a procedural remedy ruling from the United States, in the February 2017 decision in The DRS Group v. County of Union, the New Jersey Superior Court struck down a contract award after the County of Union failed to properly extend the winning contractor’s bid validity period. The case dealt with a tendering process for a document scanning services contract. Due to administrative delays, the contract was not awarded during the original bid validity period. The County claimed that the bidder had agreed to extend the bid validity period prior to its expiry but the Court disagreed, finding that the County failed to properly request and document the bid extension. It therefore ruled that the contract was invalidly awarded and voided the contract.

In another financial remedy ruling, in the June 2017 decision in The Rintoul Group Limited v. Far North District Council, the High Court of New Zealand awarded lost profits against a municipality after finding that it improperly rejected the plaintiff’s bid. The case dealt with multiple tender calls for the expansion of a national cycling trail. The low bidder was rejected for allegedly submitting inaccurate past project information regarding timely and on-budget performance. The Court found that the tender call contained no express rules for such a disqualification and that there was no implied right to disqualify on that basis. It also found that no misrepresentations were made and awarded lost profits to the rejected bidder.

However, in its June 2017 decision in Framan Mechanical, Inc. v. State University Construction Fund, the New York Court of Appeal upheld a decision to reject a bidder for failing to meet past performance criteria. The case dealt with a solicitation for heating, ventilation, and air conditioning upgrades at a university building. The complainant’s tender was rejected for failing to demonstrate that it had successfully performed a contract of similar size, scope, and complexity in the prior five years since the project it relied on was the subject of another dispute between the parties. The Court upheld the rejection of the bidder for failing to provide the required past experience.

Further, in its March 2018 decision in Arandis Power (Pty) Ltd v. President of the Republic of Namibia, the Supreme Court of Namibia struck down a contract awarded after the expiry of a bid validity period. The case dealt with the award of a multibillion-dollar power plant contract made by the Namibia Power Corporation (NamPower) pursuant to a public tendering process. After the process was challenged by a competing bidder, NamPower conceded that it awarded the contract to a non-compliant bidder after the expiry of the bid validity period. However, the winning bidder, Arandis Power (Pty) Ltd, continued to defend the contract award against the challenge. As the Supreme Court noted, the challenged process was subject to rules contained in NamPower’s tendering and procurement policy, which set down protocols for dealing with the expiry of bid validity periods. The Supreme Court then summarized the following legal authorities relied on by the complainant to support the argument that contract awards made after the bid validity period were invalid.

As these cases illustrate, public institutions across multiple jurisdictions face similar challenges to their evaluation decisions and face significant procedural or financial consequences when they are unable to defend those decisions against legal challenge.