This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its June 1997 decision in Hughes Aircraft Systems International v. Airservices Australia, the Federal Court of Australia, General Division, determined that the tendering process initiated by the Civil Aviation Authority (CAA) gave rise to a tendering process contract that contained an implied duty of fairness. The Court found the CAA liable for conducting an unfair evaluation of bids based on undisclosed evaluation factors. The case dealt with a tender call for the Australian Advanced Air Traffic System Acquisition contract, referred to as TAAATS II. The contract was awarded to an Australian corporation that was a subsidiary of a French company. The plaintiff, Hughes Aircraft Systems International, was an unsuccessful California-based bidder. Although it submitted the lowest qualifying bid, Hughes was bypassed in favour of a domestic bid that offered greater “community benefits.”
Hughes argued that the CAA “by contract, representation or promise obliged itself to conduct the tendering process leading to the award of the TAAATS II contract fairly and in accordance with defined procedures and criteria.” Hughes maintained that the CAA owed bidders a legal duty of fairness when it conducted its evaluation process. Hughes also argued that the CAA breached that duty when it relied on undisclosed considerations to bypass the low bid. The Court agreed.
While the Court was careful to note that the Canadian Contract A tendering process contract (as recognized by the Supreme Court of Canada in the 1981 case Ontario v. Ron Engineering & Construction (Eastern) Ltd.) did not apply to every tender call, since “each case turns on its own facts”, the Court did recognize that, based on the facts before it, the parties had created a binding tendering process contract. As the Court stated, the parties had agreed on “procedures to be followed and the criteria to be applied, in the award of the TAAATS II acquisition contract” and that the parties “by agreement, had used contract to protect ‘the integrity of the bidding system.’” The Court also recognized that the implied duty of fairness is an essential element of the process contract:
If the purpose of a tender process contract is to be accomplished, if contractor-tenderers are to be given an effective opportunity to enjoy the fruits of the bid and not have that opportunity destroyed by the unfair dealing of the other party to the contract, a duty such as I have described would appear to me to be a presupposition of such a contract.
The Court then determined that the CAA breached the process contract by unfairly straying from the predetermined evaluation rules. In particular, the Court concluded that the evaluators breached the terms of the process contract when they failed to follow the evaluation criteria established under the tender call and bypassed the low bidder in favour of a domestic bidder:
Mr Mant decided on idiosyncratic grounds. He appears to have had his own “geo-political” reasons for preferring Thomson.… [O]n his own admission he did not see the criteria as having a priority ranking let alone one he was bound to apply strictly and in accordance with para 16.2.3.
One might register some surprise that the Board was not given explicit advice on how, consistent with the requirements of paras 16.1 and 16.2 of the RFT, it was to approach its decision making in the circumstances.… I refrain from comment on the evidence revealing the unfamiliarity of some board members with the provisions of para 16 of the RFT. All that needs be said is that no matter how honest the decision making of the Board, a majority (at the least) failed to appreciate that their decision was being taken in discharge of a contractual obligation to each of the tenderers. The manner of their decision-making ensured the CAA would be in breach of that contract. The board members…simply did not decide in the manner required of them by the RFT.
Lest there be any doubt in my conclusion, I am not taking issue with a business judgment made by the Board. What I am concluding is that the methodology and criteria of the RFT were not applied as contractually required.
Since a purchasing institution may be legally challenged for not following its stated evaluation criteria when it considers competing tenders, it should ensure that it clearly and thoroughly discloses all of the criteria that will influence its contract award decision. Failing to follow the predefined evaluation rules and relying on undisclosed local preferences can result in a breach of the legal duties owed to competing bidders.
