This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its September 2005 decision in Dockpride Pty Ltd. v. Subiaco Redevelopment Authority, the Supreme Court of Western Australia found that the process contract applied to the challenged tendering process, but dismissed the bidder’s lost profit claim after finding that its bid was properly rejected. The case dealt with a tendering process for a land development project. The plaintiff’s bid was rejected. It brought an action for lost profit damages.
As the Court summarized, the plaintiff bidder’s case was based on Australian case law recognizing the potential application of the Contract A process contract to tendering processes:
The plaintiffs plead that by reason of the matters referred to thus far, the Authority, Westpoint and/or Dockpride, entered into an implied contract, the terms of which were that in consideration of Westpoint and/or Dockpride preparing and submitting a tender and/or Westpoint providing the Westpoint guarantee, the Authority would do certain things and conduct itself in certain ways. The plaintiff referred to this alleged implied contract as a process contract. That is the terminology used by Finn J in Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151, to describe a preliminary contract between the organisation seeking tenders and any tenderer who puts in a complying tender.
The Court recognized that while the process contract may apply to a tendering process and thereby give a losing bidder the right to claim lost profit damages, the process contract does not automatically apply to every tendering process since each process will be governed by its specific terms:
The existence of a preaward or process contract in tenders is not automatic. Whether or not a process contract exists depends on the intention of the parties: Cubic Transportation Systems Inc v State of New South Wales [2002] NSWSC 656 at [31] – [44] per Adams J; Transit New Zealand v Pratt Contractors Ltd [2002] 2 NZLR 313 at [77] – [78]. In an appropriate case a bilateral contract is formed with each tenderer who submits a complying tender. The contents of this bilateral contract depend on the intentions of the parties. The terms, express or implied, of the request for tender will be an important factor in determining the intention of the parties.
While the defendant argued that the existence of a privilege clause that stated that it was under no obligation to accept any bid, including the low bid, was evidence that it had no intention to enter into a process contract, the Court disagreed. The Court relied on Canadian precedents to conclude that privilege clauses are clauses that are commonly found as express terms of a Contract A process contract, as opposed to evidence of an intention to avoid entering into a process contract. The Court ultimately concluded that the parties had formed a process contract in the tendering process in question, since the tender call included the requirement that bids be valid for a defined acceptance period:
The Invitation to Tender provided that the tender may only be accepted by the Authority executing the tender form on or before the Acceptance Date. The conduct of the Authority in seeking the agreement of Dockpride to an extension of the Acceptance Date is a recognition that in the absence of Dockpride’s agreement the Authority would not be able to accept Dockpride’s tender after the Acceptance Date so as to give rise to a binding contract and impliedly that in the absence of an agreed extension of time, it was open to the Authority to accept Dockpride’s tender at any time before the Acceptance Date.
The defendant submits that no process contract should be implied because there is no evidence of any intention to contract, and the pleaded contract terms would be entirely inconsistent with the evidence of what the defendant said to Westpoint at meetings, in correspondence and in the tendered documents, particularly cl 6 of the Conditions of Tender.
The defendant submitted that there was no evidence from any witness that anyone on behalf of the defendant, Westpoint or Dockpride intended to contract with each other as regards process, or proceeded on that basis. However, the question of contractual intent is to be determined objectively not subjectively.
It is to be inferred from the terms of the tender documents and the conduct of the Authority and Dockpride that they intended to enter into a process or preliminary contract. The tender form contains an offer by Dockpride to purchase the lots subject to the Conditions of Sale for the purchase price of $12,188,000. Dockpride agreed to pay a deposit of $1,096,920 within five business days of the Contract Date, that is the date on which the Authority executes the form of tender so as to accept the tender. Furthermore, the conduct of the Authority, particularly the letter of its agent, Chesterton, of 27 February 1998 seeking the agreement of Dockpride for an extension of the Acceptance Date, is an acknowledgement that the parties were in a contractual relationship.
Each of the tenderers had expended substantial time and resources in preparing and submitting its tender. To conclude that Dockpride and the Authority had no intention to enter into contractual relations does not recognise the commercial realities of the Station Square tender process. Such an approach does not accord with the legitimate expectations of the Authority and Dockpride. As Bingham LJ said in Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195 at 1201 there would be “an unacceptable discrepancy between the law of contract and the confident expectations of commercial parties” if that approach were adopted.
The defendant submits that cl 6 of the Conditions of Tender is inconsistent with a process contract being intended. Clause 6 provides that the Authority is not obliged to accept the highest or any tender or precluded from accepting a tender which is not in strict conformity with the tender document.
Clauses of the kind being discussed are referred to by N C Seddon in “Government Contract”, 3rd ed, as privilege or disclaimer clauses. Seddon writes (at p 301):
“There has been a tendency to read such clauses, which provide that the lowest or any tenderer will not necessarily be accepted, against the government party (contra proferentem) so that their protective effect is minimised. … The clause does not provide protection if a contract is awarded in breach of one of the express or implied obligations of the preaward contract (see M J B Enterprises Ltd v Defence Construction (1951) Ltd [1999] 1 SCR 619, Martel Building Ltd v Canada [2000] 2 SCR 860 at [89].”
At 278 Seddon writes:
“Nor does the inclusion of a clause that states that the government is not obliged to award the contract to the lowest or any tender indicate a lack of intention to contract. There are plenty of cases that have held that this clause does not in any way excuse a breach of the process contract.”
I find that there was a process contract between the Authority and Dockpride.
However, while the Court determined that the parties had created a process contract, it ultimately concluded that the plaintiff was not entitled to lost profit damages since there was no breach of the tendering rules in the challenged bidding process.
As this case illustrates, the inclusion of privilege clauses is insufficient to avoid the creation of a process contract and instead can serve as evidence of an intention to create a process contract. Purchasing institutions in jurisdictions that recognize the Contract A process contract should be careful to properly structure the terms and conditions of their solicitation documents if they want to avoid the process contract and the additional legal exposures of lost profit claims.
