This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
The 1957 decision of the England Court of Queen’s Bench in William Lacey (Hounslow) Ltd. v. Davis recognized that in some instances unsuccessful bidders may be entitled to recover their bidding costs based on common law remedies. The Court recognized that, as a general rule, bidding costs are considered to be an inherent risk of tendering and are therefore not recoverable. However, it also recognized that, in exceptional circumstances, an unsuccessful bidder may recover those costs when the bidder is led to believe that it will be awarded a contract and the tendering process is subsequently cancelled.
In this case, a tender call was issued for the repair and reconstruction of a building in Fulham that was damaged during World War II. A firm of builders, William Lacey (Hounslow) Ltd., submitted a bid in reply to the tender call. They were informed they were the low bidders and were led to believe that they would be awarded the contract.
Prior to the formalization of any contract, William Lacey was asked for follow-up estimates for the purpose of obtaining necessary building licences. To assist the owner in negotiating compensation from the War Damage Commission, William Lacey was also asked to submit additional pricing based on an alternate design and was then asked to provide another estimate for a third alteration to the original plans.
The owner then informed William Lacey that he had decided to use another firm for the work, but instead proceeded to sell the building. William Lacey claimed that throughout this period they had been acting on the belief that they would receive the contract to perform the work and therefore sought compensation for the additional work done in responding to the tender call.
In considering the claim, the Court recognized that in typical circumstances bidders bear the risk and costs associated with the bidding process and are not entitled to any compensation for those costs:
[I]f a builder is invited to tender for certain work, either in competition or otherwise, there is no implication that he will be paid for the work — sometimes the very considerable amount of work — involved in arriving at his price: he undertakes this work as a gamble, and its cost as part of the overhead expenses of his business which he hopes will be met out of the profits of such contracts as are made as a result of tenders which prove to be successful. This generally accepted usage may also — and I think does also — apply to amendments of the original tender as necessitated by bona fide alterations in the specification and plans. If no contract ensues, the builder is, therefore, without a remedy.
However, the lawyer for the plaintiff advanced an alternative rule for instances where tenders are sought for some extraneous purpose or where the bidder assumes additional work after being led to believe that it will be awarded the contract:
Mr. Daniel, however, contends that no such principle applies if the builder’s tender is sought and used not to ascertain the cost of erecting or reconstructing some genuinely contemplated building project, but for some extraneous or collateral purpose for which the building owner may require it. In such circumstances, Mr. Daniel suggests that the builder is entitled to recover a reasonable payment for the work. It may also happen — as it certainly did happen in the present case — that when a builder is told that his tender is the lowest and led to believe that the building contract is to be given to him, he, the builder, is prepared to perform some incidental services at the request of the owner without any intention of charging for them as such. He is not — Mr. Daniel suggests — rendering these services gratuitously, but is content to be recompensed for them out of the profit which he will make under the contract. If, without default on the builder’s part, no contact supervenes, then, says Mr. Daniel, the law will imply a contract to pay a reasonable sum for these services.
The Court agreed, finding that the work performed by the plaintiffs fell “outside the type of work which any builder would be expected to do without charge when tendering for a building contract” and furthermore that “no one could expect a business firm to do this sort of work for nothing.” The Court therefore found that William Lacey was “entitled to a fair remuneration for the work which they have done” and awarded damages to compensate for their work. As this case demonstrates, a party should avoid issuing a tender call in instances where it does not intend to award a contract, since cancellation decisions can attract successful legal claims.
