This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its December 1994 decision in Pratt Contractors Ltd. v. Palmerston North City Council, the New Zealand High Court found the City of Palmerston North liable for bypassing a low bidder. The case involved a tender call for the construction of the Summerhill Drive flyover. The tender call rules stipulated that bidders had to satisfy prescribed pass/fail criteria and that the award would then go to the lowest bidder.
Pratt Contractors Ltd. submitted the lowest bid. However, the City decided to bypass that bid in favour of an alternate bid that proposed a different construction method that would save $250,000 in construction costs. Pratt sued, arguing that it was entitled to the contract award as the lowest compliant bidder. The Court agreed, finding that the tender call had given rise to a tendering process contract and that the City was required to make an award based on the rules it established in its tender call:
Once it determined to accept a tender, then I think it was obliged to do so on the basis on which it sought tenders. The plaintiff has therefore been the victim of a breach of contract because once the Council purported to act within the tendering framework, it was obliged, if it awarded a contract at all, to award it to the tenderer submitting the lowest conforming bid.
The Court awarded Pratt lost profit damages because it would have won the contract had the rules been properly followed.
As illustrated by this case, purchasing institutions should be careful to establish clear evaluation and award criteria and, once established, should ensure that those criteria are properly applied. It is essential to ensure a proper alignment between specifications and pricing structures and to ensure that bids are evaluated in accordance with the evaluation structure created in the tender call.
