This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its August 2009 decision in Deane Public Works Ltd v. Northern Ireland Water Ltd, the High Court of Justice in Northern Ireland, Chancery Division, applied a common law process contract to a bidding process that was not subject to the European procurement directive or domestic procurement regulations. The dispute dealt with a tendering process for the provision of a new ring sewer in Omagh that was valued at £2.5 million. As the Court noted, the European procurement directive and domestic procurement regulations applied only to contracts in excess of £3.5 million, which left a regulatory gap. However, the Court determined that the tendering process remained subject to the common law process contract, under which the losing bidder was entitled to a fair evaluation of its bid. In support of this conclusion, the Court summarized the leading United Kingdom case law authorities that recognized the common law process contract:
Where a party initiates a process of competitive tendering and tenders are submitted, a contract may come into existence between the party and the tenderers that governs the manner in which the competition will be conducted. In Blackpool and Fylde Aero Club Ltd v Blackpool BC [1990] 1 WLR 1195 a group of six tenderers were invited to tender for the concession to operate pleasure flights from the local airport. The invitation to tender specified a deadline and indicated that no late tenders would be accepted. The plaintiffs submitted a tender prior to the deadline but the defendant did not empty their post box as a result of which it was not considered. The court held that a contract should be implied which required the defendant to open and consider the plaintiff’s tender in conjunction with all other tenders. In that case weight was given to the fact that the group of tenderers were identified by the defendant, that the defendant was a local authority and that the tender procedure was clear, orderly and familiar.
There has been consideration of the circumstances in which a contract should be implied both in this jurisdiction and in England in relation to procurement contracts. Harmon CFEM Facades (UK) Ltd v Corporate Officer of the House Of Commons (1999) 67 Con LR 1 and Lion Apparel Systems Ltd v Firebuy Ltd [2007] EWHC 2179 (Ch) both support the proposition that where the procurement contracts are governed by the relevant Directive and Regulations the legal obligations between the parties should be confined to those arising from those provisions. In Natural World Products Ltd v ARC 21[2007] NIQB 19 Deeny J concluded that even where the Regulations apply a contract comes into existence whereby the prospective employer impliedly agrees to consider all tenderers fairly. It is not necessary for me to express a view on that difference of opinion and I will not do so in this judgment.
Noting that the tendering process was highly formal, involved a considerable amount of money, and had a cross-border element that triggered European free-movement treaty obligations, the Court concluded that the process gave rise to the common law process contract:
The tender process in this case was on behalf of a single public utility undertaker. It was a highly formal process in which the defendant was advised at all times by a professional project manager. Although it did not reach the threshold for the operation of the Regulations it involved a considerable sum of money. It related to a project which was approximately 20 miles from the land border with the Republic of Ireland. The project was advertised in both Northern Ireland and the Republic of Ireland and there was at least one response from the Republic of Ireland. This was, therefore, a project with cross-border interest. That gave rise to Treaty obligations particularly in relation to 43EC and 48EC which deal with freedom of establishment and freedom to provide services. All of those factors strongly support the view that a contractual relationship came into existence between the defendant and those who responded by way of submission of a PQQ to its invitation to tender and I am satisfied that such a relationship came into existence in this case.
The Court also determined that the terms of the implied process contract could be read in by the courts under general contractual principles, under which the courts can give business efficacy to the intention of the parties, particularly when dealing with specific classes of contracts:
The next question is to determine the nature of the contractual obligations to which this relationship gives rise. Since the terms of the contract are not express it is necessary to establish what duties are to be implied from the relationship. There are two broad approaches to the determination of whether an obligation should be implied into a contract. In relation to particular contracts an obligation can be implied where it can be demonstrated that the imposition of the obligation is necessary in order to give business efficacy to the relationship (see The Moorcock (1889) 14 PD 634). A term is not simply to be implied because it is reasonable. Applying that test the defendant contends that the plaintiff cannot demonstrate that it is necessary to imply any term in relation to fairness, equal treatment or transparency. At most the defendant contends that the obligation should be restricted to the Blackpool Aero obligation to consider the tender.
There is, however, a second line of authority flowing from cases such as Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555 in which the court will impute to the parties a certain intention by virtue of the nature of the relationship into which they enter. This line of authority was then specifically addressed by the House of Lords in Liverpool City Council v Irwin [1977] AC 239. In that case the parties were the Council which was the landlord of a high rise block of apartments and its tenant and the issue was the nature of the obligation that should be imposed upon the landlord to take reasonable care to keep in repair and lit essential means of access and rubbish chutes. The distinction between the two approaches to implied terms was captured by Lord Cross –
When it implies a term in a contract the court is sometimes laying down a general rule that in all contracts of a certain type – sale of goods, master and servant, landlord and tenant and so on – some provision is to be implied unless the parties have expressly excluded it. In deciding whether or not to lay down such a prima facie rule the court will naturally ask itself whether in the general run of such cases the term in question would be one which it would be reasonable to insert. Sometimes, however, there is no question of laying down any prima facie rule applicable to all cases of a defined type but what the court is being in effect asked to do is to rectify a particular – often a very detailed – contract by inserting in it a term which the parties have not expressed. Here it is not enough for the court to say that the suggested term is a reasonable one the presence of which would make the contract a better or fairer one; it must be able to say that the insertion of the term is necessary to give – as it is put – “business efficacy” to the contract and that if its absence had been pointed out at the time both parties – assuming them to have been reasonable men – would have agreed without hesitation to its insertion.
The majority, Lord Cross, Lord Edmund Davies and Lord Fraser, concluded having regard to the nature of the relationship of landlord and tenant in this high rise block owned by a public authority that the obligations contended for were legal incidents of the relationship. They reached that view on wider considerations of reasonableness and policy. Lord Wilberforce approached the issue on the basis of the necessity test but recognised the elasticity of that test which he described as shades in a continuous spectrum.
There is now considerable support for the view that where one is dealing with the implication of terms in contracts of a particular nature a wider approach can be appropriate. In those circumstances Dyson LJ in Crossley v Faithful and Gould Holdings Ltd [2004] 4 All ER 447 suggested:
It seems to me that, rather than focus on the elusive concept of necessity, it is better to recognise that, to some extent, the existence and scope of standardised implied terms raise questions of reasonableness, fairness and the balancing of competing policy considerations.
The Court then concluded that the process contract included fair treatment duties that applied to the evaluation of bids:
This contract is a highly formal procurement contract conducted on behalf of a state-owned company by professional project managers. It is not subject to regulation by the Directive or any statutory provision. Although the procurement does not reach the threshold for the Directive the contract to be awarded is for a very substantial sum of money. The project lies within 20 miles of the land border with the Republic of Ireland. The project has been advertised in the Republic of Ireland and Northern Ireland and there has been at least one application from the Republic of Ireland. Having regard to the size of the project and its location this is a project with an obvious cross-border interest. In those circumstances the Treaty imposes obligations of non-discrimination on grounds of nationality particularly in relation to establishment and freedom to provide services. The defendant has acknowledged all of these obligations in its published material on the internet. In those circumstances I consider that this is a procurement contract of a certain type in which it is appropriate to imply obligations of non-discrimination and equal treatment. Although it is common case that the advertising of the project was sufficient to address any issue of discrimination on grounds of nationality by reason of notification I consider that the Treaty obligations also apply to the assessment and evaluation of the bids and in the circumstances set out above I consider as a matter of domestic law that those obligations should be implied into the tendering contract.
Although this conclusion is consistent with the decision of Deeny J in Natural World Products it is not inconsistent with the decision of Morgan J in Lion Apparel Systems. In the latter case the critical distinction is that the Directive and Regulations provided a formal legal relationship which in the judge’s view fully governed the legal obligations to which each of them was subject. I also consider that this conclusion is consistent with the conclusion reached by Judge Lloyd QC in Harmon where at paragraph 216 of his judgment he concluded that there was an obligation to treat the tenderers who responded to the invitation equally and fairly where the competition, for the reasons explained, was being conducted outside the machinery of the 1991 Regulations.
On the merits, after concluding that the common law process contract applied to regulate the evaluation of the bids, the Court then determined that the complainant’s bid had in fact been properly rejected as non-compliant for failing to meet the prior experience requirements that called for evidence of a similar project in the prior five years:
I now turn to the meaning of the terms set out at paragraph 2 of the statement of agreed facts above. I will deal first with the term “within the last five years”. In my view these are straightforward words which identify a period commencing with the submission of the PQQ and carry back from that date for a period of five years exactly. Accordingly I consider that any project which was completed prior to 29 August 2002 falls foul of this provision.
The Court then concluded that the bid was validly rejected as non-compliant and dismissed the case on its merits. While this decision may be reasonable in its conclusion, the reasoning adopted to support the review of that evaluation was problematic. As the Court noted, the contract value fell below the threshold for application of the European procurement directive and domestic procurement regulations. However, rather than unnecessarily extending common law process contract principles, that regulatory gap could more reasonably have been filled by recourse to public law judicial review principles. In that context, the broader public interest considerations, including the nature and value of the contract, its cross-border elements, and the applicable treaty considerations, could more reasonably be taken into account to provide a justification for further judicial incursions into the government tendering process.
However, if those public law avenues are no longer available (i.e. where a statutory regime is seen as occupying the field so as to have extinguished common law judicial review for procurements below the regulatory thresholds), it is doubly inappropriate to cloak judicial incursions in a veil of distorted contractual principles. Stated plainly, to impose an implied contract based on the general context of the tendering process (e.g. the value of the contract, its cross-border implications) with no reference to the actual terms and conditions of that tendering process and the governing solicitation documents gives little regard to the intention of the parties. It also gives no heed to the often-stated legal principle that contracts should not be lightly implied.
No doubt, future desperate bidders, for want of any other remedy to support a weak case, will grasp at such decisions as precedent for bringing a lost profit claim against a public body under the “process contract” irrespective of the express provisions of the specific tendering rules. This distortion of contractual principles would be well served to be overruled at the earliest opportunity and, in the interim, distinguished and disregarded so as to give proper weight to the actual intentions of the tendering parties and to the certainty of contracts that depend on adherence to long-standing contractual principles.
