This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its July 2013 decision in HFD Construction Ltd v. Aberdeen City Council, the Scottish Court of Session upheld a contract award after ruling that the winning bidder’s sale and leaseback offer was permitted within the scope of the tendering rules. The dispute dealt with a two-staged tendering process for the development of heritage buildings at Broad Street, Aberdeen, that were formerly used by the Aberdeen City Council (ACC) as their headquarters. A losing bidder challenged the contract award, arguing that the sale and leaseback offer made by the winning bidder, Muse Development Limited (“Muse”), was outside the rules since other bidders were never informed by ACC that they could make similar offers:
It was submitted that ACC had not considered entering into a head lease before the process had begun, this proposition being founded upon a statement in the affidavit of Stephen Lewis (at paragraph 21). Having received the bid from Muse, and being satisfied in principle with the sale and leaseback proposal at Stage 1, ACC ought to have recommenced the process by issuing documents making it clear to all prospective bidders that a sale and leaseback proposal would be acceptable. Even if ACC took the view that its stage 1 Guidance had been sufficiently broad in its terms to encompass a sale and leaseback proposal, it had the opportunity at stage 2 without causing any delay in the process, to make it clear to the preferred bidders that it would accept bids submitted on a sale and leaseback basis. In conclusion, in relation to the bid process, the submission of the petitioners was that ACC having failed to issue accurate documentation at either stage 1 or stage 2, having decided that the Muse bid was acceptable, and having failed to give other bidders the appropriate opportunity to submit bids on the same basis, had created a situation in which it was inevitable that the competing bids could not be compared on an equal footing. Those failures meant that there was procedural unfairness built in to the process. That was said to amount to procedural unfairness and irrationality.
However, ACC countered by arguing that the winning sale and leaseback offer fell within the rules of the tendering process since those rules made it clear that bidders could propose various types of joint venture arrangements to redevelop the site:
In relation to the principle argument of the petitioners, it was submitted that ACC had followed proper and lawful procedures at all times. In particular, it was submitted that ACC acted impartially and transparently at all times. The guidance documentation which was issued to the petitioners and to the other bidders contained advice that ACC were not averse to the consideration of Joint Venture Agreements or partnership arrangements for the development of the subjects. The guidance also made it clear that ACC would be under no obligation to proceed with any proposal presented. Stage 2 guidance stressed ACC’s wish to ensure that it could demonstrate best value in the sale/redevelopment of the site encompassing not only the best financial option from the development but also the best development solution for the site. Accordingly, the guidance made clear to the petitioners and to the other bidders that the respondents would consider Joint Venture Agreements and partnership agreements, such as a sale and lease back, for the development of the subjects. The Muse offer was submitted at its own financial risk. The financial basis of the stage 2 Muse bid was the same as that of the stage 1 Muse bid. No change occurred in the type or format of the Muse bid from the stage 1 process to the stage 2 process. No question was raised in April 2013 about submitting a bid in a different format, as the stage 2 Muse bid was not in a different format from its original bid. Having regard to these considerations, and bearing in mind this was a commercial arrangement, there was no foundation in the petitioners’ arguments.
The Court ultimately agreed with ACC and dismissed the legal challenge, finding that the sale and leaseback offer fell within the scope of the tendering rules and was therefore capable of acceptance:
The next consideration is the nature of the bids evaluated by ACC at the conclusion of the bid process after the closing date and, in particular, whether ACC were entitled to entertain a bid such as that made by Muse on a sale and leaseback basis. In determining this issue, I consider it necessary to have regard to the fact that this was, plainly, a commercial arrangement. ACC sought to dispose of subjects in a manner which was consistent with their statutory duties to obtain best price and value, whilst at the same time fulfilling certain development objectives. The subjects in question were both of significant capital value and in a prominent and important area of the city for which ACC are the responsible local authority. They engaged skilled external agents to assist them in this disposal process. The significance of the disposal of the subjects to ACC is, in my view, self-evident. The petitioners and other bidders in this proposed transaction were also commercial bodies with expertise in the property market who no doubt, also had access to skilled professional advice in the preparation of bids. These factors cannot in my view be ignored when considering construction of the guidance documents which provided the source of information on the terms upon which ACC were prepared to transact in relation to the subjects and upon which bidders were entitled to rely. It is plain from the evidence presented to me that there is scope for differing interpretation of the guidance documents. Persons both appropriately qualified and with experience in the commercial property market entertained different views as to whether or not the words used in the guidance documents were habile to cover an arrangement of the sort proposed by Muse.
I also have to have regard to the nature of the guidance documents. As their name suggests, they were in my view intended to provide assistance or guidance to, in the stage 1 document, potential bidders or, in the stage 2 document, preferred bidders. They were not in my view intended to be regarded as in the nature of, for example, conveyancing writs where exactitude of language might be expected and required. There is also the consideration that by reference to the language of the documents, it is tolerably clear that ACC were actively seeking and encouraging innovative proposals for what was clearly a major commercial development so far as they were concerned. Viewed in this way, I have come to the view that counsel for ACC and Muse were correct in their submission that the language of the documents was sufficiently wide to encompass an arrangement of the sort proposed by Muse.
As this case illustrates, when purchasing institutions go to market in a tendering process that seeks creative solutions, they should scope the opportunity and frame the process rules in a manner that allows them to validly accept a broad range of potential solutions. Those rules should clarify that the onus remains on bidders to propose their own creative solutions since the creative solutions offered by other bidders will not be disclosed to competitors.
