This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its October 2001 decision in Dinh v. Minister for Infrastructure and Public Utilities, the Supreme Court of Vanuatu upheld the rejection of a non-compliant bid, finding that the complainant was not entitled to correct its bid error after the bid submission deadline. The case dealt with a dispute over a tendering process for a road rehabilitation contract. The evaluation process included a prequalification component that screened for capacity to perform the work, and a pricing component that evaluated bid prices.
The complainant’s bid was rejected because it failed to provide the required evidence proving that over the prior five years its average annual income for civil engineering works was three times the estimated value of the tendered contract. The Supreme Court agreed with the government’s determination that the bidder failed to meet this requirement and that the bidder’s calculations contained a mathematical error:
The Pre-qualification document set out in full the procedure. At paragraph 2.2 of the Evaluation it states “The applicant is required to provide evidence that he has had an average annual income from civil engineering construction works carried out over the previous five years of not less than three times the total estimated annual construction costs of the contract for which it has applied… If an applicant fails to satisfy this condition it will not be considered for further evaluation”. The plaintiff simply failed to meet this requirement. By their own arithmetical error they thought they had.
Mr. Palavi filled in the “Assessment of Financial History of Applicants.” Turnover figures for two of the five years required were not available due to factors beyond the plaintiff’s control. This does not affect the issue even if one assumes for the lost years the best or even double the sum of the years when a sum is available. An average turnover was calculated. A contract estimate was inserted and a period of 9, meaning months, was inserted. The document stated “To score a pass the average annual turnover… for the preceding 5 years must be equal to or greater than three times the estimated annual total cost of the contract…” (page 23 plaintiff’s bundle).
Mr. Palavi multiplied the estimate by three and divided by nine. That figure of nine referred to months, and not years. He should have divided by nine-twelfths. The document referred to the estimated “annual” total cost of the contract. Had he made the calculation properly, then SMET would have required an average annual turnover in excess of US$12.4 million. On its own figures the average was US$1.24 million. On that basis the pre-qualification criteria were not met. It was clear on the face of the document that the company could not qualify. This was pointed out verbally and in writing to the plaintiff.
The complainant also challenged the government’s refusal to allow it to correct the error, but the Supreme Court ruled that post-deadline rectifications were not permitted under the rules of that tendering process:
Further complaint was made that no opportunity was given to rectify this error and allow the plaintiff to include his other business interests when qualifying or provide bank guarantees. First, were the Board and the defendants to have deviated from the procedures they had set to allow a bidder a second go, other companies might well have had justifiable claims of favoritism. If SMET made errors in its reading of the documents and filling in of the forms, nothing has been cited to me or adduced in evidence to shew any obligation of any kind upon the defendants to help a bidder correct those errors. The errors were clearly a failure by the plaintiff to read and understand the pre-qualification documents.
The Supreme Court also rejected the complainant’s argument that the experience requirements posed an unreasonable and artificial barrier to competition, noting that the complainant failed to raise concerns over those requirements prior to bidding, and only did so retroactively after it failed to meet the requirements due to error and was denied an opportunity to correct that error:
There is no evidence to suggest Vanuatu companies were excluded. There was specific provision for bank guarantees if a company considered it could do the work but its financial capacity was insufficient (paragraph 3.3 – Instructions page 72, defendant’s bundle). Pre-qualification was open to “Contractors and voluntarily formed joint ventures”. Indeed it is the plaintiff’s evidence that had had he put together a consortium of his companies the financial capacity qualification might have been met on their own or possibly with others. It was too late to suggest this after rejection upon failing to pre-qualify.
A pre- bid meeting was fixed for 30th April. Had the plaintiff had queries about pre-qualification they could have raised them then or in the month to the closing date. M. Palavi frankly accepted he overlooked the pre-bid meeting. There is no suggestion any queries were made up to 31st May.
The plaintiff, through counsel, suggests an artificial financial barrier was raised which was not capable of being met by local contractors. However, the evidence of Mr. Palavi is that with the plaintiff’s other companies and/or bank guarantees the plaintiff could well have qualified. His frustration was that having made the initial errors he was not permitted, when he did understand the range of available qualifying criteria, to have a second chance.
Further, I have had no evidence from the plaintiff that the pre qualification documents on their face in any way supported the plaintiffs’ contentions. Indeed, they appear to be a practical, commercially sensible procedure for awarding contracts of this kind. There is no “barrier” of US$ 12 million dollars. The pre qualification turn over figure is directly dependent upon the value of the contract. The “barrier” did not preclude six firms or joint ventures submitting applications and four of them passing the prequalification test. It was clear on the face of the documents that there could not be a second opportunity to pre-qualify.
As this case illustrates, the enforcement of experience requirements will often result in the rejection of bids and in legal challenges from rejected bidders. Purchasing institutions should therefore ensure that their screening requirements are reasonable and clear, and that those requirements do not impose unnecessary barriers to competition.
