Tendering pitfalls: the importance of "no process contract" clauses

Friday 15 September, 2017

A recent decision of the High Court in The Rintoul Group Limited v Far North District Council [2017] NZHC 1132 highlights the legal risks faced by local authorities running tender processes, and the importance of ensuring that tender documents are carefully drafted to protect the local authority’s freedom, while reflecting the importance of fair tendering processes. 

Facts

The Far North District Council (“the Council”) called for separate tenders for 15 separate sections of the twin coast cycle trail.  The Rintoul Group Limited (“Rintoul”) had completed several sections of the trail, and submitted tenders for four further sections.   Applying the “price quality” approach, Rintoul was likely to emerge as the preferred tenderer.  However, Council staff raised concerns that Rintoul had misrepresented a previous project referred to in Rintoul’s submission.  Based on these concerns, the Council made a decision to exclude Rintoul from the tender process.  The decision was communicated to Rintoul in a letter from the Council’s in-house lawyer.

Breach of process contract

The Court found that the Far North District Council was in breach of the tender “process contract” for wrongfully excluding Rintoul from consideration.  Although there was a “privilege clause”, which provided that Council was not obliged to accept the lowest price, highest scoring or any other tender, there was no express or implied term allowing the Council to exclude a tenderer unilaterally, even if the submission contained manifestly untrue information.

This result could probably have been avoided had the tender contained a “no process contract” clause.  These clauses have been upheld by the Courts to prevent unsuccessful tenderers from challenging the outcome of a tender process. 

“Loss of a chance”

The Court then went on to consider the likelihood that Rintoul would have been the successful tenderer had the Council not breached the process contract.  The privilege clause was relevant, but did not completely determine the issue; the Court needed to consider how the Council would actually have behaved. On balance, the Court concluded that, had Rintoul not been excluded from the tender process in breach of contract, the likelihood that it would have been awarded the four tenders was 50%.  The actual loss suffered by Rintoul (and payable by Council) is to be resolved at a further hearing if the parties cannot agree.

Comments

This case illustrates the importance of including a “no process contract” clause in tender documents; a privilege clause may not, on its own, protect a local authority’s freedom to select the successful tenderer.  Tender documents may also provide for specific circumstances in which tenders can be excluded. The case is a reminder of the importance of making sure that decisions made during the tender process are consistent with the local authority’s obligations under the tender documents and at law.

Our team has considerable experience in advising local government clients on their obligations around tenders.

For more information about this area, please contact James MacGillivray or Mark Renner.