Clawing back costs and contracts

Traditionally, the response from unsuccessful bidders has been to simply get on with it, preferring to spend their funds chasing new business rather than brooding over the old. However, as the issue of liquidity becomes ever more important, aggrieved bidders may be more inclined than usual to challenge the tender process itself to seek repayment of their costs and future loss of profit.

But what costs are recoverable? Unsurprisingly, there are differences when dealing with the public as opposed to the private sector. In the private sector, the courts have been reluctant to regulate pre-contract negotiations or to remedy a harsh bargain, taking the view that parties should bear the consequences of risk consciously taken.

That said, there have been notable exceptions. For disgruntled bidders looking to recover damages, the key is the tender process – particularly the risk they have accepted. In the absence of a clear agreement that the work undertaken in bidding as part of the tender process is ‘subject to contract’, damages may be recoverable, depending on several factors. If the work was of a kind usually provided for free during a tender process; the contractor accepted that such work would be unpaid; the employer gained a material benefit; or the failure to award a contract involved fault on the part of the employer.

In addition, the courts have found that there are common-law contractual obligations between the party inviting tenders and the bidders. If there is unfairness in the tender process itself, the failed bidder may have a remedy. Such unfairness could feasibly occur if tenders have not been assessed according to the stated tender criteria or in a uniform manner.

The decision of the High Court of Northern Ireland in J&A Developments Limited v Edina Manufacturing Limited illustrates the point. Edina invited J&A and five other contractors to tender for works. The tender procedure was to be carried out in accordance with the Code of Procedure for Single Stage Selective Tendering 1996. J&A submitted the lowest tender. Edina subsequently invited the participating contractors to reduce their tenders through negotiation. The court found this ‘dutch auction’ to be a clear breach of the tendering process and upheld J&A’s claim. J&A was not only awarded the costs of tendering but also an element of their anticipated loss of profit as they would have certainly been awarded the tender. This amounted to a total of £135,528.

The procurement of public works and services over the current thresholds in England and Wales are regulated by the Public Contracts Regulations 2006. Under the Regulations a contracting authority owes a duty to bidders to award contracts based on objective criteria, ensuring compliance with the principles of transparency, non discrimination and equal treatment in conditions of effective competition. If an authority breaches that duty to the detriment of an unsuccessful bidder, then that bidder may have an action against the authority if they suffer, or risk suffering, loss or damage. Damages are awarded based on that bidder having lost the chance of successfully tendering, had the rules been followed, and later making a profit plus any abortive tender costs.

Disgruntled bidders need to launch proceedings promptly and in any event within three months from the date when the ground or grounds for bringing the proceedings first arose. With the market conditions being what they are and the courts leaving the door ajar for bidders who have not consciously forgone the right to payment or who have otherwise been treated unfairly to challenge the tender process itself, this may well prove to be a growth area for claims in the foreseeable future both in the private and public sectors. Consequently, tender processes may find themselves subject to ever increasing scrutiny.

Kate Parkes, Browne Jacobson LLP
Solicitor, Construction Team
Tel: 0115 976 6520
email: kparkes@brownejacobson.com