Procurement Contracts: Competitive Tendering

The procurement process has long been a source of frustration within the construction industry. The time and expense contractors and subcontractors invest in tendering for work is often substantial. The nature of competitive tendering means that not all bids can be successful, usually leading to a net loss on this investment for the losing parties. This frustration can be compounded where an employer fails, for whatever reason, to consider the bids fairly or even at all.

Before the end of the twentieth century, there was little authority for the concept that tenderers had any common law rights against those tendering the work. There are several nineteenth-century cases being authority for an invitation to tender being merely an invitation to treat. The effect being, that no contractual relations arise between the parties until the procurer of the works chooses to accept a bid and thus the party inviting the bids could act largely as it wanted.

The leading case is Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990]. Here, the local authority had invited tenders for which the tender documentation provided a deadline, after which no further bids would be considered. The claimant submitted a tender ahead of the deadline, but by error, the defendant failed to consider it. The defendants raised privity of contract arguments claiming there was no case to answer as there was no contract between the parties and that the invitation to tender was no more than a proclamation of willingness to receive offers. Nevertheless, Bingham LJ held in the Court of Appeal decision that:

the invitee is in my judgment protected at least to this extent: if he submits a conforming tender before the deadline he is entitled, not as a matter of mere expectation but of contractual right, to be sure that his tender will after the deadline be opened and considered in conjunction with all other conforming tenders or at least that his tender will be considered if others are.

Bingham LJ held that a tender contract existed between the parties. This implication turned heavily on the facts, and Bingham LJ stressed that implied contracts are 'not to be lightly implied.' In this case, it was shown on the balance of probabilities that the parties intended to create contractual relations; the defendant's invitation to tender and the claimant's submission represented valid offer and acceptance. 

Contracting authorities can still rule out tenderers but if they are to discount a bid without considering it there should be a justifiable reason why this is being done. For instance, the Court held in Fairclough Building Limited v Port Talbot Borough Council [1992] that the defendant was obliged to consider all tenders unless there were reasonable grounds for not doing so – in this case, a conflict of interest between the parties. 

The Court's approach in the Blackpool and Fylde case was reaffirmed by Harmon CFEM Facades (UK) Limited v The Corporate Officer of the House of Commons [1999]. HHJ Humphrey Lloyd QC held that:

I consider that it is now clear in English law that in the public sector where competitive tenders are sought and responded to, a contract comes into existence whereby the prospective employer impliedly agrees to consider all tenderers fairly.

This begs the question, what constitutes fairness? In this case, the defendant had, amongst other things, made procedural concessions to one tenderer to further its covert 'Buy British' policy to the unfair exclusion of the claimant.

These cases demonstrate the nature of protection afforded by the common law in this area. The level of damages awarded to Harmon were substantial, reflecting its loss of opportunity (profit on the project) and the costs incurred in preparing its tender, totalling circa £2million.

In Adferiad Recovery Ltd v Aneurin Bevan University Health Board [2021], the claimant's tender was considered, but it argued the defendant had failed to meet its contractual obligations to: 

(i) evaluate tenders fairly, in good faith and in accordance with the tender documentation; and 

(ii) make an assessment free from any manifest error. Judge Keyser QC carried out an objective assessment of the factual evidence to ascertain whether, in his opinion, a contract was implied and, if so, what its terms were. Judge Keyser QC held that:

• A contract of the kind recognised in the Blackpool and Fylde and JBW Group cases … would not avail the claimant, because there is no arguable case that the defendant failed to comply with that limited obligation if it existed. 
• A contract of the kind relied on by the claimant, including obligations to conduct the assessment free from any manifest error, goes far beyond the limited contract accepted in those cases and could only be implied upon compelling factual grounds, which are wholly lacking in this case.
• Moreover, the crucial requirement of objectively demonstrated intention to undertake the contractual obligations relied on is not only absent but expressly negatived by the tender documentation. That documentation is inconsistent with any intention on the part of the defendant to enter into voluntary contractual obligations at all (thus precluding even a Blackpool and Fylde contract).

Judge Keyser QC was also critical of the claimant attempting to create a contractual basis for obligations which would have arisen under the Procurement Regulations if it had applied (as in JBW Group). This case demonstrates that the extent of protection under common law for tenderers can be limited.

Proving the existence of an implied tender contract turns on the facts. There is a need to demonstrate, inter alia, there was an intention between the parties to create binding contractual relations. Wording within an employer's tender documents, which expressly sets out the parties' intentions, can prevent a tender contract from coming into being – the following wording did just that in the Adferiad case.

21.2.6 Nothing contained in this ITT or any other communication made between the Customer shall constitute an agreement, contract or representation. Receipt by a potential supplier of this ITT does not imply the existence of a contract or commitment by or with the Customer.

Where a contract can be shown to exist, the scope of that contract (i.e., what the agreed terms were) is even more difficult to prove, especially where the contention is the terms are more onerous than that considered in the Blackpool and Fylde and JBW Group cases. Such cases will turn on an objective assessment of the evidence, but such terms 'could only be implied upon compelling factual grounds' with sufficient evidence to support it.

In Harmon, HHJ Humphrey Lloyd QC specifically referred to 'the public sector' when determining when a tender contract came into existence. The case before the Court was, after all, a public sector case, and so perhaps the judgment was limited to the case before it rather than a commentary (either for or against) on its application to private matters. It leaves the question of how far Harmon can be applied somewhat unanswered, whilst the criticisms levelled at the client, in this case, could equally (and, perhaps, do) arise in the private sector.

In J&A Developments Ltd v Edina Manufacturing Ltd [2007], the Court considered the position in respect of two private companies. Here, the Court held that a tender contract existed between the parties and that wording in the tender documents, which stated the process was to be in accordance with the Code of Procedure for Single Stage Selective Tendering 1996, was a term of that contract. The defendant failed to follow the procedure and was, therefore, in breach of contract. McCollum J commented that 'this case does not turn on the issue of implying a term of a contract but of determining the meaning and effect of a specific term contained in the contract.' Therefore, it can be distinguished from the public sector cases on the basis that the Court was not having to imply a tender contract in line with Blackpool and Fylde.

Nevertheless, when considering the existence of implied contracts and the obligations on procurers to consider tenders in good faith in the private sector, it is important to note Elias LJ's obiter in JBW Group that:

Mr Vajda [for the defendant] contended that this was an obligation under public rather than private law, but I do not see why this should preclude the obligation arising in private law also.

Similarly, in Adferiad, Judge Keyser QC noted that:

The Blackpool and Fylde case expressly does not establish any general rule about the existence of contracts in procurement cases; it rested on the application of basic rules of contract to the facts of the particular case.

Therefore, the principles of common law which give rise to the implication of a tender contract apply across the board, that is to the public and private sectors equally.

Most challenges to contract awards are in the public sector and brought in accordance with the Procurement Regulations. The Procurement Regulations impose well-understood and comprehensive principles for public sector procurement which go beyond the limited obligations at common law. Nevertheless, why has there not been a flurry of cases in the private sector following the authority of Blackpool and Fylde? This may be due to the fundamental differences between public and private projects. Contracting authorities in the public sector cannot select a contractor without putting the project out to tender, and, therefore, the temptation to give preferential treatment to one tenderer over another is perhaps more likely to occur. In contrast, private procurement is not restricted in this way. 

Employers and their advisers must be cognisant of these potential pitfalls when undertaking a competitive tender process. Such parties need to understand the extent to which procurement processes create contractually binding obligations. Similarly, contractors and sub-contractors who have lost a competitive tender where there is an element of unfairness (such as, in Harmen) may have a claim against the party tendering the work.