Could you ever become liable for the costs of an unsuccessful tenderer in your RFT (Request for Tender) process? On the face of it, that possibility seems outrageous. But the 1997 case Hughes Aircraft Systems International v Airservices Australia* is a landmark outcome in Australia that serves as a warning about the landmines in the tender process, when an unsuccessful tenderer is not happy!
The Hughes case had its origins in the decision of the Civil Aviation Authority (now known as Air Services Australia) to conduct a tender process for the supply of a new air traffic control system. The tender process was long and complicated. At the end of the process, the CAA awarded the supply contract to one party. But the other party (Hughes) was angry that it was overlooked for the contract, and sued the CAA for the costs it incurred in its unsuccessful bid. The CAA of course argued that it shouldn’t be responsible for the costs of an unsuccessful bidder – after all, it was Hughes’ decision to tender, and it simply wasn’t the favoured candidate at the end of the day. From CAA’s perspective, the tender process was merely about understanding the deal that each of the tenderers were offering – it wasn’t engaging in a contract, or creating any contractual obligations for itself, merely by sending out an RFT.
It certainly is interesting to ponder whether a respondent to one of your RFTs might have an action against you if they weren’t successful. Surely no rights arise for a tenderer until a final supply contract is concluded? Could it possibly be the case that the courts would award damages to an unsuccessful tenderer?
Interestingly, the courts said – yes. And awarded Hughes its costs – leaving the rest of us to ponder what lessons can be learnt in our own tendering situations to avoid the risk of a similar outcome.
Hughes’ award of damages was based on the court’s finding that the CAA had contractually undertaken to conduct the tender process fairly and in accordance with procedures and criteria that were set out in the RFT – and by failing to comply with the procedure and criteria it had set out itself, it had breached Hughes’ rights in the tender process.
So the lesson is clear. If you tell your tenderers that you will be conducting the tender process in a certain way, and then you don’t, unsuccessful tenderers might have recourse. Against you! In fact, the court went even further in this case, by implying a general duty upon the CAA to act in fairness and good faith in the tender process.
The Hughes case was a big victory for tenderers, as the courts recognised that sometimes an RFT (or RFP, or whatever you happen to be calling it) can sometimes create a preliminary binding contract, or a “process contract”, obligating the parties to act in a certain way in the tender process (and with fairness and good faith). The reality is that in RFTs we often want to set out details relating to how the tender process will be conducted, closing times for submissions, and dates on which you will take certain actions or a tender process timetable. This is not in itself a bad thing, but how then do you create enough wriggle room to enable you to deviate from the process you have set, if things change?
Here are some tips: Protect yourself by taking careful stock of the conversations you are having with your tenderers, and the wording you use in your RFT/RFP documentation. Avoid obligating yourself to specific timelines, or processes. Make sure it is clear that you might change your evaluation process, or weightings. Or that you might decide not to go ahead with contracting at all. Give yourself space to amend the selection criteria. Make it clear that you might change your requirements, you may vary the information you have requested in the RFT, and you may seek offers from parties who may not have initially responded to the RFT. Treat your tenderers’ responses with confidentiality, and generally try to conduct the process with the same kind of fairness that you would expect if you were a tenderer.
Of course, there are many more issues in tendering than just the risks in creating a “process contract”, and we will look at some of those areas in the next edition – but for now, maybe it’s time to revisit your RFP documentation and processes and make sure you aren’t inadvertently creating landmines in your tendering process.
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