SIMPSON GRIERSON

NOVEMBER 2003

Important new case for

Tendering Processes In 2002 we reported on the Court of Appeal's decision in the dispute between the unsuccessful tenderer Pratt Contractors and Transit NZ, where Transit successfully appealed the lower court decision in favour of Pratt. We noted that the pendulum had swung in favour of principals in tender disputes in that decision. The very recent tendering case of Onyx Group Limited v Auckland City Council reinforces that trend and makes it even more difficult for unsuccessful tenderers to challenge a tender process whether it be in the public or the private sector. The September decision of Justice O'Regan

and eastern areas of the city. Tenders for

outscored Onyx which had not offered a

in Onyx Group Limited v Auckland City Council

individual contracts were first evaluated

discount for bundled tenders.

shows that principals can contract out of

using a weighted attribute method for price

Onyx challenged in the High Court the

obligations they owe to tenderers if they

and non-price attributes, followed by

Council's decision to award the contracts

include

their

tenders for more than one contract

to Metropolitan Waste and Auckland

It also confirms that a

(bundled tenders). The results were then

Waste, arguing that the Council breached

principal is entitled to consider a non-

compared to see which options offered the

its own process for evaluating tenders and

conforming tender if the conditions of

best

that without these breaches it would have

tendering provide for that, and it is the

ratepayers.

the

documents.

right

wording

in

principal's job to set its evaluation process

service

and

price

results

for

won the contracts.

It claimed tendering

Although Onyx was the highest scoring

costs of $20,000, loss of profits of around

Simpson

tenderer individually for each of the

$9.5 million and loss of goodwill of

Grierson's construction team acted for the

western and eastern contracts, it finished

$500,000.

Council both in the tender process and in

second behind the successful tenderers

successfully defending the litigation that

Metropolitan Waste and Auckland Waste

followed.

once individual tenders were compared

and not that of the courts.

with bundled tenders. This was because

The Dispute In late 2000 the Auckland City Council put up for tender $100 million of contracts for the collection and disposal of the city's household rubbish. Onyx Group tendered for two of those contracts for the western

the

disposal

subcontractor

for

both

Metropolitan Waste and Auckland Waste offered

a

disposal

discount

if

both

companies were successful in winning the western and eastern contracts. With the disposal

discount,

the

tenders

for

Metropolitan Waste and Auckland Waste

Court’s Decision Justice O'Regan found that the Council owed no legal duties to Onyx in relation to the process that the Council would follow in evaluating tenders. The court gave full effect to the Council's conditions of tendering prepared by Simpson Grierson which contained a clause stating that no legal obligations arose between the Council

and tenderers until such time as the

that process.

Council entered into a contract with the

instead to check that the process

successful tenderer.

adopted was followed.

Even if there were legal obligations, the

5. Lastly

the

The court's role was

court

rejected

Onyx's

court found that the Council had not

attempt to argue (in the alternative to

breached those obligations. The Council

its breach of tender contract claim)

was entitled to consider the Auckland

that the Council had been negligent in

Waste/Metropolitan

evaluating

Waste

disposal

tenders.

The

court

discount under its general discretion to

considered that there were good policy

consider non-conforming tenders in its

reasons why principals should not owe

conditions of tendering.

duties of care to tenderers in the tender process. This case underlines for principals the

Implications of Court’s

importance

Decision The case is significant for a number of reasons: 1. It shows that the courts will uphold clauses in conditions of tendering stating that principals owe no legal obligations to tenderers until they accept the tender of the successful tenderer.

This raises a significant

hurdle for unsuccessful tenderers in any future

challenges

of

tendering

processes where the same clauses are present. The obvious point is that, if the courts will allow such clauses to have full effect, principals have to make sure

they

include

them

in

their

conditions of tendering. 2. Justice O'Regan also gave full effect to the general clause allowing the Council to consider non-conforming tenders in its discretion. This is a standard clause in conditions of tendering used by principals generally in New Zealand which is important in encouraging innovation in tenders. 3. You will all have been aware of the requirement to act fairly and evenhandedly

in

evaluating

tenders.

However there has been confusion about what this means in practice. This case shows that, despite the fairness

conditions

of of

ensuring tendering

that are

their

will owe legal obligations to unsuccessful tenderers and to make it harder for tenderers to establish that the tendering

is still possible to claim for failure to follow tender processes if the conditions of tendering are detailed and do not contain

after the previous judgments of the High Court in the mid-1990s in favour of unsuccessful tenderers. tendering

are

carefully

If conditions of drafted,

have to establish that there was a breach of process but also that the principal owed it legal duties in the first place. This is likely

James Craig, Senior Associate DDI: 09 977 5125 Fax: 09 977 5089 [email protected]

Lisa Scott, Senior Associate DDI: 09 977 5249 Fax: 09 977 5046 [email protected]

to be a tough hurdle to jump in the future. As a result the pendulum has swung for the moment in favour of principals in the tender process.

However, in a further

twist, Pratt Contractors' appeal of the

Alison Godkin, Senior Associate DDI: 09 977 5327 Fax: 09 977 5046 [email protected]

2002 decision of the Court of Appeal relating to its dispute with Transit NZ was heard in the Privy Council in October. No decision has yet come out but we will keep you updated on the result.

Project News is produced by Simpson Grierson. It is

Even though the court had some

found it was up to the Council to set

[email protected]

the

intended to provide general information in summary form.

method of calculating tender scores, it

Michael Weatherall, Partner DDI: 09 977 5097 Fax: 09 977 5089 Mobile: 029 977 5097

unsuccessful tenderer will now not only

express

evaluation

[email protected]

reduce the incentive to litigate which arose

what evaluation process it wanted. the

Anne Callinan, Partner DDI: 09 977 5031 Fax: 09 977 5089 Mobile: 029 977 5031

discretions. However, the case may well

4. The Council was permitted to choose

about

[email protected]

For contractors, the case signals that it

terms in the conditions of tendering.

reservations

Graeme Christie, Partner DDI: 09 977 5074 Fax: 09 977 5046 Mobile: 021 960 493

process was unfair.

The duty to act fairly and evenoverride

[email protected]

properly

to look out for their own interests. cannot

Carole Durbin, Partner DDI: 09 977 5072 Fax: 09 977 5089 Mobile: 021 935 401

drafted to reduce the likelihood that they

obligations, principals are still entitled

handedly

Contact Information

The contents do not constitute legal advice and should not be relied on as such. Specialist legal advice should be sought in particular matters. © Simpson Grierson 2003

Auckland Office. Simpson Grierson Building, 92-96 Albert Street, Private Bag 92518, Wellesley Street, Auckland, New Zealand. Tel +64 9 358 2222 Fax +64 9 307 0331 DX SX 10092. Wellington Office. HSBC Tower, 195 Lambton Quay, PO Box 2402, Wellington, New Zealand. Tel +64 4 499 4599 Fax +64 4 472 6986 DX SX 11174. E-mail: [email protected] Website: www.simpsongrierson.com