15 November 2016

What is a tender?

A tender is a submission made by a prospective supplier of goods or services made in response to an invitation to tender.

Construction tenders are likely to be used for the selection of a contractor to deliver a programme of works.

In recent years 'procurement routes' have become increasingly complex and construction tenders are increasingly used to commission a range of goods and services. It is not uncommon for a sole contract to be used to commission a contractor, designers, sub-contractors, suppliers as a collective 'integrated supply team', for example.

This guide focuses on private sector tendering as distinct from tenders in the public sector.

What form might a tender take?

Open to all organisations to submit a tender. On large projects this may involve a pre-qualification process that results in a list of suitable suppliers who will be invited to tender. This open approach may result in a large number of responses of varying suitability.
Selective Suppliers on a pre-selected list are invited to submit tenders. Maintaining and regularly reviewing such an 'approved list' gives confidence that requirements will be met but may disclude new or innovative suppliers.
Highly specialised contracts may take a negotiated approach with a single supplier but this can become competitive and even adversarial if not controlled.
Serial Tenders are produced using a notional bill of quantities or schedule of work. Rates submitted are used to value works over a series of similar projects for a set period of time, reducing tender costs and encouraging suppliers to keep rates low to secure ongoing work.
Framework Those who are regularly commissioning might use a framework agreement to invite tenders over a period of time that can be used as and when required. This approach delivers a selection process without time-consuming pre-qualification and reduced tender costs.
Single-stage or Two-stage
Where enough information is available to calculate a realistic price upfront then a single-stage process might be adopted. Where information is lacking, a two-stage approach allows a supplier to be appointed early with a limited appointment agreed to allow work to commence. A price is negotiated later on.

What governs private sector tenders?

A typical set of tender documents and the common law set out some rules and it's a breach of these rules that can trigger a claim. Both require a tender contract to govern how the tender will be conducted. This is separate to a contract for the work itself which may (or may not) be entered into at the end of a tender process.

The case of Blackpool and Flyde Aero Club v Blackpool Borough Council recognised that it is possible for an implied contract to exist at tender stage so care is needed from the start. Terms will vary but are likely to include an obligation to treat a tenderer fairly - for example, by stipulating that all compliant tenders submitted before deadline will be considered as part of the process.

Any breach of an implied contract can give rise to damages. Typically there is no need to turn to the common law position with the contracts themselves providing express terms that can be challenged. Moreover, a disgruntled contractor would rarely need to prove an implied contract for the tender process with the tender documents themselves providing the basis of a challenge.

Where might litigation come from?

While breaches of the public sector tender process may seemingly find their way to court more frequently, it's foolish to think that private sector tenders are all 'plain sailing' with claims for wasted tender costs and loss of contract not uncommon.

Claims could potentially be brought between contractor and employer, a subcontractor against a contractor and an employer against an architect. An aggrieved contractor might claim not only for his tender costs but potentially his loss of profit on a job. A subcontractor could also potentially sue a main contractor on a job for exactly the same reasons.

The professional team are not immune either -  an employer choosing to sue his architect for advising him that the way the tender process was being conducted was in breach of the rules (thus exposing the employer to a claim), for example.

The JCT guidance effectively enshrines a sense of 'fair play' into the process and recognises that those who submit tenders have invested time and money into the process

What rules are laid out in a tender document?

It's fair to say that tender documents are not always given the care and attention they deserve. Cut and pasted sections from previous tenders often find their way into new documents with little thought given as to meaning or relevance on a new project. Though understandable this approach can obviously store up trouble and time invested honing documents can help save both time and money in the long run.

Many contracts will make reference to professional guidance such as the JCT Tendering Practice Note 2012. Provisions in such notes have been recognised by the courts as providing the 'rules' by which the tendering process should be governed.

The JCT guidance effectively enshrines a sense of 'fair play' into the process and recognises that those who submit tenders have invested time and money into the process. For example, the JCT Tendering Practice Note makes it clear that the employer must abide by the criteria established around the tendering process as “to do otherwise would leave the Employer and his advisers open to challenge by unsuccessful tenderers” (JCT, para 59).

Even if you cannot identify a particular clause that has been breached this does not mean you are on safe ground if you depart significantly from the intent that the tender process should be fair.

What are the rules around reducing prices?

The JCT Practice Note makes clear that "Good practice demands that a contractor’s tendered prices should not be altered without justification” (JCT, para 61)". Following this advice it is possible to reduce prices in return for a lower specification but if an employer simply wants to pay less this may not constitute a justified change.

The 2006 case of J&A Developments Ltd v Edina Manufacturing Ltd & ORS, though heard in Northern Ireland, is of relevance here. Here tender documents alluded to being in accordance with a code of practice that allowed no arbitrary reduction of tenders. Edina Manufacturing then asked the three lowest tenderers to arbitrarily reduce their price. J&A Developments refused but another tenderer did, thus usurping J&A as lowest bidder.

The case found that although a prospective employer may reject a tender on any number of grounds, this rejection of J&A's tender breached a contractual obligation. J&A sued and won wasted tender costs and loss of profit. The employer then tried to sue his architect for failing to warn him of the risks of how the tender process was being conducted. Though the court held the architect was not liable you can imagine that the claim came as a bit of a surprise to the architect.

Six top tips for private sector construction contracts

Though in the private sector for abuse of the tender process are rare, perhaps this is indicative of the buoyant construction market over the last few years and in a downturn we might potentially expect increased litigation. Carefully considering whether your tender documents are fit for purpose and getting acclimatised with the relevant stipulation is likely to be time well spent.

1. Be sure when tender contracts apply

Employers and contractors should familiarise themselves as to the circumstances in which a tender contract might apply. If you are not sure it is reasonable to assume that a tender contract applies to the process. Remember this could be implied (as per the Blackpool case) or might be stipulated in the way the tender documents are written.

2. Carefully consider the terms

Employers and contractors should both consider very carefully the terms of any contract, and treat this as they would any other contract. Be mindful that any breach can trigger damages in the usual way so employers should only include essential stipulations.

3. Regularly review the contracts you use

Employers should regularly review contracts with particular regard to 'cut and pasted' preliminaries and tender rules. Are they accurate? Relevant? Appropriate? Do you want to conduct your tender differently?  If so, you need to say so.

The more prescriptive you want the process to be the clearer the wording in the tender documents should be to ensure that those who decide to submit a tender are fully aware of how the process is to be conducted.

If you want to hold a dutch auction then consider the J&A case and how clear the wording needs to be in those tender documents. You should ensure that contractors know the rules governing the process from the outset and can decide whether or not they want to take part in full possession of the facts.

4. Consider the rules for subcontract tenders

Contractors should clear about how tenders for any subcontracts will be administered. Though this might mirror the main contract tender process it should be clear to everyone how these arrangements will be administered.

5. Be clear on who is responsible for advice and monitoring

The professional team should be clear as to whether the employer expects advice as to how the tender process is run or are able to do this themselves. The team should also be clear as to the scope of the professional advice they are required to give - where is the line drawn when it comes to advising on potential pitfalls?

6. Consider the industry-accepted rules of 'fair play'

Don't ignore industry-standard professional conduct rules. Ask yourself whether your process departs significantly from industry-accepted rules of 'fair play'?  There are certain conduct rules that govern the concept of not bringing the industry into disrepute itself - such as the guidance from bodies like the RIBA or RICS.

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