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Claim by Unsuccessful Tenderer - Award of Contract to Non-Compliant Tenderer

In earlier editions of this newsletter we have commented upon cases dealing with deficiencies in the award of tenders. There appears to be a broad consensus in the common law world that when a tender response is delivered a "process contract" arises. This contract arises on the basis that the tendering party's submission of a tender is consideration for an undertaking on the part of the procuring party to consider the tender. As a result of this contract a tenderer can make a claim if their tender is not considered in accordance with the terms of the tender. It should be noted that in addition to this common law right. in many jurisdictions alternative statutory remedies although in some cases these remedies are limited to the entitlements arising under the WTO Government Procurement Agreement.

A recent decision of the Supreme Court of Canada raises an interesting point with regard to the recovery of claims for loss of profit where there is a deficiency in the tender process. It is noted that loss of profit cannot be recovered under the WTO Government Procurement Agreement and thus resort must be made to other remedies. In Design Services Limited v Canada a tenderer's bid was rejected in favour of a noncompliant bid. The tenderer's claims were settled by the purchasing authority, however a group of subcontractors and consultants involved in the preparation of the tender wished to seek recovery of their own economic loss. In the absence of a contract, process or otherwise, between the subcontractors and the purchasing authority the claim had to be pursued on a noncontractual tortious basis. The subcontractors contended that the procuring authority owed them a duty of care to adhere to the tender criteria. In this case the Canadian court refused to impose a duty of care between the prospective employer and the subcontractors.

In certain jurisdictions this conclusion would be sustained simply on the basis that the claim was one for pure economic loss. In the Canadian jurisdiction the decision was justified on the basis that the relationship between the tendering authority and the subcontractors was not sufficiently proximate.

In our view it is likely that subcontractors in this position are likely to find it difficult to recover in these circumstances. The problem may be overcome if the sub-contractor had a contractual right to payment - either expressly or by implication - in these circumstances. Parties preparing pre-bid agreements and joint ventures may wish to bear this decision in mind and seek to accommodate the situation within their arrangements. It would appear that the tenderer could have recovered the sub-contractor's loss of profit, as a result of breach of the process of the contract. if obliged to pay the sum to the sub-contractors. In the absence of such contractual basis no recovery could be made.

Lovells, Asia Projects (Construction & Engineering) Newsletter
May 09

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