GOOD FAITH OR FAIR DEALING IN CONSTRUCTION PROCUREMENT
Fair dealing in construction procurement
R.W. Craig
Department of Civil and Building Engineering, Loughborough University, UK
Abstract
Commonwealth developments in procurement law are reviewed in this paper. In Canada the court
has held the owner bound by contractual obligations which amount to a fair deal for tenderers.
Surprisingly, given the Roman antecedents of South African law, the court there found no
contractual basis for imposition of a good faith obligation on the owner which would prevent it
accepting a non-conforming bid. The paper concludes that a future South African court is likely to
come to the same conclusion on this issue as have Commonwealth courts.
Keywords: Procurement law, tendering contract, good faith, fair dealing, tenders, bids.
1 Introduction
Research reveals that Commonwealth courts frequently hold that the construction procurement
process is regulated by contract law. The argument is developed here that the court in South Africa
could be persuaded to follow the Commonwealth authorities.
The invitation to tender has not in the past been considered to be an offer capable of acceptance,
but merely an invitation to treat or do business. The owner was not obliged to accept any tender.
There was no contract with any person acting on the invitation: Spencer v. Harding,[1] Harris v.
Nickerson.[2] But an offer made under seal accompanied by a bid deposit had special
characteristics. It was not an agreement to enter into contract but a guarantee that if awarded the
contract, the selected tenderer would execute and perform the contract. The tender was irrevocable
because it was made under seal (made as a deed): Sanitary Refuse Collectors Inc. v. City of
Ottawa.[3]
Contrast the modern Commonwealth view. The submission of a tender in response to an
invitation can create contractual obligations for both parties, so that, for example, the owner
becomes obliged to consider all conforming tenders, if it considers any tenders, and the successful
tenderer’s revocation of a irrevocable offer becomes a breach of contract enabling the owner to claim
compensation from that tenderer. In The Queen in Right of Ontario et al v. Ron Engineering &
Construction Eastern Ltd[4] the court held that a contract was brought into being automatically
upon the submission of a responsive tender, and is referred to here as the ‘tendering contract’, or
‘contract A’. In Martselos Services Ltd v. Arctic College[5] the court held that the owner was under
a contractual duty of good faith, to treat all tenderers equally and fairly, but there was no breach of
the tendering contract when the owner awarded a contract to the lowest tenderer, despite the
complaint from an unsuccessful tenderer of an alleged, but not established, conflict of interest.
A South African court, on the other hand, maintained the traditional position concerning
invitations to tender. There were no grounds, said the court, for finding any contractual obligation
owed by the owner to the builder arising out of the tendering process: G & L Builders CC v.
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McCarthy Contractors (Pty) Ltd.[6] South African courts have generally followed the English
authority of Spencer v. Harding. It will be seen that on this issue the South African court is out of
step with courts in Commonwealth countries. None of the Commonwealth authorities mentioned
below were cited to the South African court in the G & L Builders case. That court, it is submitted,
might come to a different conclusion if all the issues raised by the Commonwealth cases were fully
revealed to that court.
2 Good faith or fair dealing as a contractual obligation
It is now necessary to introduce discussion on the scope for a contractual obligation of good faith, or
fair dealing, by reviewing Anglo-American law as to sales. Good faith and fair dealing is about
misleading conduct by buyers and sellers. The court becomes involved in apportioning responsibility
for such conduct so as to ensure fairness between the parties. Rules have been developed by the
courts as to what is acceptable and unacceptable conduct in the context of the parties’ reasonable
expectations. ‘Good faith’, is the label attached to these rules. The label describes the historical
roots of the fair dealing principles.[7]
Good faith was introduced to England in 1766 by Lord Mansfield, when he said, with reference to
contracts in general:
“… The governing principle is applicable to all contracts and dealings. Good faith forbids either
party by concealing what he privately knows, to draw the other into a bargain, from his ignorance
of that fact, and his believing the contrary. But either party may be innocently silent as to grounds
open to both to exercise their judgment upon.”[8]
Good faith is a technical legal term, says Harrison. Its breach is not ‘bad faith’ but ‘breach of good
faith’. ‘Bad faith’ means deliberate misrepresentation or a deliberate misuse of power, which is
nothing to do with ‘good faith’. In the US, good faith is “an intangible and abstract quality with no
technical meaning”, encompassing amongst other things “an honest belief, the absence of malice and
the absence of design to defraud or to seek an unconscionable advantage”. In ordinary usage, the
term good faith describes “honesty of purpose” and means “being faithful to one’s duty or
obligation”. Here, bad faith is described as the opposite of good faith, involving intentionally
deceptive and misleading conduct.[9]
The position of good faith in English law was briefly expounded by Bingham LJ in Interfoto
Picture Library v. Stiletto Visual Programmes Ltd.[10] The lack of what his Lordship referred to as
“overriding principle” and the presence of “piecemeal solutions” to problems of contractual
unfairness in contemporary English law has concealed developments in late 18th and 19th century
English law. Fair dealing principles, or implied terms requiring fair dealing as incidents of certain
types of contracts, are to be found, but are “to a considerable extent unrecognised now.” But
despite the “piecemeal” characteristic attached to the development and recognition of English
principles of fair dealing, “they have continued to exist as a reasonably coherent body of identifiable
principle and are by no means beyond rediscovery.”[11]
The duty of good faith may take one of several forms beyond that of an express term of a
contract.[12] It might arise as (1) an implied contractual term; or (2) a condition precedent to
liability under the contract; or (3) a body of rules outside of the contract, imposed by the courts (of
equity) to prevent imposition. This paper explores the scope of the first category, the implied
contractual term.
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Consider now the law of South Africa, which is derived mainly from Roman-Dutch law.
According to Loots, Roman-Dutch and English law of contract overlay one another by about 80%,
and where they differ, Roman-Dutch law is similar to civil law found in continental Europe. Past
precedent is important in South Africa, like England, but English common law materials must be
used with care in South Africa.[13]
Roman (and Roman-Dutch and South African) law founds its law of contract (promissory
liability) on the notion of good faith, whilst in English law promissory liability has grown out of tort
(civil wrong) and has no dependency on good faith. Roman law underpins contract law with a
notion of promise-keeping. The moralistic premise is that it is a good thing for a person to keep its
promise. In the Biblical context, God deals fairly with Man, and Man deals fairly with its neighbour.
Good faith demanded the keeping of promises, and so in Roman law contracting parties were bound
to show good faith in dealing fairly with one another. A breach of contract was a breach of good
faith.[14] Would it not then be surprising if a South African court should find against any basis for a
good faith obligation in the tendering process?
3 The tendering process is governed by a 'tendering contract': the Ron Engineering case
The Government of Ontario called for tenders and required a tender deposit of $150,000 to
accompany any tender. The owner would be entitled to retain the tender deposit if a tenderer should
withdraw before consideration by the owner of tenders submitted or before or after receiving
notification of a successful tender. The deposit would also be forfeited if a construction contract
was not executed and a performance bond or payment bond not produced. In such circumstances
the owner would be entitled to “retain the tender deposit for the use of the [owner] and [to] accept
any tender, advertise for new tenders, negotiate a contract or not accept any tender as the [owner]
may deem advisable.” The tender deposit would be returned to the successful tenderer when a formal
agreement had been executed and the owner had received any bonds required by the tender
conditions.
Ron Engineering submitted a tender (and deposit) which amounted to $632,000 lower than the
second lowest offer. But within little more than an hour of the opening of tenders, an error in pricing
was discovered. The contractor requested in writing “to withdraw the tender without penalty” and
return of its tender deposit. The owner responded by merely asking the contractor to sign contract
documents in the tendered amount. The contractor refused to sign on the grounds of the pricing
error. The owner then adopted the position that it was entitled to keep the tender deposit. The
tender of the second lowest tenderer was then accepted, but at greater cost to the owner. The
contractor responded by commencing an action to recover its tender deposit. The owner
counterclaimed damages due to the contractor’s refusal “to carry out the terms of ... tender” and, as
a consequence of this refusal, the acceptance by the owner of the higher tender.
Ron Engineering argued that by making an error in pricing, the tender became revocable, or the
deposit recoverable, despite contrary provisions of the tender conditions, providing that notice of the
error was given prior to the owner’s acceptance of tender. That meant the offer was not technically
withdrawn, but was not capable of acceptance, justifying return of the tender deposit. The owner’s
argument was that the submission of a tender created a contractual obligation for each tenderer to
perform the tender conditions. The contractor was in breach of its obligation not to revoke its offer,
and the owner had thereby suffered damage.
In the Ron Engineering case the court held that the submission of a tender in these circumstances
created contractual obligations for both parties to perform the tender conditions. The ‘tendering
contract’ arose automatically between the tenderer and the owner upon the submission of a
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conforming tender. Under the terms of that contract the tenderer could not withdraw the tender for
a period of 60 days after the date of the opening of the tenders. The tenderer’s revocation of its
offer was a breach of contract which entitled the owner to retain the bid deposit.
4 The rationale for a ‘tendering contract’ in Ron Engineering
The Supreme Court of Canada took the view that integrity of the bidding system had to be protected
where it was possible, and that protection should be under the law of contracts. The theory of the
‘tendering contract’ was developed by the court. The submission of a conforming tender brought
contract A, or a tendering contract, into life. This is a contract which results from an act made in
response to an offer. The call for tenders creates no obligation in the contractor or in anyone else,
until an invitee responds to the call for tenders by the submission of a conforming tender. A
tendering contract between owner and tenderer then results.
Under the terms of the tendering contract in this case, that tender at once becomes irrevocable.
There was no disagreement between the parties here about the form and procedure in which the
tender was submitted and that it did in fact comply with the terms and conditions of the call for
tenders. Consequently, contract A (the tendering contract) came into being. The principal term of
contract A was the irrevocability of the bid, and the corollary term was the obligation in both parties
to enter into a contract (contract B, the construction contract) upon the owner’s acceptance of the
tender. Other terms of the tendering contract included the qualified obligation[15] of the owner to
accept the lowest tender, and the degree of this obligation was controlled by the terms and
conditions established in the call for tenders.
5 The role of the tender deposit (or bid bond) in Ron Engineering
The deposit under contract A was required by the owner in order to ensure the performance by the
contractor-tenderer of its obligations under contract A. The deposit was recoverable by the
contractor under certain conditions, none of which had been met in this case. The deposit was
subject to forfeiture under another term of the contract, the provisions of which, in the court’s view,
had been met.
6 The issue of mistake in Ron Engineering’s tender
There was no question of a mistake on the part of either party, said the court, up to the moment in
time when the tendering contract came into existence. The contractor intended to submit the very
tender it had submitted, including the price stipulated. The contractor had argued that, as its tender
had been the product of a mistake in calculation and was not capable of acceptance so as to form the
basis of a construction contract, it could not be subject to the terms and conditions of the tendering
contract so as to cause a forfeiture thereunder of the deposit.
The court saw two fallacies in this argument. Firstly, there had been no mistake in the sense that
the contractor had not intended to submit the tender in the form and substance it had been submitted.
Secondly, there was no principle in law under which the tender had been rendered incapable of
acceptance by the owner.
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In these circumstances the rights of the parties accrued under the tendering contract. At the
point when the tender was submitted the owner had not been told about the mistake in calculation.
This was a case of latent, not patent, error. There was nothing on the face of the tender to reveal the
presence of an error. There was no inference to be drawn from the amount of the tender (bearing in
mind the estimate prepared by the owner’s agents and which was very close to the tendered amount)
that there had indeed been a miscalculation by the tenderer. No mistake existed which impeded or
affected the coming into being of contract A. The “mistake” occurred in the calculations leading to
the figures that the contractor admittedly intended to submit in his tender.
It was the court’s view that the issue concerned not the law of mistake but the application of the
forfeiture provisions contained in the tender documents and which had become terms of the
tendering contract. Application of contract law principles, therefore, resulted in dismissal of the
contractor’s claim for the return of the tender deposit. The terms of the tendering contract clearly
indicated a contractual right in the owner to forfeit the tenderer’s deposit as compensation for the
tenderer’s breach of contract in revoking its offer.
7 Owner’s duty to treat all tenderers equally and fairly
Arctic College as owners invited tenders for janitorial services. Tender documents contained a
privilege clause, that the lowest or any tender would not necessarily be accepted. Tender invitations
and conditions frequently make such provision, but procurement in this case was regulated by
Government Contract Regulations[16] which provided that “a contract authority may refuse all
tenders and award the contract to no one” and that “a contract authority shall only award a contract
as a result of an invitation to tender to the tenderer who is responsive, responsible and has submitted
a tender lower than that submitted by any other responsive and responsible tenderer.”
Martselos and one other company submitted tenders. One of the directors of the other tendering
company, who submitted the lowest tender, was also an employee of Arctic College. Martselos
informed Arctic College of this fact and alleged that the other tenderer had breached the guidelines
on conflicts of interest contained in collective bargaining agreements and in personnel policies. It
was also alleged that this person could have exploited special ‘inside’ knowledge to assist in
preparing the successful tender. The College investigated the allegation and sought internal legal
advice, then decided that there was no conflict of interest, and awarded the janitorial contract to the
lowest tenderer. Martselos commenced an action to recover loss of profits arising out of a breach of
contract by Arctic College.
In Martselos Services Ltd v. Arctic College the court held that a tendering contract existed but
that there had been no breach and, therefore, no liability for the owner to pay damages. Arctic
College could have quite properly decided not to award any contract at all. The privilege clause, in
these circumstances, was a complete answer to the tenderer’s claim against the owner.
The court referred to the Ron Engineering case discussed above. That case should be considered,
said the court, as creating a duty for the owner to treat all bidders equally but still with due regard
for the contractual terms incorporated into the tender invitation. If there had been any breach of the
guidelines on conflict of interest, this would not have amounted to bad faith on the part of the owner
towards the plaintiff tenderer. Any bad faith could only have been on the part of the successful
competitor, and the effect of such bad faith could only have been to disqualify its bid. It could not
have created an obligation on the part of the owner, Arctic College towards the tenderer, Martselos.
The conflict of interest issue was held to be irrelevant to any matter between Martselos and Arctic
College.
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The central question was whether Arctic College was under any obligation to award a contract to
any bidder. The answer given by the court was in the negative, as the tender regulations had made
clear, and as had been stated in the privilege clause. The decision in Ron Engineering was not to be
interpreted as imposing a positive obligation on an owner to award a contract. If such an obligation
had been found to exist in cases where there were several bidders, the tendering contract would have
obliged the owner to enter into contract with each of them. That was not, said the court, the result
of the decision in Ron Engineering. The obligation of the owner to enter into a contract for works
or services only arose upon acceptance of a tender. And the terms and conditions of the tender had
been quite clear in stating that the lowest or any tender would not necessarily be accepted.
It had been argued that it was industry practice or custom to award contracts to the lowest
bidder. But nothing had been found in Canadian jurisprudence which “recognised any precedence of
industry practice or custom over the privilege clause, where the privilege clause is an explicit term of
a tender call, except in special circumstances.”[17] Thus in the case of Acme Building &
Construction Ltd v. Newcastle (Town) the Ontario Court of Appeal said:
“In our opinion, even if it there was acceptable evidence of custom and usage known to all
tendering parties, it would not prevail over the express language of the tender documents which
constituted an irrevocable bid once submitted, and a contract, when and if accepted ...”.[18]
8 Custom and practice might override the privilege clause
There are exceptional circumstances where courts have said that established custom and practice
within an industry might override the disclaimer made by a privilege clause. Those circumstances,
said the court, have been found where an owner had relied on undisclosed criteria; or where the
owner had taken into account irrelevant or extraneous considerations; or where there were specific
provisions in the tender specifications that were inconsistent with the general privilege clause; or
where the tendering process was found to be a sham. In was the court’s opinion that none of these
situations arose in the Martselos case. The privilege clause, in these circumstances, was a complete
answer to Martselos’ claim against Arctic College.
9 In South Africa the invitation to tender is no more than an invitation to treat
The South African Department of Education and Training (DET) invited tenders from interested
building contractors for school building work. The tender documents, comprising plans,
specifications and printed ‘Form of Tender’, were available from the Port Elizabeth office. The
Form of Tender was endorsed with the words: “the State Tender Board[19] does not bind itself to
accept the lowest or any tender. No qualified tenders will be considered.” Tenders were sought for a
traditional form of construction, that is loadbearing brickwork
Five construction firms tendered for the work, including McCarthy and G & L Builders.
McCarthy submitted a non-conforming tender on the basis of non-traditional construction. Its tender
was lowest offer on six projects. G & L Builders’ conforming tender was second lowest on three
projects. The six contracts were awarded to McCarthy. G & L Builders sought an order from the
court that an agreement (a tendering contract) had been concluded between the DET and G & L
Builders; that DET had breached the terms of that agreement; that DET should be forbidden to
award further contracts; and be prevented from proceeding with existing contracts or handing over
further properties to the contractor.
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G & L Builders’ argument was that by handing over its tender forms, the DET had tacitly agreed
to consider G & L’s tender provided it was a conforming tender, and further agreed not to consider
non-conforming tenders in competition with G & L’s conforming tender.[20] Although the term was
not used in this case, the contractor is arguing for the existence of the tendering contract which is the
basis of similar cases in Canada and elsewhere. The DET denied the existence of the tendering
contract.
The South African court held in G & L Builders CC v. McCarthy Contractors (Pty) Ltd and
another,[21] that the handing over of tender documents by the owner created no obligations for the
owner in favour of tenderers with respect to consideration and evaluation of tenders submitted.
There were no grounds for finding any contractual obligation owed by the owner to any tenderer.
South African courts have generally followed the English authority of Spencer v. Harding. The
seeking of tenders was no more than an invitation to treat or do business. The owner could, the
court said, accept or reject any tender at will. Tenderers incurred the considerable expense of
tendering at their own risk. The South African court therefore took a different position to that of the
Canadian courts discussed above. The owner might have elected to call for fresh tenders, giving
other tenderers an opportunity to tender for construction by that same method. But unless obliged
to do otherwise by statute, the owner was not confined by its own tender conditions and was quite
entitled, without further ado, to accept a tender which did not conform to the original specifications.
The request for tenders in this case was not governed by any statute or regulation. There was no
provision within the tender documents to suggest the creation of a contractual right between any
tenderer and the DET prior to the acceptance of a specific tender. A building owner was entitled to
dictate the favoured method of construction.
G & L Builders had argued that the public owner was prevented from accepting a nonconforming tender by the tender condition which stipulated that “no qualified tenders will be
considered”. But the court’s view was that this provision was solely for the benefit of the public
owner and could be waived by it. The tender condition did not bind the owner to consider only
‘unqualified’ tenders, particularly in view of the express condition that it need not accept the lowest
or any tender. The same result, said the court, would have been achieved had the owner refused to
accept any tender, as it had been entitled to do, and had then negotiated privately with McCarthy. G
& L Builders had sought an interdict (injunction) against the DET rather than damages, on the basis
of the tacit agreement described above as a ‘tendering contract’. The South African court thought
that the evidence for such a tacit agreement was “flimsy”.[22] The evidence was insufficient to allow
the court to conclude “by a process of inference ... that the most plausible and probable conclusion
from all the relevant proved facts and circumstances is that a contract ... came into existence.”[23]
G & L Builders had not made out a claim for damages suffered as a result of the alleged breach of
contract, which said the court, was an essential prerequisite to the granting of an interdict.[24] It
had not gone so far as to argue that contracts should be awarded to it, but presumably it had hoped
for this result from the elimination of McCarthy as competitor. But there would have been nothing
to prevent the owner from having called for fresh tenders based on the ‘non-conventional’
construction method and having awarded the contracts to McCarthy if it had been successful.
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10 Comment on the cases considered above
The decision in Ron Engineering challenged two traditional principles of contract law; that an offer
can be withdrawn without liability at any time prior to acceptance, and that a promise not to revoke
an offer must be given for consideration or made by a deed (under seal). One hundred and twenty
years ago Mellish LJ suggested that “the [English] law may be right or wrong in saying that a person
who has given to another a certain time within which to accept an offer is not bound by that promise
to give that time”.[25] But for most of this time the point at issue has been unquestionably
maintained and applied.
However the 1981 Canadian decision in Ron Engineering established at the highest level that
there are circumstances when the old rules cannot be blindly followed. The owner successfully
argued that the submission of a conforming tender created a contractual obligation so that the
tenderer in question must perform the tender conditions. As a condition had been breached by that
tenderer, the owner was entitled to retain its tender deposit.
The court’s analysis made out the case for Contract ‘A’ to distinguish it from the construction
contract itself which would arise on acceptance of the tender and which it referred to as Contract
‘B’. More recently Contract ‘A’ has been referred to as the ‘tendering contract’ and this label is
used by the present author. But where is the consideration for the tenderer’s obligation not to
revoke its offer within 60 days? According to Professor Percy, “the court’s explanation that
consideration can be found in the ‘qualified obligation of the owner to accept the lowest or any
tender’ is specious”.[26] By express or implied qualification an owner is not normally obliged to
accept any tender, not even the lowest. Percy suggests that “the only real benefit received by the
contractor is the implied promise that the owner will consider its tender.” Which is precisely the
obligation of the owner found by the English Court of Appeal in the Blackpool case. It is submitted
that the common law has now developed to the point where the tendering contract creates an
obligation for the owner to consider each conforming tender and for the contractor not to withdraw
its offer within the stipulated period, or if no period is stipulated, a reasonable period.
Ron Engineering has had a major impact on the law of tendering. This case is now the settled
law of Canada, and is likely to be persuasive elsewhere. The Alberta Court of Appeal has applied
Ron Engineering in the City of Calgary v. Northern Construction Co.[27] The Supreme Court of
Canada affirmed that decision and declined to review its earlier decision in Ron Engineering. Since
much of the argument in Ron Engineering had focused on the contractor’s alleged mistake in
pricing, the two-contract analysis had been necessary to show that a pricing mistake is irrelevant with
regard to the tendering contract. Any tenderer who has incorrectly calculated its bid must not breach
the tendering contract by withdrawing its offer. But this creates a dilemma for the tenderer: if it
executes the building contract based on a incorrect tender it cannot later raise the issue of mistake; if
it raises the issue of mistake before executing the building contract and withdraws its offer, it is in
breach of the tendering contract and must pay damages or forfeit its tender deposit. It seems that
only a patently obvious error on the face of the tender, which might prevent the formation of the
tendering contract from taking place, can provide any possible escape from liability for the tenderer
who wishes to avoid the consequences of an error in pricing. Such an escape route was described by
the court in consideration of McMaster University v. Wilchar Construction Ltd.[28]
The decision in Ron Engineering that a contract was formed by the submission of a conforming
tender creates obligations for the recipients of tenders. Years ago owners would rarely undertake
obligations within tender documents, but now they do. Public bodies, or any bodies with substantial
public funding, are obliged to comply with exacting tender conditions which become incorporated
into the tendering documentation. They are obliged to comply with certain rules as to selection of
tenderers, evaluation of tenders and award of contracts. They too must strictly comply with these
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Customer Satisfaction : A focus for research & practice
Cape Town : 5-10 September 1999
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conditions or breach of the tendering contract will result. In R v. Canamerican Auto Lease and
Rental Ltd and Hertz Canada Ltd,[29] the owner could not rely on a general right to reject the
lowest or any tender when failing to comply with its own stipulation as to how tenders should be
evaluated. As a consequence the owner was entitled to reject all tenders because they are too high,
or reject the lowest tender when there is insufficient evidence of the capacity of the lowest tenderer
to perform the contract, but such rejection must not breach obligations of the tendering contract.
Ron Engineering was applied by the court in Health Care Developers Inc v. The Queen in right
of Newfoundland.[30] In that case the owner was held to be in breach of its equal and fair treatment
obligation when it accepted a bid which was conditional, which failed to provide the product for
which tenders were requested and failed to meet the functional programme set out in the tender
documents.[31]
The New Zealand case of Pratt Contractors Ltd v. Palmerston North City Council[32] applied
the principle of the tendering contract in New Zealand. In that case a public owner was held to be in
breach of its equal and fair treatment obligation for accepting a non-conforming alternative tender
which lacked certainty in price and which required negotiation with one tenderer to the disadvantage
of the others.[33]
The Federal Court of Australia followed the Commonwealth decisions in Hughes Aircraft
Systems International v. Air Services Australia.[34] The court held that Air Services was bound by
a tendering contract which arose from correspondence between the parties, and from the terms of the
Request for Proposals issued by Air Services. A term was implied that Air Services would act fairly
in its evaluation of bids submitted. The court was prepared to imply a term of fair dealing, both as a
matter of fact and of law.[35] Air Services was in breach of contract when it awarded a contract on
other than the basis set out in the tendering contract. It was also in breach of statutory obligations as
to misleading and deceptive conduct.[36]
Without reference to any of these cases, the English Court of Appeal held in Blackpool and Fylde
Aero Club Ltd v. Blackpool Borough Council[37] that an owner was contractually bound to
consider all tenders timeously received, if it considered any tenders. This obligation is effectively, it
is submitted, one of good faith or fair dealing.
11 Conclusion: good faith or fair dealing in tendering
Taken together the Commonwealth cases show that in circumstances typical of construction
procurement, the process is regulated by contract law. Promissory exchange liability arises out of
the tenderer’s compliant response to the owner’s conditioned invitation to tender. The tendering
contract contains the terms set by the owner at the time of tender invitation; terms set down in the
submitted tender which are not inconsistent with the invitation; plus necessary implied terms. The
implied terms include a term that the owner must treat all tenders equally and fairly, that the tender
process will be conducted honestly and not unconscionably, which collectively may be described as
an obligation of good faith or fair dealing.
That good faith obligation is not inconsistent with a privilege clause which reserves the right to
the owner to award no contract at all. Terms of the tendering contract do not normally override the
terms of a privilege clause, retaining for the inviter the right to make no contract award. Even
evidence of industry practice that contracts are awarded to the lowest bidder cannot override a
clearly worded privilege clause, unless the tender process is a sham or is flawed by procedural
irregularities.
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Surprisingly, the South African court in G & L Builders CC v. McCarthy Contractors (Pty) Ltd
did not find the existence of a tendering contract, nor any other basis for a duty of good faith owed
by the owner to each tenderer. At the time of this judgment (November 1987) the Canadian court
had established the existence of the tendering contract in Ron Engineering, but the English court had
then still to consider this issue in Blackpool. Therefore, on this issue, the South African court is out
of step with the Commonwealth courts. None of the Commonwealth authorities were cited to the
South African court. If those authorities had been revealed to the court, the outcome of the G & L
Builders case might have been very different.
There is another basis, not discussed above, on which a court in South Africa might now reverse
the effect of its decision in G & L Builders. Section 217 (Chapter 13, Finance) of the Constitution of
the Republic of South Africa (1996) appears to provide the basis of a challenge against a public body
when it “contracts for goods or services … [without] a system which is fair, equitable, transparent,
competitive and cost-effective.” The Commonwealth cases show that it is quite unfair and
demonstrative of a lack of good faith on the part of the owner to award a contract on a basis other
than that described in the tender conditions.
12 References
1.
2.
3.
4.
5.
6.
7.
8.
(1870) LR 5 CP 561 (England).
(1873) LR 8 QB 286 (England).
(1971) 23 DLR (3d) 27 (Ontario High Court, Canada).
[1981] 1 SCR 111; (1981) 119 DLR (3d) 267 (Supreme Court of Canada).
(1994) 111 DLR (4th) 65 (NT Court of Appeal, Canada).
1988 (2) SA 243 (SE) (SE Cape, Local Division, South Africa).
Harrison, R (1997) Good Faith in Sales, Butterworths, London: Preface, p.vii.
Carter v. Boehm (1766) 3 Burr. 1905; 97 ER 1162. This case involved an insurer’s
unsuccessful attempt to avoid liability under a contract of insurance. Disclosure is required, said
Lord Mansfield, to prevent fraud and to encourage good faith. The rule covers “such facts as
vary the nature of the contract; which one privately knows and the other is ignorant of, and has
no reason to suspect.”
9. See (1991) Black’s Law Dictionary (Abridged, 6th ed) West Publishing, USA.
10. [1989] QB 433; [1988] 1 All ER 348 (Court of Appeal, England).
11. Harrison, supra, p.12.
12. Harrison, supra, p.20.
13. Loots, P (1995) Construction Law and Related Issues, Juta, South Africa: p.13.
14. van Deventer, R (1993) The Law of Construction Contracts: p.256. See also McKenzie (1994)
The Law of Building and Engineering Contracts and Arbitration (5th ed) Juta, South Africa,
pp.1 and 7.
15. Qualified by a privilege clause that permits no contract award.
16. NWT Reg. 008-85 pursuant to the Financial Administration Act RSNWT 1988.
17. (1994) 111 DLR (4th) 65, 73f (Canada).
18. (1992) 2 CLR (2d) 308, 309-310 (Canada).
19. Reference to the ‘State Tender Board’ here is misleading as the contract awards were in
amounts less than the threshold set for the Board’s involvement. The court read this condition
to apply to whoever had the duty to consider the tender in question: see 1988 (2) SA 243 (SE)
at 244H.
CIB W55 & W65 Joint Triennial Symposium
Customer Satisfaction : A focus for research & practice
Cape Town : 5-10 September 1999
Editors: Bowen, P. & Hindle, R.
20. The term ‘conforming tender’ was used by Bingham LJ in the Blackpool case to describe a
tender which complies in all respects with the inviter’s tender stipulations: see [1990] 1 WLR
1195, 1202.
21. 1988 (2) SA 243 (SE) (South Africa). An application for injunction against both successful
tenderer and public owner.
22. Ibid., 249H.
23. Ibid., 249 I-J.
24. Ibid., at 250C.
25. Dickinson v. Dodds (1876) 2 Ch D 463, 474 (England).
26. Percy, D.R. (1988) Radical Developments in the Law of Tenders: a Canadian Reformulation of
Common Law Principles, 4 Const LJ 171.
27. [1986] 2 WWR 426; 42 Alta. LR (2d) 1, affirmed, [1987] SCCD 980 (Canada).
28. (1972) 22 DLR (3d) 9, affirmed (1977) 69 DLR (3d) 400 (Ontario, Canada).
29. (1987) 37 DLR (4th) 591; [1987] 3 FC 144; 77 NR 141 (Federal Court of Appeal, Canada).
30. (1996) 136 DLR (4th) 609 (Newfoundland Court of Appeal, Canada).
31. See Craig, R.W. (1997) The Tendering Contract: Fairness, Equality and Innovation, in
Procurement - A Key to Innovation (ed Davidson and Abdel Meguid) CIB W92 International
Symposium, Montreal, Canada; IF and CIB; pp.91-100.
32. [1995] 1 NZLR 469 (High Court, New Zealand).
33. See Craig and Davenport (1996) Capital Works Procurement: Owner’s Obligations under the
Tendering Contract, in The Organization and Management of Construction (ed Langford and
Retik) Shaping theory and practice, volume 2, Managing the Construction Project and Managing
Risk, CIB W65 and W92 International Symposium, Glasgow; E & FN Spon, London: pp.391402.
34. (1997) 146 ALR 1 (Federal Court, Australia).
35. See Craig, R.W. (1998) Procurement Law for Construction and Engineering Works and
Services, Blackwell Science, Oxford, England: pp.652-663.
36. Section 52 of the Trade Practices Act 1974 (Commonwealth of Australia).
37. [1990] 1 WLR 1195; 3 All ER 25; Court of Appeal, England. No cases from other jurisdictions
were cited to the English court.
CIB W55 & W65 Joint Triennial Symposium
Customer Satisfaction : A focus for research & practice
Cape Town : 5-10 September 1999
Editors: Bowen, P. & Hindle, R.