Department of Finance and Services Tendering Manual Chapter 2 - The Law and Tendering
Chapter 2
THE LAW AND TENDERING
Objective ............................................................................................................ 1
Principles............................................................................................................ 1
Elements of a Binding Contract........................................................................... 1
Definition of “Contract”........................................................................................ 1
Agreement......................................................................................................... 2
Intention to Create Legal Relations ....................................................................... 3
Consideration..................................................................................................... 3
Certainty ........................................................................................................... 4
Law and the Evaluation of Tenders..................................................................... 5
Contractual Pitfalls............................................................................................ .. 5
Administrative Law Remedies............................................................................... 5
Negligence Actions.............................................................................................. 6
Trade Practices Act ............................................................................................. 6
Conclusion ......................................................................................................... 6
Implications of Hughes and other decisions for Tender Processes ..................... 6
Trade Practices Implications................................................................................. 7
Lessons for the Department: No Duty to Publish Evaluation Criteria .......................... 8
Reference and Guidance Documents................................................................... 9
Acronyms ........................................................................................................... 9
Objective
This Chapter provides an overview of the legal aspects of tender processes. It
includes a case study which demonstrates how some of the legal pitfalls described
can catch the unwary. It should be treated only as a guide, and does not replace
the specialist advice needed with particular issues.
Principles
Officers involved in tender processes should know the fundamentals of contract
law and the legal obligations relating to the evaluation of tenders before
undertaking such processes, particularly any high-risk processes.
Elements of a Binding Contract
Definition of “Contract”
A contract is a legally binding agreement between two or more parties who agree
to be bound by particular terms and conditions, which gives rise to legal
obligations.
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To be binding, a contract must have all of the following elements:
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Agreement - offer and acceptance; 
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intention to create legal relations; 
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consideration; and 
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certainty. 
Agreement
The existence of an agreement is determined by offer and acceptance.
Offer
An offer is an indication by one person to another of their willingness to enter into
a contract with that person on specified terms. It contains two elements:
1.
an indication of a willingness to be bound; and
2.
a statement of the price or consideration required.
Courts apply an objective test when deciding whether an offer has been made.
That is, whether an offer has actually been made depends on whether the person
to whom it is addressed would reasonably interpret it as such, looking at what has
been said or done by the parties.
Offer versus Invitation to Treat
The standards of behaviour required by officers acting on behalf of the
government are governed by the Code of Practice for Procurement, and are by
nature of a higher standard than would be expected in the private sector. When
considering the difference between an offer and an invitation to treat,
consideration must be given to the risks to government.
It is important to distinguish between an offer and an invitation to treat which,
taken alone, will not lead to a contract . An invitation to treat is no more than an
invitation to others to make an offer and cannot be accepted to make a contract.
In the procurement context, the issue of tender advertisements and requests for
tender (RFTs) is usually considered an invitation to treat, and a tender is usually
an offer. However, this is subject to what is said below about preliminary or
ancillary contracts and Hughes Aircraft Systems International v Airservices
Australia (1997) 146 ALR1 (Hughes). RFTs are designed to stimulate interest in
contracting with the inviter for the subject matter and encourage tenderers to
submit offers that can be accepted.
Although the tender invitation or RFT may be a mere invitation to treat, provisions
in relevant codes of practice could result in the courts finding that a tender gives
rise to an binding obligation of good faith and fair dealing in running the
procurement process (requiring the inviter, for example, to give equal opportunity
to tenderers and evaluate the tenders as described in the RFT documents (for
further information see Administrative Law Remedies below)).
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Termination of Offers
An offer can be accepted only on the terms on which it is made. For example, an
offer may only be open for a certain period of time. If acceptance is attempted
after the offer terminates, it is invalid. An offer may be terminated under any of
the following conditions:
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if it is revoked by the offerer before it has been accepted; 
if it lapses because of the passing of time; 
if it is rejected by the offeree; 
if its remaining open was conditional on a state of affairs continuing to exist,
and that state of affairs ceases to exist; or 
if its remaining open was subject to a condition precedent which was not
fulfilled. 
Acceptance
Accepting an offer creates contractual relations between the parties. The
acceptance is the act that completes the formation of the contract. Before
acceptance, there is usually only a revocable offer that binds neither party. After
acceptance, a contract is formed which binds both parties.
The acceptance must be absolute and unconditional, and must indicate a
willingness to contract on the exact terms put by the offerer. An acceptance that
seeks to add to or vary some term of the offer is in law no acceptance at all. In
this case, the purported acceptance is treated as a counter offer, which can be
accepted by the offeree.
Intention to Create Legal Relations
In making an offer an intention to enter into legal relations must exist before a
valid contract can be formed. To determine whether the parties are legally bound
by an agreement, the courts ask whether a reasonable person, on the basis of the
parties’ words and conduct, would conclude that the parties had agreed on the
terms of the alleged contract and had intended to be bound by it.
Calls for expressions of interest, if properly drawn, exclude the intention to enter
into legal relations.
Consideration
Contracts can only be enforced when both parties have made a bargain where
some consideration is given. Consideration must move from the promisee before
he or she can enforce that promise. Therefore, a contract consisting of mutually
enforceable promises can only exist where both parties to the agreement provide
something in return for the other party’s promises.
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Consideration is defined as “something of value given or promised in return for
something of value given or promised.” Consideration cannot be:
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A mere moral obligation; 
Past consideration; 
Illusory; or 
The performance or promise to perform either a public duty already imposed
by law on the promisor or a duty already imposed on the promisor by an
existing contract between the same promisor or promisee. 
The consideration may not be adequate but must be sufficient.
Where a standing offer agreement, such as a SCCB period panel contract for
goods and services, is created following a procurement process, there is usually
no consideration paid by the inviter to the tenderer. Instead, the standing offer
agreement is made binding by putting it into the form of a deed.
Certainty
A party seeking a remedy from a court for breach of a contractual obligation must
be able to identify that obligation with sufficient certainty to obtain the remedy.
This is an important requirement in law. An agreement may fail to qualify as a
contract because of inherent uncertainty of the intention of the parties or of the
language used by them, even where all other requirements of a contract are
satisfied.
For a contract to be binding it must be sufficiently certain that it is both clear and
complete, at least in the essential terms. If a contract is not sufficiently certain, it
is considered void unless the uncertain part can be severed, leaving the rest of the
agreement intact. This is why severance clauses are commonly included in
contracts.
Uncertainty
Uncertainty may affect a contract where:
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The agreement is unclear; and 
The agreement is incomplete. 
An agreement may be unclear because it is incomplete.
Incompleteness
If an alleged contract fails to contain all essential terms, it could be considered
void for incompleteness.
Agreements that provide the formula or machinery necessary to determine
missing essential terms are not void, because they do not leave anything to be
determined by further agreement between the parties. If it is clear that the parties
intended to form a binding contract but their agreement lacks a term, the courts
may be able to imply a term into the contract in order to give it effect.
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Law and the Evaluation of Tenders
Contractual Pitfalls
The preceding sections deal with the general principles of the law and tender
processes. However, the courts apply these principles differently depending on the
circumstances of a particular case or class of cases.
The notion that a tender is merely an invitation to treat which gives rise to no
contractual obligations has been called into question in many court decisions.
These have found that a form of contract can be created during the tender stage.
These contracts are often referred to as preliminary, process, ancillary or tender
process contracts. A separate series of contracts can exist between the party
calling for tenders and each tenderer. They can create binding obligations on the
party calling for tenders to evaluate each tender in a certain way, for example, in
the manner set out in the RFT itself. Breach of these obligations may give rise to
the party calling for tenders being liable for the unsuccessful proponent's costs of
tendering. In certain circumstances, this liability may possibly extend to an
unsuccessful tenderer's loss of profit.
The cases indicate that the courts are more likely to find such contracts are
created where:
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the tender material is extremely detailed;
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tenderers are required to participate in a complex tender process;

relatively specific tender evaluation criteria are expressed to apply; and

the tender does not contain a disclaimer about formation of a preliminary or
process contract.
It is a question to be determined on a case by case basis.
Many RFTs may contain these characteristics. Where preliminary or process
contracts are created at the tender stage, such contracts are likely to include
obligations on the part of the agency involved to:

comply with tender documents, tender criteria and representations made
concerning the conduct of the tender process;

apply evaluation criteria in the same way to each tenderer;

not apply any evaluation criteria other than disclosed in the tender invitation;

deal fairly with tenderers in the conduct of tender evaluations; and

consider all tenders which comply with the tender requirements.
Administrative Law Remedies
NSW Government agencies are part of the Crown. Accordingly, in addition to
contract law, principles of administrative law (judicial review of State authorities'
decisions) can apply to the evaluation of tenders. For instance, the New South
Wales Government Code of Practice for Procurement, may give rise to legitimate
expectations on the part of tenderers that tenders will be evaluated in a certain
way. These expectations, if not met, can provide a basis for the remedy of judicial
review of the agency’s or Principal's decisions in the tender process.
In these circumstances, the courts have powers to quash any decision in relation
to a tender, and to order the agency to take, or desist from taking, steps specified
by the court.
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Negligence Actions
Actions against Principals for negligent misstatement can be brought where the
Principal has represented that it would conduct the tender process in a certain way
(which is not followed) and the tenderer shows that it relied on the representation
to its detriment in deciding to submit a tender. To succeed on this basis, the
tenderer would need to show (amongst other things) that the Principal owed it a
common law duty of care.
Trade Practices Act
The Trade Practices Act (TPA) could provide a number of remedies to tenderers
where the procurement process is being conducted in an inappropriate manner in
terms of the TPA. For instance, TPA section 51A provides relief to persons where a
State authority or agency makes a representation with respect to a future matter
and the authority does not have reasonable grounds for making the
representation. Where this is so, the representation is misleading. Remedies under
the TPA thereby become available (see below).
TPA section 52 prohibits a State authority from engaging in misleading or
deceptive conduct. What is 'misleading or deceptive' is a question of fact, but the
issue of whether a State authority intended to mislead or deceive is irrelevant.
S42 of the Fair Trading Act 1987 (NSW) could also apply in circumstances where
there has been misleading or deceptive conduct.
Section 4(2) of the TPA provides that warranties (ie promises) made in contracts
(which would include the type of preliminary or ancillary contracts described
above) amount to "conduct" for the purposes of the Act. If the warranties are false
or misleading they will breach section 52.
A breach of section 52 could in theory also arise where tender evaluation criteria
or the Code of Practice for Procurement are not complied with (because this could
be in breach of a representation that the criteria and Code would be complied
with). Possible remedies `for misleading or deceptive conduct include:
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damages; 
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injunctions compelling the authority to take, or desist from taking, certain
steps; and 
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declarations that contracts are void. 
Note that the Trade Practices Act is to be renamed the Competition and Consumer
Act 2010 and Section 52 of the TPA will become section 18.
Conclusion
The foregoing illustrates the importance of evaluating tenders fairly by applying
the evaluation procedure, including the stated evaluation criteria, equally to all
tenderers. The requirements of the Code of Practice for Procurement should
always be considered.
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Implications of Hughes and other
decisions for Tender Processes
In the 1997 Federal Court decision Hughes International Aircraft Systems,
the applicant was the unsuccessful tenderer in a two party tender process
run by the Civil Aviation Authority (CAA).
The majority of the Hughes judgement consists of an analysis of the tender
process contract. This may arise between a party issuing a tender for works or
services and those parties responding to that tender. The terms of the tender
process contract govern the conduct of the tender and the award of the
contract.
The following general statements arise from the Hughes decision in
relation to tender process contracts:
1. Any tender process may create contractual obligations with or without the
careful drafting of request for tender documents. One must look to the
overall circumstances of the tender.
2. As a matter of law, where a tender process contract can be established,
there is a duty to deal fairly in the performance of that contract. In Hughes,
the Court emphasises that this is particularly the case where one of the
contracting parties is an agency of government who “can properly be
expected to act fairly with those with whom it deals in such contracts”. Note
that in Hughes, the Judge suggested that to establish a breach of a term to
act fairly, proof of an unfair dealing must be adduced. The perception only
of an unfair dealing is not enough.
3. Where tenderers are actively encouraged to participate in a tender, it is
more likely that a tender process contract is implied.
4. Given the risk described in 1 above, government agencies should
meticulously adhere to any representations about the tender made in the
request for tender documents or elsewhere. Those charged with awarding
the tender must make sure they are fully aware of the contents of all
request for tender documents, and that they have been briefed on any
discussions or other representations that have occurred with any
prospective tenderer.
5. Where evaluation criteria in a tender are complex, those assessing tenders
should get technical and/or legal advice before making decisions, to ensure
the evaluation criteria are properly applied in the decision-making process.
The principles outlined in Hughes have been accepted, applied and extended in
NSW. See Cubic Transportation Systems Inc & Anor v State of New South Wales
& 2 ors [2002] NSWSC 656 (Cubic).
These cases furthered the Hughes concept of fair dealing (see point 2 above) by
adding the concept of acting in good faith in the performance of a tender
process contract.
The circumstances and facts of each case will determine if a tender process
contract has been established. Officers involved in procurement need to be
aware that they could be inadvertently creating contractual obligations whilst
working on the tender and evaluation processes. Careful consideration and
drafting of RFT documents is required to avoid the interpretation that a tender
process contract exists.
The law in the area of tender process contracts is developing and these
principles could change with additional obligations being placed on tendering
entities such as the Department of Services, Technology and Administration and
other agencies involved in procurement functions.
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Trade Practices Implications
In Hughes, the applicant alleged that the CAA made representations to it which
“in their totality were largely similar in content to those said to constitute
express or implied terms” to the tender process contract. Broadly, where a
breach of that contract was established, a corresponding breach of the then
section 52 of the Trade Practices Act was also found for false or misleading
representation by the CAA about the tender process.
Implications of Cubic for Tender Processes in NSW
In the 2002 the NSW Supreme Court decision Cubic Transportation Systems Inc,
the applicant was the unsuccessful tenderer in a tender process run by the NSW
State Government.
Cubic alleged the NSW Government had made a preliminary recommendation
that another opposing tenderer, ITSL, be the preferred tenderer and that Cubic
was entitled, as a matter of contract, to the process of evaluation. In the
alternative, Cubic relied upon an implied term of fair dealing during the preaward process on the part of the government, based on the judgement found in
Hughes.
In the judgment, the existence of a tender process contract, as first raised in
Hughes, was further considered along with the scope for implying concepts of
fairness between the parties during the preliminary process.
The case of Cubic is particularly important as it confirms the judgment in
'Hughes' that courts will tend to infer a tender process contracts in the
preliminary tender process in New South Wales. As such NSW government
departments should bear in mind that there may be implied terms of fair dealing
in the pre-award stage of a procurement process.
Lessons for the Department: No Duty to Publish Evaluation Criteria
There is no obligation at law for the Government or others to provide detailed
evaluation criteria for any tender process prior to the contracts being awarded.
Sometimes (as occurred in Hughes) providing this information is necessary,
because without it the tender may be less attractive to prospective bidders and
the bids they make may be less considered or keen. If it is not intended to form
a tender process contract the RFT documents must contain a disclaimer clearly
stating this. Statements to this affect may also be made during briefing sessions
with potential suppliers. However, Hughes clearly shows that the fewer the
representations made about evaluation criteria, the less likely it is that
unsuccessful tenderers will seriously consider or successfully run claims that the
tender process decision should be set aside, or claim for damages for breach of
a tender process contract.
Cubic found that in that case “the plans for evaluation of Proposals were detailed
documents covering every aspect of the evaluation process. However they were
internal documents never notified to either of the Proponents”
As the Proponents had not been provided information in relation to the
evaluation and the contents of the evaluation plans were never divulged, the
plaintiff was not able to rely on them as creating legal obligations on the
defendants ie the issuer of the RFT.
Policy and/or market considerations may require giving information that creates
tender process contracts for particular projects. However, a tender process
contract in development projects would deprive the Government of flexibility and
may provide unsuccessful tenderers with a platform for legal challenge resulting
in delays and added costs to government.
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Accordingly, all information provided about the manner in which tenders are to be
evaluated and recommended must be accurate. To minimise legal risk, the
contract authority should also ensure its processes comply with the Code of
Practice for Procurement and the terms and conditions of the invitation to tender,
and act in good faith in relation to tenderers.
The above risk needs to be balanced against providing tenderers with sufficient
information to allow their best tender. Each case is decided upon its facts so
officers involved in the procurement process need to consider these competing
requirements carefully.
Reference and Guidance Documents
NSW Government Code of Practice for Procurement
NSW Government Procurement Policy
Trade Practices Act 1974 (Cth)
Fair Trading Act 1987 (NSW)
Acronyms
RFT
TPA
Request for Tender
Trade Practices Act
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