Getting tendering documents right
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Tender documents legally define the service that is being purchased. They must be clear and enforceable. Lessons are drawn from a dispute between Onyx Group Ltd and Auckland City Council.
The following legal case about a specific tendering process provides useful lessons for government agencies seeking tenders. It is important that you should consult your agency’s own legal experts if you have any queries when requesting tenders for services.
Background to the dispute: Onyx Group Ltd and Auckland City Council
In late 2000, the Auckland City Council tendered out $100 million worth of contracts for collecting and disposing of the city’s household rubbish. Onyx Group submitted tenders for two contracts for the western and eastern areas of the city.
The council first considered tenders for individual contracts and then later considered tenders for more than one contract (bundled tenders). Next, they compared results and examined which option offered the best service and greatest cost-effectiveness for ratepayers.
Although Onyx was the highest scoring tenderer for each of the individual contracts, it finished second behind the successful tenderers, who had bundled their tenders and offered a discount if they won both the western and eastern contracts. Onyx did not offer a discount for bundled tenders and so had a higher total price.
Onyx challenged the council’s decision in the High Court, claiming the council breached its own processes for evaluating tenders and that if it were not for those breaches Onyx would have won the contracts. It claimed for tendering costs, loss of profits and loss of goodwill.
The Court’s decision
In September 2003, the Court:
- found that the council owed no legal duties to Onyx regarding the process it would follow when evaluating tenders
- gave full effect to the council’s conditions of tendering, which contained a clause stating that no legal obligations arose between the council and tenderers until the council entered into a contract with a successful tenderer
- found that even if there were legal obligations, the council had not breached those obligations
- found that the council had a general discretion to consider non-conforming tenders in its conditions of tendering.
Lessons for government
This decision:
- means that it is important for agencies to include a clause in the tender documents that states that no legal obligations are owed by the agency until a successful tender is accepted or a contract is entered into
- means that if an agency wants to rely on this type of clause they must include it in the tender documents
- makes it more difficult for unsuccessful tenderers to challenge a tender process whether it be in the public or the private sector
- confirms that an agency can consider a non-conforming tender if the conditions of tendering provide for that discretion – having such a clause encourages innovation in tenders
- shows that although agencies have a legal obligation to act fairly and even-handedly in evaluating tenders, this obligation cannot override any express term in the tender documents.
