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  7. Contracts awarded under tender – possible disputes
21 Jun 2022

Director, Murray Thornhill, and Lawyer, Julia McCullagh, in our Dispute Resolution team have outlined contracts awarded under tender (part 2) for local governments. 

Following on from the most recent article by the HHG Legal Group Local Government Team looking at process contracts, this article examines other possible claims a disgruntled unsuccessful tenderer could potentially bring against a local government. This article examines claims based on: 

  • A contract being “void for illegality”
  • Promissory estoppel
  • The awarding of a tender as a decision subject to judicial review

In Western Australia section 3.57 of the Local Government Act 1995 and the Local Government (Functions and General) Regulations 1996 prescribes the procedures required to be followed when a local government invites tenders for goods or services. This includes requirements that

    • Tenders must be publicly invited for contracts providing goods or services over $250,000 (with some exceptions)
    • A public notice inviting tenders must be published.
    • A minimum time of 14 days must be allowed for tenders to be submitted after the public notice 

It is important to remember that the statutory requirements governing the tender process apply even when a local government chooses to invite tenders for a contract when not required to do so.

When is a contract awarded under tender void for illegality?

It has been held that a failure to follow statutory requirements around tendering can render the contract awarded void for illegality.   For example, in Wade v. Gold Coast City Council (1972) 26 LGRA 34 a contract had been renewed without tenders being called (when this was required under Queensland’s Local Government Act). Likewise in Hunter Brothers v Brisbane City Council [1984] 1 Qd R 328   the successful tenderer had been given the opportunity to amend its bid after the closing date.  The contracts created in these circumstances were both later found by the court to be void for illegality.

Where there is a detailed and prescriptive statutory regime regulating the tender process there is a dilemma about how non-compliance should be treated when determining the validity of the contract. In deciding whether or not a contract is void for illegality  the courts have distinguished between breaches of rules and processes designed to uphold the integrity of the public tendering process as compared to trivial breaches of the legislation.  A distinction is also made by the courts between mandatory and discretionary statutory provisions.

In these circumstances a contractor doing work under a void contract is still entitled to be paid for the work done.

Are government bodies under a special duty to act properly in commercial dealings?

The courts have recognised that administrative law concepts such as procedural fairness and bias, need to be balanced against the fact that in awarding a tender a government body is making a commercial decision and is entitled to act in its own best interest.

While a duty to act in good faith is an implied term of a process contract it is not the same as the administrative law standard and an allegation of bias by members of a tender evaluation committee is not sufficient (even if proven) to breach the implied term to act in good faith (Pratt Contractors Ltd v Transit New Zealand [2004] BLR 143). 

Is the decision to grant a tender subject to judicial review?

Yes. The decision to grant a tender is a decision subject to judicial review.

There is a legitimate expectation that a tenderer should be dealt with fairly in the tender process and that a decision maker would apply the principles of procedural fairness in making any decision to award a tender but mere appearance of unfairness or bias is not enough.

The remedies that an unsuccessful tenderer can seek under this type of claim include an order to set aside a decision by a government entity. A successful judicial review will often result in a quashing order and an order that the matter be remitted to the decision-making body for reconsideration.

It is a principle of judicial review that these remedies are discretionary.  In exercising this discretion, the courts have been reluctant to overturn the decision to award a contract under tender and will weigh the balance of convenience between the parties.  So even when a claimant may be able to show that a decision-maker has acted improperly the court may decline to grant the remedy sought. The court may make a declaration or order an injunction where “it would be just and convenient” in “all the circumstances” of the case.

Can a claim by an unsuccessful tenderer be based in promissory estoppel?

There is a risk that representations by a local government that a company will be awarded a contract or is the preferred tenderer may generate legally enforceable obligations on that local government. The estoppel principle provides relief to a person who has detrimentally relied on an assumption, assurance, representation or conduct such that it would be unconscionable in the circumstances to allow the person who made the representation or assurance to resile from it.  Possible remedies include granting an injunction or making an order for specific performance.   In Waverley Transit Pty Ltd v Metropolitan Transit Authority (1988) 16 ALD 253, Waverley Transit Pty Ltd had an expectation that their contract would be renewed without a call for public tenders based on a promise by the MTA.  There was detrimental reliance on the promise of renewal by Waverley Transit Pty Ltd which incurred substantial expense in upgrading its fleet of buses. In this case the court ordered that the contract should be awarded to Waverley.

If you would like HHG to assist with this process, please contact one of please contact our Dispute Resolution lawyers on (08) 9322 1966 or email reception@hhg.com.au

*This is general information only, and does not constitute specific legal advice. Please consult one of our experienced Legal Team for specific advice relevant to your situation.

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