Procurement Law for Construction and Engineering Works and Services

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  • Edition: 1st
  • Format: Hardcover
  • Copyright: 1999-01-26
  • Publisher: Wiley-Blackwell

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The cost of preparing and submitting tenders for construction and engineering works is a significant expense to those firms involved and no participant can afford to be ignorant of the law surrounding the procurement process. This new book reviews the law concerning the procurement of construction and engineering works and services, and deals with the development of the common law of tendering including bids, offers, revocation of offers, acceptance and the making of contracts. This book is written from the perspective of English law but considers cases and statutes from a wide variety of common law jurisdictions, including Australia, Canada, New Zealand, Scotland, South Africa, and the US.

Author Biography

R. W. Craig is the author of Procurement Law for Construction and Engineering: Works and Services, published by Wiley.

Table of Contents

Preface xvii
Acknowledgements xviii
Bibliography xviv
Introduction to Procurement Law
Bids, Offers, Revocation of Offers, Acceptance and Formation of Contracts
Summary of this chapter.
Contract, offer and acceptance, withdrawal of offer is only effective when it is communicated to the offeree, postal rule not applicable.
Contract negotiations, offer, acceptance and a `battle of the forms'.
Offer and Acceptance. Unilateral or `if' contract.
Standing offer for specific period. No contract. No consideration given to hold offer open. Revocation of offer possible as to future transactions.
Tender as a standing offer.
Tender, `standing offer'. No exclusive supply term. No grounds to imply term of exclusivity.
Standing offer for such materials or work as the owner may order.
Standing offer to supply materials `which shall from time to time be ordered or required'.
Contract to supply as much stone as purchaser would necessarily require to undertake existing contract. Purchaser bound to order anticipated quantity of stone. Failure to order is breach of contract.
Tender. Offer to supply all of materials required. Acceptance by owner of prime tender binds prime contractor to supplier.
Revocation of offer prior to acceptance, standing offers and promissory estoppel.
Contractor's entitlement (or otherwise) to rely on a subcontractor's tender to contract with the owner under the doctrine of promissory estoppel.
Promissory estoppel prevents subcontractor from withdrawing bid. `Bid shopping' and `bid chiselling' defined.
Contract formation. Subcontract bid in bid depository is used by successful general contractor. Owner's acceptance binds general and subcontractor.
Subcontract bid used by prime contractor, but does not amount to acceptance of subcontract bid. Acceptance by assent must be strictly within terms of offer. No recovery by subcontractor under theory of third-party beneficiary under prime contract.
Contractor's entitlement (or otherwise) to rely on a subcontractor's tender to contract with the owner under the principle of the two contract analysis. Under the terms of the `tendering contract', or an option contract, the subcontractor cannot withdraw its tender when the main contractor has relied on that tender in submitting its tender to the owner.
Referential bids, unilateral contracts and synallagmatic contracts.
Offer and acceptance. Tender accepted subject to formal contract. Work completed, subject to implied term. Retrospective operation of contract.
Tender. Whether contract concluded by acceptance of tender. Whether formal contract had retrospective application.
Contract prohibited by statute is illegal, void and unenforceable, unless the statute is illegal, void and unenforceable, unless the statute otherwise provides.
Illegal contract. Breach of collateral warranty by architect as to obtaining supplementary licences. Builder's right to payment for breach of warranty despite illegality of building contract.
`Estimate' is an offer or tender capable of acceptance to form binding contract.
Contractor's low estimate induces contract on time and rate. Contractor not bound by estimate, but may be liable in negligence for misleading estimate.
Bids, Mistakes, Rectification, Rescission of Contract, Rescission of Bid Despite Irrevocable Nature of Bid and Forfeiture of Bid Deposits
Summary of this chapter.
Tender deposit. Mistake. Withdrawal of tender. Whether owner entitled to retain deposit.
Tenders. Error in bid revealed before acceptance. Equitable grounds for rescission of bid so as to avoid liability to owner. Release of bondsman.
Tenders. Mistake. Revocation before acceptance, therefore no contract.
Error in tender revealed before acceptance. Withdrawal of tender. Forfeiture of bid bond. Whether relief from forfeiture should be granted. Errors in judgment distinguished from clerical errors in fact.
Tender with patent error. Unilateral mistake. Mistaken offer `snapped up' by knowing owner. Contract void for mistake at common law despite irrevocable nature of offer under seal.
Tender mistake. Patent error. Acceptance by owner. Effect of owner's knowledge of mistake prior to acceptance. Position under bid bond.
Contract. Unilateral mistake. Rectification plea unsuccessful.
Contract. Unilateral mistake. Owner knew of tenderer's mistake. Rectification plea successful.
Contract. Mutual mistake. Rectification. Effect of formal instrument.
Tender. Mistake. Rectification. No cause of action established by contractor to avoid consequences of $NZ300 000 mistake.
Contract. Mistake. The common law explained regarding mutual or common mistake and rescission. Contracts void for mistake in equity.
Tender conditions breached. Bid deposit forfeited. Bidder's unsuccessful challenge to recover deposit.
Tender condition breached. Bid deposit forfeited. Low bidder's unsuccessful challenge to recover deposit. Tendering contract or pre-award contract held to exist between owner and tenderer.
Tender condition breached. Bid deposit forfeited. Bidder's unsuccessful challenge to recover deposit. Tendering contract or pre-award contract held to exist between owner and tenderer.
Tender condition badly drafted. Deposit as guarantee of good faith. Revocation of tender, but condition precedent to right of forfeiture not satisfied.
Tenders-the Traditional Position
Summary of this chapter.
Fraudulent action by owner in taking tenders with no intention to award contract.
Status of invitation to tender. Traditional position: despite use of word `offer' it is an invitation to treat.
Advertisement or invitation to tender is merely an invitation to treat, not an offer capable of acceptance, and therefore does not in itself create obligation. There is therefore no cause of action against auctioneer for expenses when sale is cancelled.
The owner's calling for tenders creates no contractual obligation. It was merely an offer to negotiate and the tender amounts to the submission of an offer. But an offer under seal accompanied by a bid deposit has special characteristics. It is not an agreement to enter into contract but a guarantee that if awarded the contract, the selected tenderer will execute and perform the contract. The tender is irrevocable because it is made under seal (made as a deed).
Offeree who has acted on offer fails to recover in tort when offer is withdrawn before its acceptance. An offeror is under no tortious duty of care to the offeree when preparing its tender.
Builder's duty to warn owner of significant cost increase in good time.
Traditional position restated. The invitation to tender is no more than an invitation to treat or do business. It creates no obligations for the owner.
Factors countering existence of `tendering contract'. No contractual obligations for owner when tender arrangements are simple and require minimal expenditure by tenderers. In the traditional position, tenderers are at risk on tendering costs.
Tenders: Exceptional Cases Where Remuneration or Damages Have Been Recovered by Unsuccessful Tenderers
Summary of this chapter.
A tenderer's right to remuneration on the basis of quantum meruit as a restitutionary principle.
A tenderer's right to remuneration on the basis of a contractual promise to pay inferred from its own circumstances.
A tenderer's right to remuneration when costs are wasted in preparing for a contract but the owner changes its mind and does not wish to proceed.
The Two Contract Analysis-The Tendering Contract
Summary of this chapter.
Irrevocability of bid and loss of bid deposit are consequences of the two contract analysis and the emergence of the tendering contract. Latent error is irrelevant to `contract A' (the tendering contract).
The owner is not permitted to delete items from tender before acceptance. The owner must accept or reject a tender as submitted. Unusually, the tenderer was not entitled to damages, because it had been given a second unsuccessful opportunity to tender. Pursuit of an injunction would be pointless.
Subcontract tender. No tendering contract is formed by the submission of a bid in response to the prime contractor's invitation. No acceptance by prime contractor of subcontract bid, despite use of subcontract bid in formulating prime bid.
Contractual obligations arise out of the tendering process. Damages is the remedy for breach, not specific performance.
Latent mistake in irrevocable tender. Mistake not relevant to formation of contract A within `two contract' analysis. Owner's remedy is damages for withdrawal of tender, being difference between revoked tender and next lowest bid.
Owner's obligation to consider tenders timeously received and tenderer's right to damages for breach of `tendering contract'.
No breach of the tendering contract when tenderer's name is reasonably removed from the shortlist.
Duty to treat all tenderers equally and fairly. Privilege clause negatives any duty to accept any tender.
Breach of tendering contract when owner accepts nonconforming tender. Liability for damages includes wasted tendering costs and (arguably) loss of profits.
The `tendering contract' limits the scope of the owner, who can merely reject all tenders and start again.
Custom and usage do not prevail over express terms of tendering contract. Privilege clause avoids obligation to accept any offer. No breach of duty of fairness.
Evaluation of tenders. Good faith and fairness in contracting. Damages for breach of tendering contract include loss of profit.
Public works tenders. No tendering contract found. Minor irregularities in tender did not prevent owner's acceptance. No obligation to disappointed second lowest bidder.
Public works tender. Undeclared award criterion leads to breach of fairness obligation. Owner not entitled to rely on privilege clause to avoid liability and is liable in damages to low bidder.
Public works tender. Preference to local firm amounts to breach of `tendering contract'. Owner's liability extends to lost profits.
Tenders for concessions. Owner bound by terms of tendering contract to award contract to highest bidder. Compensation based on the excess amount bid by the injured bidder.
Tenders for public concession. The tendering contract obliges owner to award contract only in accordance with tender invitation. This obligation is not affected by privilege clause. Owner's equal and fair treatment obligation.
Public services tenders. Tendering contract, but no breach by government. The privilege clause is too broad to be overridden by any industrial practice with regard to acceptance of lowest tender. Owner's contractual right to evaluate tenders by its own criteria affirmed.
Public works tenders. Low bid invalid for uncertainty of price and could not form basis of tendering contract. Second low bidder entitled to have tender considered. Owner in breach and liable to pay damages.
Public works tender. Stipulated time means actual time. Late tender is not a qualifying tender. Owner cannot accept late tender.
Bonds, Guarantees and Indemnities
Summary of this chapter.
Conditional on default performance bond was a contract of guarantee, where the owner contracted out of any possible duty to disclose. A loan agreement was not a variation of the underlying contract, therefore loan default was not within scope of the guarantee. The engineer's final certificate did not bind the guarantor, and a second action under bond claiming loss caused by delays was defeated by plea of res judicata.
On-demand performance bond. Guarantor's obligation is to pay on demand, that is to pay regardless of merit of promisee's claim on promisor.
Unconditional on-demand performance bond. Unconditional on demand retention bond. Contractor is not entitled to injunction to restrain the bank from making payment under bonds. Owner is entitled to call on both bonds at will.
On-demand performance bond to be treated as `cash in hand'. The bank is obliged to pay out despite counterclaim.
Conditional on-default performance bond. The claimant under a traditional performance bond must prove breach of the construction contract, plus damage, in order to recover from the surety.
Conditional on-demand performance bond. Owner's demand was sufficient, if confusing and inexact, to trigger surety's liability under the bond.
Conditional on-demand payment bond was not a performance bond, but surety was jointly and severally liable for any balance unearned by the contractor. The owner's failure to give possession of the site was not a repudiatory breach and therefore did not discharge surety under terms of the bond.
Conditional on-default performance bond interpreted as virtual on-demand performance bond capable of call without breach by contractor, but only net loss may be claimed, up to limit of bond.
Conditional on-default performance bond. Contractor's nonperformance after automatic determination is not a breach of contract. Entry into receivership is not an anticipatory breach of contract. The word `default' means breach, nothing more.
Conditional on-demand performance bond. Parent company `guarantee' is indemnity. Need to provide for co-ordinated dispute resolution procedure.
Subcontractor's conditional on-default performance bond (guarantee) has characteristics of labour and material payment bond (indemnity) which secures owner's obligation to subcontractor's supplier to make payment when subcontractor defaults.
Conditional on-default performance bond. Surety is to satisfy and discharge damages sustained by main contractor as a result of the subcontractor's failure of performance. The bond amounts to a `see to it' guarantee. Proof of damage is required before liability of surety arises under bond. Surety entitled to same rights of set-off as debtor.
Conditional on-demand performance bond was a guarantee of due performance. The bond was foreited for any (even trivial) breach, but only the amount of actual loss suffered might be retained by beneficiary.
Incomplete Agreement, Therefore No Contract
Summary of this chapter.
`Subject to contract' means subject to and dependent upon a formal contract being prepared.
Further negotiation after exchange of letters showed that agreement was not complete.
No express qualification, but facts reveal incomplete agreement.
`Subject to contract' used in commercial negotiations means that each party bears the risk of its own wasted costs.
`Subject to contract, valuation, quality of design and the obtaining of consent'.
Council's clerk had no authority to amend contract, which was therefore void. Statute did not make a void contract valid when the defect was in substance rather than form.
Letter of Intent
Summary of this chapter.
Letter of intent constitutes `acceptance' so as to form ancillary contract.
The words `pending issue and signing of formal contract' prevented the formation of a contract. The contractor was entitled to a reasonable sum. The owner failed in its claim for damages.
Letter of intent as a basis of contract. Reimbursement of reasonable costs.
`Letter of intent': restitutionary recompense.
No letter of intent, but owner's implied request for performance.
Tender Documents
Summary of this chapter.
Liability of owner and/or owner's agent to contractor for accuracy of tender documents.
Owner is under no duty of care as to information provided to tenderers, despite `uniqueness' of circumstances. The tenderer took insufficient steps to accquaint itself with project risks.
Whether government owed successful tenderer a duty of care over `site information' provided in tender documents, despite purported contractual denial of liability. Whether documents were false, inaccurate and misleading. Whether a disclaimer clause was fatal to tenderer's case.
Representation made during negotations did not amount to a warranty. The effect of the Misrepresentation Act 1967, s.2(1) on innocent misrepresentation. Contractor was entitled to damages arising out of incorrect statement as to load capacity when contractor was intended to, and did, rely on same and representor had no reasonable ground to believe statement was true. There was no duty of care in common law negligence for statement made whilst in negotiations, merely duty of honesty.
`Unbalanced' tenders. `Loaded' tenders. `Front-loaded' tenders. Contractual provisions to regulate distortion of tender prices.
Owner's failure to advise contractor of change in mandatory wage rates prior to execution of contract amounts to breach of a `special duty' in negligence. Contractor entitled to damages to compensate for higher wage costs paid.
Quantity surveyor liable in negligence for missing page in tender documents, but contractor also liable in contributory negligence for failing to take steps to check completeness of documentation.
Interpreting a British Standard Specification.
Descriptions and remedies within contract documents.
Meaning of `or other approved'.
Tender `tag'. Covering letter not included within contract documents. Contract bills purport to amend contract conditions. Formal agreement did not incorporate tender qualifications.
Judicial Review of Public Tender Decisions
Summary of this chapter.
Maladministration of the approved list of contractors.
Non-commercial matters to be avoided when awarding contracts.
Contracting out the work: no unfair treatment of direct employees.
Health and safety policy is a matter of `technical capacity'.
Council acted reasonably in removing contractor from tender list when conflict of interest became apparent.
Builder not prevented from sitting on local authority planning committee to determine rival's application.
Public procurement. Tender challenge. Procedural irregularity. Invalid resolution by council to accept modified tender. Injunction granted.
Unsuccessful tender challenge in public law. Injunction refused. Private law challenge fails. `Tendering Contract' theory fails.
Tender challenge in public law. The right of unsuccessful tenderer to challenge contract award. Breach of regulations is unlawful and results in void `contract'.
Tender challenge in public law. Successful tenderer fails to have contract declared void, despite irregularity in award process.
Public tenders. Duty of procedural fairness. No public law interest in the protection of a private right which might arise out of the tender process.
Public tenders. Judicial review. Errors in the highest bidder's tender form. Bids not to be invalidated but corrected so as to proceed to acceptance. No breach of equal and fair treatment obligation.
Public tender code. Invalid contract due to breach of code. The purpose of the privilege clause explained. Public owner barred from pre-award negotiations with low bidder to seek postaward modifications.
State procurement. Statutory requirement for contract to be in writing. Violation of code requirement when oral contract placed for public structure. Resulting contract was void and unenforceable for illegality. Contravention of the code is a crime.
Public construction procurement. Public body's duty to evaluate bids in good faith. Low bidder, improperly rejected, has standing to make bid protest. Contract award may be enjoined, but damages may be more appropriate remedy.
State procurement. Subcontractor as third party has no general standing to enforce or protest award of prime contract. Affirmative action programmes may affect subcontract but confer no rights or entitlements in prospective subcontract.
State procurement objectives explained. Obligation to award contract to responsible bidder submitting lowest responsive bid. Right to challenge contract award arises out of improper denial or exclusion of responsive bid. Injured bidder entitled only to wasted bid costs. Public official could be personally liable.
State procurement. Injured bidder's legal and equitable claims for public owner's violation of procurement code. Bidder's standing to sue, notwithstanding public owner's discretion over final award.
Public tendering. Breach of procurement code. Remedy-equitable remedy or damages? Wasted tendering costs recoverable, not lost profits.
State procurement. The Request for Proposals sets the limit of the public owner's authority to award the contract. The public body's power was limited by RFP. No immunity from action for injunctive relief.
State construction contract. Competitive bidding. Preference policy to assist minority participation. Low bid was unfairly rejected because it did not show sufficient minority participation, despite lack of qualified participants.
Public procurement of court services does not possess a sufficient public law element so as to expose that decision to challenge by way of judicial review.
Judicial Review of Federal Tender Decisions
Summary of this chapter.
US federal procurement. Challenge by aggrieved bidder. Whether that party has standing to bring suit for judicial review of contract award process.
US Federal procurement. Judicial review. Grounds for review of procurement official's actions. Balancing the public interest between enforcing the rules and enjoining the process.
US Federal procurement. Two-state tender process. Federal government's failure to apply its own regulations as to evaluation, revisions and negotiations. `Unrealistically low' bidder's protest. Injunction granted where damages insufficient. Breach of impartial and equal treatment obligation.
Canadian federal procurement. Tender challenge on evaluation of bids. Uncertainty over the effect of the (GATT/WTO) Agreement on Government Procurement. Government employees were not negligent in their interpretation of AGP.
Australian federal procurement. Tender process contract (or pre-award contract). The terms and conditions of `request for tender' acquired contractual status on the submission of best and final offers. (This decision may be of narrow application, founded on its own facts, because the parties took explicit steps to protect `integrity of the bidding system', rather than rely on any general rule which requires such protection.)
Public Procurement In the European Union
Summary of this chapter.
Introduction to public sector procurement in the European Union.
Public works procurement. Directive 71/305. Freedom to provide services. Articles 23 to 26 of directive 71/305 are exhaustive of what a Member State might require of a tenderer from another Member State by way of proof of having satisfied the criteria laid down. Competition. Procedure to deal with abnormally low tender.
Public works procurement. Directive 71/305. Whether derogation under article 9(d) available for works needed in extreme urgency.
Public works procurement. Treaty Article 30, free movement of goods and the Public Works Directive 71/305/EEC.
Public works procurement. Directives 71/305 and 93/37. Direct effect. Abnormally low tenders.
Public supplies procurement. Free movement of goods. Local preference contravenes Article 30 (TEU).
Public works contract. Breach of Articles 30, 48 and 59 (TEU) and breach of Council Directive 71/305 by inviting tenders on basis of `Danish content' clause. Breach of the principle of equal treatment of tenderers, which lies at the heart of the Public Works Directive, when owner negotiated with tenderer on a non-complying tender.
Public works procurement. Directives 71/304 and 71/305. Assessment of the criteria to be satisfied by a tenderer: account is to be taken of companies belonging to tenderer's group, provided that the legal person in question establishes that it actually has available the resources of those companies which are necessary for carrying out the works.
Public works procurement. Definition of `public works contract' under Directive 71/305. Where a mixed contract involved performance of construction work incidental to the assignment of property, the contract was not a `public works contract'.
Public supplies procurement. Defective tender notice. Supplies Directive 93/36/EEC and Compliance Directive 89/665/EEC.
Public works procurement. Directive 71/305/EEC, Article 9. Invitation to tender under open or restricted procedure to be published in Official Journal. Whether contracting authority entitled to derogation for `supplemental works' due to `technical reasons'?
Public services procurement. Judicial review. Breach of Directive 92/50/EEC and the Public Services Contracts Regulations 1993. Disqualification of tenderers by applying irrelevant criteria is unlawful. Examination of suitability and the awarding of contracts are two separate operations.
Public works procurement. Directive 71/305/EEC, Article 29(2). Public Works Contracts Regulations 1991, Reg 20.
Tender Abuses and Anti-Competitive Practices
Summary of this chapter.
Agreement between two tenderers that one should not tender in competition with the other was enforced.
Collusive tenders, but not illegal in 1875.
Auction knock-out agreement is enforceable, not a fraud, nor a restraint of trade.
Collusive tendering and fraud.
Tender collusion. Tender `ring'. Fraud.
Judicial review of alleged collusive tendering.
Agreement among bidders not to compete is not illegal in English law. Sole bidder was granted specific performance against owner's refusal to sell.
US federal procurement. Enforcement of subcontract bid depository rules amounted to anti-competitive practice, entitling subcontractor to damages under Sherman Act.
US federal procurement. Contract formation between subcontractor and general contractor. Anti-competitive agreement to restrict access to market amounted to price restraint and violation of anti-trust legislation.
Californian law. Bid depository's rules amount to per se violations of anti-trust law. The rules imposed requirements which amounted to illegal price distortion and group boycotts.
US federal procurement. Restraint of trade. Exchange of price information. Market distortion.
Professional codes and fee scales. A minimum fee schedule enforced by the State Bar constituted a violation of anti-trust law and amounted to illegal restraint of trade.
Restrictive trade practices. Building trades' association rules. Recommendations and rules of association concerning use of standard forms of contract, against tendering for contracts without bills of quantities, against submitting priced bills of quantities with tenders, and for use of standard schedules of daywork charges amounted to restrictions within the Restricted Trade Practices Act 1956, s.6. The removal of such restrictions would not deny the public a substantial benefit. The restrictions contrary to the public interest.
Collusive tendering in the UK.
Collusive tendering in New South Wales.
EU competition law.
Recovery of damages in national court for breach of Treaty obligation under Article 86.
Table of Cases 855(30)
Table of Statutes 885(4)
Index 889

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