Monday, 1 July 2013

[Contract] Process Contract and Hughes Aircraft Systems v Airservices Australia

What is a tender process contract?

Tender contract process is found in tender processes (bidding system) where the seller decides upon a particular offer from a potential buyer. The court in Hughes Aircraft Systems v Airservices Australia [1] ("Hughes") found that a tender process contract existed and where there is a request for tenders ("RFT"), there may also be a legally binding agreement (the tender process contract); its role is to govern the tender process. As R v. Ron Engineering & Construction (Eastern) Ltd [2] sums up, tender process exists to protect the "integrity of the bidding system".

All this does not mean that there will be such process contract will exist in all bidding situations. As expounded Pratt Contractors Ltd v Palmerston North City Council [3], the creation of process contract is subject to “a consideration of the circumstances and the obligations expressly or impliedly accepted.”

After Hughes v Airservices

The case sets out the following aspects to consider where there is a tender process contract

1) Regardless of how careful the drafting of request for tender documents is, there may be a contractual obligations.

2) When such contract can be established, there is a duty on part of the requestor to deal fairly in the performance of a contract. This was particularly the issue in the case Hughes and Finn J went further to suggest that in order for there to be a breach of a term to act fairly, one must establish the proof of unfair dealing. 

3) It is more likely to be implied where tenderers are actively encouraged to participate. 

Application of Hughes v Airservices

In acceptance of the decision in Hughes, other cases have added the concept of acting in good faith in the performance of a tender process (see Cubic Transportation Systems Inc & Anor v State of NSW [4])

Following Hughes, it became common for RFTs to include provisions designed to exclude any creation of process contract. However, it is likely that bidders will be ensured to expect compliance with express guidelines. If not, what is the point of the guidelines anyway if the requester can do whatever without the threat of breaching the terms of the guidelines? 

See also the cases

Wagdy Hanna and Associates Pty Ltd v National Library of Australia [2012] ACTSC 126 (this case is particularly important for future cases. It is a reminder that those (public sectors; governments) issuing RFTs should be aware of the confidentiality obligations.)

IPEX ITG Pty Ltd (in liq) v Victoria [2010] VSC 480

[1] (1997) 146 ALR 1 
[2] [1981] 1 S.C.R. 111 at 273
[3] [1995] 1 NZLR 469
[4] [2002] NSWSC 656 

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