Tendering costs: Are they recoverable or are they just the cost of doing business?

Tendering for projects can often be a protracted and costly process, with tenderers required to investigate, quantify, quote and then negotiate their proposed price to complete a project. Almost always, tendering parties are left to wear those costs and simply see them as “the cost of doing business”.

In the decision of Dyna Constructions Pty Ltd v Bocco Developments Pty Ltd [2021] NSWDC 507, the District Court of New South Wales provided some guidance on the recovery of tender costs and highlighted the difficulties of recovering such costs.

Background

In this case, the developer, Bocco Developments Pty Ltd (Bocco), ran a tender for the construction of a residential project on Sydney's Northern Beaches. Dyna Constructions Pty Ltd (Dyna) was one of five builders who submitted an expression of interest to tender for the work. Dyna was subsequently issued an Invitation to Tender and engaged in an extensive exchange of correspondence with Bocco’s project manager, who at one stage advised Dyna that its tender was successful.

Bocco’s financier later refused to fund the project if Dyna’s tender was successful, as the financier wanted to use one of their preferred builders, and as a result, Bocco did not engage Dyna to construct the project.

Dyna subsequently commenced proceedings seeking to recover its tender costs and damages from Bocco on the alleged bases that:

1.???Bocco breached an alleged contract between the parties, which it argued was established from various tender communications and documents, with formation confirmed when the tender was originally accepted; or

2.???alternatively, Bocco’s conduct amounted to misleading or deceptive conduct and therefore Dyna was entitled to recover its losses under sections 18 and 236 of the Australian Consumer Law (ACL).

Breach of Contract

In relation to the alleged breach of contract, Dyna argued that:

1.???the parties entered into a binding contract when Bocco informed Dyna that its tender was successful;

2.???Bocco had repudiated the contract when it failed to engage Dyna; and

3.???as a result, Dyna was entitled to its costs of preparing the tender and damages for the profit it would have made had it constructed the project.

Scotting DCJ rejected the argument and found that a contract, as alleged, had not been formed or entered between the parties. In making the decision, his Honour highlighted various points which supported the Court’s conclusion, including that the purported contract documents had not been vetted by each party’s solicitors (an express prerequisite to a tender being accepted).

Misleading or Deceptive Conduct

In relation to Dyna’s ACL claim, Dyna alleged that certain representations made by Bocco in relation to the Invitation to Tender and the fact Bocco informed Dyna its tender was successful, amounted to misleading and deceptive conduct.

In rejecting Dyna’s ACL claim, Scotting DCJ held that the act of issuing the Invitation to Tender was not misleading or deceptive, as it was “genuine… for the purpose of inviting tenders for the construction of the project”. Further, the terms of the Invitation to Tender were clear in that Bocco was not obliged to accept any tender at all, and that any tender would be evaluated by reference to the matters set out in the invitation, including that the successful tenderer had to be approved by Bocco’s financier.

His Honour found that each tender was considered on its merits, and Bocco had reasonable grounds of ensuring adequate financing, before engaging a particular tendering party to complete the project.

Takeaway

This decision should serve as a reminder for developers that their conduct?when communicating with prospective tenderers before a contract is signed may give rise to arguable causes of action, which may be pursued. Developers should ensure their conditions of tender are carefully drafted to provide them sole discretion to select the successful tenderer, without any suggestion that a contract has been formed or representations made.

For contractors, the decision demonstrates the legal hurdles faced to recover the costs of a tender process. Contractors should review the terms of each invitation to tender to determine the risks posed to them, the extent of work required and whether any costs are recoverable in the event they are ultimately unsuccessful.?

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader’s specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact the author: [email protected]?