When is a tender considered accepted? A reminder to tread carefully

Bartier Perry recently acted for the defendant developer in Dyna Constructions Pty Ltd v Bocco Developments Pty Ltd [2021] NSWDC 507. Our client, Bocco Developments Pty Ltd (Bocco), was sued by a builder who had tendered for a construction project on Sydney’s northern beaches. While Bocco succeeded in defending the claim, the case presents a timely reminder for council procurement teams to carefully consider their conduct when communicating with prospective tenderers or contractors before a contract is signed.

The facts

Through its agent, Bocco ran a tender process for the construction of a residential apartment complex in Narrabeen. Dyna Constructions Pty Ltd (Dyna) was subsequently identified by Bocco as its preferred tenderer. Bocco’s agent advised Dyna that Bocco would be proceeding with it on the project.

The parties commenced negotiations regarding the construction contract, only for Bocco’s financier to fall away. This required Bocco to identify a new financier, who subsequently chose a different builder.

Dyna claimed that:

1. by advising that Bocco would proceed with Dyna on the project, Bocco had accepted Dyna’s tender and a binding agreement had been formed between the parties

2. Bocco’s conduct amounted to misleading or deceptive conduct.

The contract claim

On the contract claim, the terms of the tender were key. Bocco’s invitation to tender set out three prerequisites to a tender being accepted; namely that a tender would not be accepted unless and until:

1. a notice in writing of such acceptance was sent by email to the successful tenderer

2. negotiations and contract documents were completed

3. the contract document had been vetted by the lawyers representing each party.

Judge Scotting was not convinced that an email stating Bocco had agreed to proceed on the project with Dyna necessarily satisfied the first requirement. Nonetheless, the second and third requirements had not been made out.

His Honour found that negotiations between the parties were still ongoing at the time Dyna was claiming a contract had been formed. This included negotiation of price as well as a number of other contract clauses which were still being marked up by the parties’ legal representatives.

As for the third requirement, Judge Scotting found that in commercial reality, this was part of completion of contract negotiations and, for the same reasons as requirement two, was not satisfied.

Given these findings, his Honour was not satisfied that Bocco’s conduct amounted to an acceptance of the tender within the meaning of the invitation to tender.

In addition, his Honour found that for a number of other reasons Dyna’s contract claim would otherwise fail. They included:

• the parties had not satisfied the condition precedent set out in the draft contract documents

• the parties had not agreed on essential terms, which precluded a finding that a contract had come into effect

• the alleged contract did not satisfy section 7 of the Home Building Act 1989 (NSW).

The misleading or deceptive conduct claim

Dyna’s misleading or deceptive conduct claim was based on representations alleged to have been conveyed by both the invitation to tender and in subsequent conversations between Bocco and Dyna.

While Judge Scotting found that the alleged representations had not been conveyed, he went on to consider the damage that may have flowed from those representations should he be wrong on this issue.

Importantly, his Honour did make a finding that had the representations been proven, the plaintiff may have been entitled to damages.

Broader matters

Although the Court found against the plaintiff on both its claims, the case is a timely reminder for anyone engaging third party providers and contractors to be mindful of their conduct. In particular, the takeaways from the case align closely with some of the guiding principles in the Tendering Guidelines for NSW Local Government (Guidelines), including:

• Honesty and fairness – An important finding on the misleading or deceptive conduct case against Bocco was that Bocco had a reasonable basis to represent to the tenderer that it had been approved by its financier. This was found to be an honest representation based on the information Bocco had at the time. During the tender process, Council staff should ensure they have an honest, factual basis before making statements to a tendering party.

• Accountability and transparency – Pursuant to the Guidelines, councils must ensure the process for awarding contracts is open, clear, fully documented and defensible. Bocco was able to rely on similar principles to defend the claim brought against it, particularly by relying on the documented tender process and the progress of the parties’ contract negotiations, both of which were important findings in determining there was no contract entered into between Bocco and Dyna.

• Consistency – The Guidelines require that councils ensure consistency in all stages of the tendering process, including by clearly specifying the tender documents and the criteria for evaluation. Dyna’s failure to prove to the Court that it had satisfied the documented tender criteria was a key reason why it was unable to demonstrate it had entered into a binding contract. In accordance with the Guidelines, councils should always ensure the tender process is run in accordance with the documented procedure.

• Intention to proceed – Councils must not invite or submit tenders without a firm intention and capacity to proceed with a contract, including having funds available. The lack of adequate financing for the project was, in effect, what triggered the dispute between Bocco and Dyna. There was no dispute that Dyna had spent much time tendering for the project and it was likely displeased to learn there was an issue with financing. Tendering parties expect councils to be in a position to fund the successful contractor and failure to provide such funding can, in certain circumstances, create litigation risk for councils.

• Co-operation – The Guidelines encourage business relationships based on open and effective communication, respect and trust, and a non-adversarial approach to dispute resolution. Bocco was placed in a difficult position once its financier dropped out of the project. The effectiveness of communication between the parties on this matter was an issue in the proceedings, but it did not determine the outcome. However, there is no doubt that constructive and respectful communications between commercial parties in the tender process can facilitate non-litigious outcomes which, given the time and legal cost associated with court proceedings, ultimately benefits all parties.

This is not the only case we have seen recently where a tenderer has alleged a breach of contract or misleading or deceptive conduct by a tendering party, including a government body. We encourage procurement teams to review their processes on projects going to tender and to ensure all conduct, particularly communications to tendering parties, is consistent with the progress of the tender process and also the terms of the tender itself.

Authors: Gavin Stuart & Scott Homan

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