Insight

Disrupting Procurement: The Process Contract and Other Avenues

Fortunately, for procuring authorities, process contracts can generally be excluded with a well-drafted exclusion clause in the tender.

Contracts and Procurement
JB

Jodie Burger

January 27, 2017 10:50 AM

Procurement is difficult enough. It’s made infinitely tougher when you need to consider whether the tender process itself gives rise to a contractual relationship between the procuring entity and each tenderer. These relationships tend to abide by the terms of the procurement – the ‘process contract’.

Fortunately, for procuring authorities, process contracts can generally be excluded with a well-drafted exclusion clause in the tender. However, with the Commonwealth Procurement (Judicial Review) Bill to be introduced into Parliament, for how long will entities be able to keep the actions of dissatisfied tenderers at bay?

Governments have become anxious. They’re concerned that dissatisfied or unsuccessful tenderers will allege that a process contract gives them a right to seek damages. This could be for a breach of that contract and could possibly lead to an injunction. This, in turn, could stop the tender award or compel a procuring entity to reconsider a tenderer’s bid.

Cubic versus NSW

The fear around process contracts stems from the Cubic case in which the Court found that there was a binding process contract between the State and tenderers, despite the tender documents purporting to exclude a process contract from being formed. The process required each bidder make an irrevocable offer “in consideration for” the procuring entity - assessing the tender in accordance with the rules of the tender call. It was this additional provision that allowed the judge to read down the exclusion clause and find that a process contract existed.

Procuring entities must therefore be alive to the fact that any exclusion clause must be well drafted as such clauses may be strictly construed by the Courts.

How to Exclude Process Contracts

A strong exclusion clause is only the start. The exclusion should be placed in the first tender documents released to market because the Court must endeavour to ascertain the intention of the parties as disclosed by the tender documents. Purporting to exclude a process contract in later documents may be too late.

Secondly, and crucially, the other provisions and language used in the tender must not be inconsistent with any exclusion clause. A process contract is less likely to arise if the tender documentation limits the procuring entities’ liability to a minimum.

Ultimately, whether a process contract exists turns on the specific facts of the case, taking into account the request for tender and all related and associated documents.

Excluding process contracts is not always the solution. Industry may be less inclined to participate in a tender which lacks binding rules. It may be harder for the procuring entity to enforce clauses that allocate risks to or impose obligations on tenderers.

Soon there may Be other Remedies for Unsuccessful Tenderers

Currently, in addition to the process contract argument, dissatisfied tenderers may have a right to judicial review. Review is narrowly available for decisions, “under an enactment.” For this reason, a dissatisfied tenderer’s application for judicial review was rejected in the recent decision of Aurukun Bauxite Development v Queensland. In that case, the applicant sought to challenge the State’s decision to award a contract to another corporation. While the contract was a precondition to being awarded a licence under the Mineral Resources Act 1989 (Qld) (MRA) (which would be a reviewable decision), the Court found that the decision to award the contract was not reviewable because it was not impliedly authorised by the MRA.

The situation is likely to change. The Commonwealth has announced that it will introduce the Government Procurement (Judicial Review) Bill (Bill) in the spring sittings of Parliament (which ends on 1 December 2016). The Bill is likely to open up the available decisions and conduct for which dissatisfied tenderers of a Commonwealth procurement process can seek the assistance of the courts including the right to seek an injunction, or be awarded compensation, for breach of commonwealth procurement rules.

What Is Driving Formal Recognition of Judicial Review for Commonwealth Procurement Processes?

While commentators have suggested that the Bill aims to implement requirements of the Trans-Pacific Partnership (TPP), it might also prepare Australia for our potential accession to the World Trade Organisation’s Agreement on Government Procurement (GPA).

The GPA, like the TPP, requires a member state to have a timely, effective and transparent judicial review procedure through which suppliers may challenge a breach of the Agreement. Australia’s accession to the GPA may be imminent – its revised offer was presented to the GPA Committee 30 September 2016.

Even if recent events call into question the viability of the TPP, the Commonwealth may still be required to ensure that judicial review is available for Commonwealth procurement so as to meet our obligations under the GPA and other international arrangements.

Conclusion: We Need a Balance

Ultimately, while Commonwealth Departments and Agencies may be able to exclude process contracts, it is unlikely that they will be able to exclude the operation of the Bill, if passed. This development might trickle down to other procurement processes (including those undertaken by State Governments) and may shift industry expectations of tendering bodies and how procurement takes place.

Whatever the result, the law should best balance the need for accountability of procuring authorities without allowing legal actions to be disruptive and obstructive.

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