Posted on April 21, 2015 by Sue Puckeridge

Can an offer be altered in a tendering context?

A recent Supreme Court decision provides some guidance as to the extent to which it is open for a tenderer to vary the terms of its offer after submission of its response to an invitation to tender, and at what point a contract comes into existence.

In Woollahra Municipal Council v Secure Parking Pty Ltd [2015] NSWSC 257, the Court considered the operation of the Local Government (General) Regulation 2005 (‘Regulations‘) and confirmed that the ability to vary a tender is limited to having regard to both the conditions of tender and the Regulations.  

Facts 

Woollahra Municipal Council (‘Council‘) had sought tenders for the management of four car parks: three car parks for a period of seven years and the fourth for a monthly term as this car park was to be redeveloped.  The redeveloped car park was to accommodate more than 400 public car spaces, although this was not disclosed in the invitation to tender.

The invitation to tender contained clear provisions which, amongst other things, relevantly provided that:

1. notification of acceptance of any tender was to be given by a formal letter from the Council,
2. the tenderer was to rely upon its own enquiries,
3. by lodging a response to the tender, the tenderer acknowledged that it understood and accepted all relevant terms and conditions pertaining to the tender (Schedule A of the tender),
4. the document marked ‘Draft Management Agreement’ (which was included as part of the tender package) would be completed with the relevant details identified in the tender following Council’s acceptance of the tender response.

Secure Parking Pty Ltd (‘Secure‘) lodged a tender.  In doing so, it signed Schedule A of the invitation to tender.

Prior to the acceptance of Secure’s tender, negotiation took place between Council’s and Secure’s representatives in relation to the terms of the contract.  Agreement was not reached on all these issues.

Council accepted Secure’s tender by resolution on 14 March 2011.  On 15 March 2011, Council notified Secure of this acceptance by email and attached a completed management contract for execution (which differed from that attached to the invitation to tender in a number of respects).

The parties subsequently sought to negotiate the terms of the management contract, although Council made it clear that it was not prepared to negotiate substantive changes. Ultimately, Secure refused to execute the management agreement, alleging misleading and deceptive conduct by Council in failing to disclose, in the invitation to tender, the details of the proposal to redevelop one of the car parks.

Council treated this refusal as a repudiation of the contract which came into existence on 14 March 2011, terminated the contract and sued for damages.

Findings

At law, the point in time at which a contract comes into existence is based upon an objective test and not the subjective intention of the parties.  Furthermore, the parties conduct must be understood ‘in the context of the legal framework that governs that conduct.’ [87].

Pursuant to Clause 176 of the Regulations a tender may only be varied to provide additional information by way of explanation or to correct an anomaly, or a mistake.  Clause 178  requires Council to either accept or decline to accept a tender.

By signing Schedule A, Secure accepted an obligation to complete the management agreement in accordance with the conditions of tender.  The negotiations which took place between Council and Secure following lodgement of the tender were not offers and counter offers but only offers to change the terms of the Secure’s tender in accordance with cl 176.  Nor could they be seen as discussions as to the terms of the agreement which left matters to be resolved at a later time.

As agreement could not be reached on matters that could be varied under the Regulations and since Secure did not withdraw its Tender, then upon acceptance of the tender by the Council, Secure was bound by the terms of its offer (as that offer existed when the tender period closed and the tender was lodged) as accepted.  Accordingly, a contract came into existence between Council and Secure when Council passed the resolution to accept the tender (i.e. on 14  March 2011).

The Court also held that the amended management agreement sent to Secure with the notification of acceptance did not form part of the acceptance as it was not referred to in the resolution accepting Secure’s tender.  If the management agreement did not accurately reflect the terms of Secure’s offer then it was open to Secure to seek amendments but this did not mean that a contract had not come into existence on 14 March 2011.

For councils, this case is a salutary reminder of the importance of ensuring that the invitation to tender is well drafted and complete because clause 176  provides little scope to vary the terms of an invitation to tender once the tender has closed.

For tenderers, the case emphasises the importance of fully understanding the invitation to tender and the legal effect of lodging a response to that invitation, making full enquiries and the need for the response to clearly identify those areas which are not acceptable.

According to press reports, the case is likely to be appealed.