Posted on July 11, 2016 by Sue Puckeridge

Forming a contract in the context of a Council tender – offer and acceptance

The recent New South Wales Court of Appeal (‘Court‘) decision in Secure Parking Pty Ltd v Woollahra Municipal Council [2016] NSWCA 154, is one of the few cases which deals with the creation of a contract in the context of Part 7 of the Local Government (General) Regulation 2005 (‘Regulations‘).  While not creating new law, it is an important reminder of one of the key principles governing the formation of contracts – there must be correspondence between the offer and the acceptance of that offer.

The Court overturned the decision of the Supreme Court.  The background facts of the proceedings are set out in our previous article about the Supreme Court decision.

Background

The key issue before the Court was whether the primary judge was correct in finding that there was a binding contract between the parties.  In particular, whether the purported acceptance of Secure’s tender by Council corresponded with the offer made by Secure in its tender so as to create a contract.

In considering this issue, the Court accepted the primary judge’s comments in relation to the conduct of tender negotiations in the context of  Part 7 of the Regulations.  That is, parties to a tender may only negotiate changes in accordance with reg 176 of the Regulations. Such changes are not a series of offers and counter offers which form part of the process of negotiating a contract and as such, the consequences of failing to agree upon a particular change has the effect that there is no variation to the tender.  Unless the tender is withdrawn, it is capable of acceptance in accordance with the conditions of tender.

Key Issues

Two factual issues were of significance in determining whether a contract existed between the parties:

  • did Secure vary its tender to provide a bank guarantee by failing to respond to a Council email in which the Council officer stated that it would insert into the report to Council a requirement that Secure provide a bank guarantee of $385,000.00?
  • was the failure to agree a commencement date for the car park management agreements fatal to the existence of a binding contract?

The bank guarantees

The draft management agreement, which formed part of the tender documents, required the provision of bank guarantees by the operator of the car parks. Following the submission of tenders, at a meeting in February 2011 the representatives of the Council and Secure discussed the provision of bank guarantees. Secure’s representatives stated that it could not provide a bank guarantee and offered to provide a performance bond as an alternative.

On 28 February 2011, Council sought to vary the guarantee amount required in the tender in relation to each of the four car parks the subject of the tender. The total amount requested by Council was equivalent to 3 months of the total guaranteed income in Secure’s tender.

Later that day, Secure responded stating that it was “happy to agree a Performance Guarantee Bond for the amount of 2 months“.  Council’s representative wrote back “I will put a requirement of 2 months Bank Guarantee ($385,000) in my report to Council.” Secure did not respond to this final email from the Council.

The report was put to Council and Council resolved to accept Secure’s tender and to amend the management agreement as recommended.  It was Council’s position throughout the proceedings that a contract had been formed on 15 March 2011 when Secure was informed that its tender has been successful.

The Court accepted that Secure’s response to the email of 28 February 2011 was a counter- offer and given in circumstances where “the distinction [between a performance bond and a bank guarantee] was significant” [53].  It therefore could not be said that Secure had at any time agreed to provide a bank guarantee (in any amount).

Further, Secure’s failure to respond to Council’s final email could not be objectively viewed as signalling that Secure had agreed to provide a bank guarantee. Focusing on Secure’s conduct and what it conveyed, the Court held that Secure had done nothing by its silence to vary its offer and accept an obligation to provide a bank guarantee of two months’ guaranteed income for each of the car parks.

Consequently, the terms of the tender purportedly accepted by the Council did not correspond with the terms offered by Secure because the acceptance required the provision of bank guarantees for 2 months’ guaranteed income. As such, ‘the parties did not reach any consensus that was capable of supporting the contract alleged by the Council to have been made on 15 March 2011‘ [67].

The commencement date

The Invitation to Tender required Secure to agree a commencement date within 14 days of acceptance of the tender or failing such agreement within a reasonable time. Council argued that this requirement was a term of the management agreement, even though not expressed in the management agreement.

This was not accepted by the Court which found that the requirement to agree a commencement date within 14 days was a term of the Invitation to Tender which governed the tender process.

While Secure had made representations during the tender process to the effect that it did not want to pay rent until the new car parking equipment was installed, any consequent commercial consensus between it and Council to this effect could not be viewed as creating a legally binding consensus regarding when and how the commencement date in the management agreement would be determined.

In any event, the Court concluded that the date in the management agreement had to be a calendar date and not an event (such as the installment of equipment).  This date was unknown or uncertain at the time the management agreement was made. As a result, on 15 March 2011 there was no consensus between the parties regarding the commencement date and consequently no legally binding contract was made when Council notified Secure that it had accepted its offer.

Put simply, the case highlights that a person cannot accept what has not been offered and the need for parties in a tender process to understand the difference between those matters that govern the tender process and those that form part of any subsequent contract.

Should you wish to read the Court’s full decision, click here.

Prepared with the assistance of Michael Levy.