An IT service provider failed in its claim to recover compensation from its customer, in a recent Victorian Supreme Court decision which emphasises the importance of robust IT tender processes and the need for comprehensive contracting practices.
Ipex ITG Pty Ltd (Ipex) successfully tendered in 2000 to supply the Melbourne Water Corporation (MWC) with outsourced IT services, including help desk services.
During the preparation of the tender, MWC had supplied potential bidders with information including as to the number, type and category of help desk calls previously made by its staff.
Ipex alleged that it relied on the information provided by MWC in formulating the pricing for its bid to provide the services. According to Justice Byrne, Ipex ‘was required to assume most, if not all, of the risks involved of providing IT services for MWC over the three year term of the project and it was therefore required to build into its tender price an allowance for this.’ Ipex claimed that the information was inaccurate, incomplete and misleading—and that, had it known the true picture, it would have priced its bid very differently. Ipex lodged contract variation claims for additional payments to service higher than expected help desk call volumes, but MWC had rejected those claims.
The court rejected the allegation made by Ipex that MWC’s pre-contractual representations amounted to misleading and deceptive conduct under sections 52 and 51A of the Trade Practices Act 1974 (Cth). Justice Byrne held that:
- MWC did make some representations as to the average number of calls and the accuracy of the information provided to potential bidders
- Ipex had relied on this information when preparing its response to tender, but
- this information was neither false nor misleading, nor was it likely to mislead or deceive a potential bidder.
On the basis of the court’s finding that the information was not misleading, Ipex’s claim failed.
Lessons to be learnt
The case highlights, once again, the potential risks involved when technical information is exchanged between parties at the pre-contract stage, but not subsequently incorporated into (or expressly excluded from) the contract. Although MWC was able to successfully defend the claim brought against it by Ipex, a different finding by the court as to the accuracy of the pre-contractual information provided would likely have resulted in a very different outcome. It is perhaps worth noting that Justice Byrne referred to the ‘very unsatisfactory evidentiary background’ advanced by Ipex to support its case. In that sense, the judgment should not be regarded as indicating that IT suppliers will confront a generally sceptical judiciary in bringing such claims.
In similar situations, parties would be well advised to:
- ensure that information provided to the other party at the pre-contract stage is accurate and not potentially misleading
- clearly set out in the final contract what technical and commercial information has been relied upon (of course, the failure to make this clear will not mean an action for misleading and deceptive conduct will fail, but it will diminish the certainty of the consequences which follow from representatives not being fulfilled), and
- consider appropriate contract mechanisms to deal with any potential concerns regarding information relied upon. In this case, litigation could no doubt have been avoided if the parties had agreed that Ipex would be paid on a sliding scale according to the number of helpdesk calls made in a given period.