The judge, in the following Northern Irish case, described the central point in dispute as “an interesting and unusual point” - it concerned the obligations (if any) undertaken by an employer prior to awarding a contract following a tendering process. The case raises a further interesting issue: is an architect (responsible for the tendering process) under a duty to advise its client on the legal implications of introducing a tendering code into the tendering procedure?

J & A Developments Ltd v Edina Manufacturing Ltd (1), Armoura Ltd (2) and John Francis McBride, Peter Anthony Dolan, Gerard Coyle and Barry Gallagher T/A ADP Architects and Design Partnership (Third Parties) [2006] NIQB 85

The employer engaged an architect in relation to a project. Seven contractors were invited to tender for the works; and six contractors did so. The conditions of tender were set out in a document headed “The Summary Schedule of Work”. One of the paragraphs in this document stated:

“Tendering procedure will be in accordance with the principles of the Code of Procedure for single selective tendering 1996.”

The judge referred to this as “the Code”. One of the sections of the Code quoted by the judge was:

“... good tendering procedure demands that a contractor’s tender price should not be altered without justification. In particular the NIJCC strongly deplores any practice which seeks to reduce any tender arbitrarily where the tender has been submitted in free competition and no modification to the specification, quantity or conditions under which the work is to be executed or to be made ...”

The contractor received an invitation to tender and submitted the lowest tender. The employer convened a meeting of the three lowest tenderers at which they were all invited to reduce their tender price. The contractor refused since this was not normal procedure. One of the other tenderers reduced its price, and was awarded the contract.

Did the contractor have a cause of action against the employer for breach of contract?

The legal issue

The first issue to determine was whether the clause in the conditions of tender (quoted above) which provided that the tendering procedure would be in accordance with the principles of the Code had the effect of creating a contractual obligation on the employer to comply with those principles.

The contractor argued:

  • The contractor and the employer had entered into an agreement under which the employer had agreed that the tendering procedure would conform with the principles of the Code, in consideration of the contractor devoting time and expense in preparing a tender for the construction works.
  • Under this agreement, the employer had the right to refuse any or all tenders and the employer expressly gave no guarantee that the lowest or any tender would be accepted. These provisions empowered the employer to accept or reject any or all of the tenders, but did not permit it to renegotiate the tendered price except in circumstances in which the Code permitted renegotiation (where there were changes in scope or specification etc.).

The employer was in breach of contract

The judge held:

  • The Code laid down a clear principle that it was a deplorable practice to seek to reduce any tender arbitrarily where the tender had been submitted in free competition and no modifications to the specification, quantities of work etc, had been made.
  • The employer had committed a clear breach of the principles of the tendering procedures set down in the Code. Whilst there was no obligation on the employer to accept the lowest tender, it had to accept either no tender at all (of those submitted), or one at the price at which it was submitted (subject to the possibility of a reduction in the circumstances contemplated by the Code).
  • If the employer had adhered to the Code it was virtually certain that the contractor would have been awarded the contract.
  • The employer’s breach of contract entitled the contractor to recover its outlay in preparing the tender (in the expectation that the Code would be complied with) and the profit of which it had been deprived as a result of the employer’s breach of contract.
  • The judge discounted the claim for loss of profits by 20 percent on the basis that there must have been some element of profitability in the availability of regular employees who were able to do other profitable work for the employer. [Editors note: there was no indication in the judgment that the award in relation to loss of profits was also discounted by the Contractor’s outlay in preparing the tender. If this was not deducted, then it appears that the amount awarded for loss of profit included an element of double recovery.]

Was the architect liable to the employer?

The employer sought a contribution from the architect in relation to the employer’s liability to the contractor on the basis that:

  • the architect was the expert in, and had prepared all relevant documents necessary for the tendering and contract process;
  • the architect had conducted the tender and the contract process on behalf of the employer; and
  • any loss suffered by the contractor therefore arose due to the negligence and breach of contract of the architect. 

The employer claimed numerous breaches of contract, including the architect’s alleged failure to advise the employer about the inclusion of the Code into the tender process; and the potential liabilities of the employer as a result of including the Code into the tender process.

What advice should the architect have given to the employer?

The judge found:

  • Applying the legal principle that architects, surveyors and engineers are expected to have a practical working knowledge of the law relating to their professions which is sufficient to enable them to perform their duties adequately, the question was whether the architect was expected to know that the employer’s conduct was liable to constitute a breach of contract.
  • A competent architect would not have been aware that he should advise his client that an action for breach of contract was a likely consequence if the employer followed its proposed course of action.
  • The architect should have warned the employer that the Code applied and that its proposed negotiations with the three lowest tenderers were in breach of the Code’s principles and were to be deplored.

The onus of proof was on the employer to establish that the employer would have changed course if it had received such advice from its architect. The employer had not established this: on the contrary, it had demonstrated its determination - without concern for propriety - to engage in a battle of wits to force the price down as low as possible.

The third party proceedings against the architect were therefore dismissed.

Editors’ comments

Employers issuing invitations to tender need to be aware that, even if they do not undertake express contractual obligations in the tender conditions, they may undertake implied obligations, as illustrated in Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195. In that case, the court held that, whilst issuing an invitation to tender may amount to no more than an offer to receive bids, in some circumstances it could give rise to binding contractual obligations. In that case, although there was no express obligation, there was an implied contractual obligation on the employer to consider all timely and conforming tenders.