On 11 December 2006, Sir Liam McCollum in the Northern Ireland High Court ruled in the J&A Developments case that, once incorporated in the tender documentation, the principles of the National Joint Consultative Committee (NJCC) code of procedure for single stage selective tendering become contractually binding, even though the code is, on the face of it, merely advisory in character. The case therefore enlarges the rights of tendering contractors substantially. Earlier case law had restricted these rights severely, arguably confining them to public procurement agreements only.
The J&A Developments decision The facts of the case were as follows. A building contractor – J&A Developments Ltd (J&A) – tendered for the construction of factory premises to be built for the defendants, Edina Ltd and Armoura Ltd. The schedule to the tender documentation expressly said that the tender process would be in accordance with the principles of the NJCC code.
J&A produced the lowest tender but this was still too high for the defendants’ liking. In an effort to effect a saving, the defendants called J&A in for a meeting, which was to be swiftly followed by meetings with the next two lowest tenderers. J&A refused to budge on their price, unless any reduction was linked to a reduced specification. In the light of this decision, the defendants proceeded to employ one of the other contractors, who were willing to drop their price.
J&A subsequently issued proceedings, alleging that the employers’ actions amounted to a breach of contract and, specifically, to a breach of the NJCC code. They relied primarily on clause 7.1 of the code which ‘strongly deplores’ renegotiation of the lowest tender in the absence of a reduction in the specification. J&A further argued that if the principles of the code had been followed properly, they would have been the successful tenderer. Accordingly, they claimed damages comprising their loss of profit. Not surprisingly, the defendants did not accept that the principles of the code were contractually binding. As an alternative line of defence, they claimed an indemnity from their appointed architects, ADP, who had incorporated the NJCC code into the process in the first place.
ADP refused to give the requested indemnity, saying they had acted properly and in accordance with a respectable body of opinion within their profession. Significantly, in a joint minute compiled by the architectural experts, it was accepted that no competent architect could have said authoritatively that the procedure followed by the defendants would have resulted in legal liability. Sadly for the defendants, Sir Liam decided that the NJCC code did have binding effect, and that consequently J&A were entitled to their loss of profit (quantified at £128,000). At the same time, he dismissed the third party proceedings against ADP, partly because of the conclusions reached by the expert architects in the joint minute, and partly because (on a factual assessment of the evidence) he concluded that the defendants would not have complied with a warning, even if they had been given one.
Implications of the case
The implications of this case are potentially far-reaching – especially for employers who can only wait and see if they are sued. The most obvious risk is that a firm of building contractors which is aggrieved at losing out in a tender competition may revisit its archives to determine if the tender process incorporated the NJCC code or its successor code issued by the International Council for Research and Innovation in Building and Construction (the CIB). If the process has incorporated the code, then (subject to the limitation period) the firm may well think it worth making a claim for loss of profits.
As far as architects are concerned, the best course now is (1) to review the current practice of incorporating tender codes, particularly in the absence of express client consent; and/or (2) to issue (preferably written) warnings to the client about the legal consequences of departing from the code.