Tendering for construction work can be a time consuming and costly business, particularly if you are unsuccessful because the opportunity to recover such costs is lost. Pre contract negotiations usually take place before a contract is awarded. Further work may be necessary to explain the tender, the tender may have been qualified, a letter of intent is issued, or the ‘battle of forms’ may result.
This is all part and parcel of the tendering process and at this stage there is no contract imposing obligations on the parties and none may subsequently come into existence. Whilst a tendering contractor will invest time and money, the inviting client does not commit itself to accept the highest or lowest tender or need to give reasons for the acceptance or refusal of a tender. This distinct advantage enjoyed by employers can sometimes lead to ignorance or abuse of the tendering process. On occasions a contractor may be asked to do work, such as preparing designs or providing estimates. However, where does this leave the disappointed contractor who is unsuccessful in its tender? Normally, a contractor cannot recover its tender costs. Theses are the speculative costs incurred in tendering for work. But consider this. You are a medium sized contractor who has recently submitted a tender to a client to undertake some work at several schools. You attend a tender clarification meeting and are informed that you are the lowest tender, and it is the intention that you are to be awarded the contract. Before any contract is awarded you are requested to provide additional design information and estimates of different construction solutions to assist the client in reducing its tendering costs. You happily oblige. You are subsequently informed that you were unsuccessful with no reasons given. This would have been a lucrative contract for you. Is there anything you can do to obtain compensation from the client? The leading case on this subject is William Lacey (Hounslow) Limited V Davis (1957) where William, after submitting its tender, was led to believe it would be awarded the contract. On this basis William carried out estimates at Davis’srequest but later did not proceed with the project. The court held that the estimates were outside the normal tendering process and Davis was required to pay a reasonable sum for the work carried out. This constituted an ‘implied contract’ because the work requested was outside the contract being tendered for and an intention to pay was implied even though no price was agreed. Davis was ordered to pay a reasonable sum. The judge made an important distinction. He said: …this case is not that this work was done in the hope that this building might possibly be reconstructed, and that the plaintiff company might obtain the contract, but that it was done under a mutual belief and understanding that this building was being reconstructed and that the plaintiff company was obtaining the contract. Similarly, in the case of Marston Construction Limited v Kigrass Limited (1989), Marston carried out work following its tender submission. The court held that the additional work was above the normal tender costs and that Kigrass had derived a benefit from the work. The essence of the claim in this case differs from that of William because it relied on unjust enrichment (Kigrass was enriched by receiving a benefit at the expense of Marston). Therefore, it had to pay a reasonable sum for the work. Importantly, whether or not an implied contract or claim in restitution arises is to be found in the wording of the tenders and the process itself. For example, in the case of Regalian Properties Plc v London Docklands Development Corporation (1995) the tender was accepted ‘subject to contract’. Regalian carried out pre contract work in the expectation that it would be awarded the contract. The parties failed to reach agreement and Regalian brought an action to recover its costs of £2.3m. The court held that the parties had entered into negotiations expressly subject to contract and therefore each party was free to withdraw from negotiations at any time. Thus, Regalian incurred costs at its own risk. The difference between this case and the other two cases is that the work was carried out by Regalian as part of conditions that had to be satisfied to be awarded the contract, whereas in William and Marston work was carried out in anticipation of being awarded the contract. Final thoughts If as a contractor you can prove that there was an implied contract or an implied promise that you would be awarded the contract or prove that a client has made profitable use of preliminary work during the tender process, you may be able to claim damages for work carried out. But remember, the court has to be convinced that the damages you are seeking represent actual loss as a result. The courts will not entertain spurious claims from disgruntled contractors. Alternatively, and for certainty, you may consider a pre-construction service agreement before starting work.
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Dr. Andrew MilnerDBEnv, LLM, MSc, BSc, MRICS, MCIArb Archives
February 2023
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