Case 10: Public bidding

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to this, there is a standard form in use in Austria, O-Norm A 2050, which has to be used by public authorities and is also often used by private entities such as non-profit-making housing enterprises for public bidding, which do not fall within the field of application of the respective statutes.

Since 1988, the OGH has rendered several decisions in public bidding proceedings and the court has resorted to the rules of culpa in contrahendo on violations of precontractual duties of care.3 It has been criticised, however,4 on the ground that in these cases liability must be based on a breach of a duty of the organiser to follow the rules it has publicly declared to be the basis of the bidding, rather than on a breach of a duty to keep a negotiating partner informed of all relevant circumstances that have a crucial impact on the negotiating partner’s dispositions. It is nevertheless well established court practice that, if a contract is not awarded to the best respondent to the invitation to tender, liability is imposed on the organising party of the public bidding. The party having submitted the best bid (or, as in this case, the lowest bid, which need not always automatically be the best bid!) is in any case entitled to reliance damages. Thus, there can be no doubt that where its bid was the lowest B could successfully claim all the expenses it incurred in the preparation of the bid from A. The question, however, is whether B can claim also the expectation interest.

Indeed, the OGH has gone further in recent decisions.5 Starting with cases concerning public bidding processes that were organised by public authorities, the court extended liability to the expectation interest when it was clear that the contract would have been concluded with the ignored bidding party whose offer was found to comply in an optimum way with the publicly announced conditions of the bidding process, if the procuring party had not violated its duties vis-a`-vis the best (or lowest) bidder. Whether this causality test leads to a sound solution in every case is subject to criticism.6 It appears that in a case of

3OGH 13 Apr. 1988, SZ 61/90; 29 Nov. 1989, JBl 1990, 520; 19 Oct. 1994, SZ 67/182; 22 Nov. 1994, ecolex 1995, 328; 12 Aug. 1998, ecolex 1999/30; 20 Aug. 1998, ecolex 1999/ 32; 3 Feb. 2000, JBl 2000, 524; 28 Mar. 2000, JBl 2000, 519; 29 Mar. 2000, ecolex 2000/ 205.

4St. Heid, ‘Vergabeverstoß: Ersatz des Erfu¨llungsinteresses’ ecolex 1995, 93.

5OGH 19 Oct. 1994, SZ 67/182; 12 Aug. 1998, ecolex 1999/30; 28 Mar. 2000, JBl 2000, 519; 29 March 2000, ecolex 2000/205.

6St. Heid, ‘Vergabeverstoß: Ersatz des Erfu¨llungsinteresses’ ecolex 1995, 93 and ecolex 1995, 329; R. Reischauer, in Rummel, Kommentar zum ABGB I, Vor §§918–933, N. 17a.

deceit, where the entire bidding process was organised with the intention to cheat the honest participants, as in variant (i)(b), the compensation should include the expectation interest, since in cases of gross negligence or intention liability goes beyond actual damage and extends to lost profits.

The answer is not really different if A is a public authority, the federation, a state (Land) or a community. Two specific aspects are worth mentioning. First, it has to be recognised that the rules of the respective federal and state statutes on public procurement apply7 and that public authorities are bound to proceed according to the

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O-Norm A 2050. Secondly, it must not be forgotten that public authorities are bound by the principle of equal treatment. It is this fundamental principle that prohibits public authorities from ignoring the best or the lowest bidder and serves as an additional argument for imposing on such a public authority a liability that goes beyond the reliance interest.

Where B’s bid was not the lowest there is no basis for holding A liable. There is no causal connection between A’s negligence and the fact that B’s bid was not accepted, because even if B’s bid had been correctly considered by A, the contract would not have been awarded to B.

Denmark

We assume that C also made a bid under the public bidding. The Danish Tender Act provides that in case of a public invitation to tender the enterprise which invites tenders (the owner) must accept one of the tenders or reject them all. It follows from general contract law that an undertaking in the invitation to accept the lowest bid will entail liability upon the owner if it breaks it. But it will probably not make the invitation into an offer which is accepted by the lowest bid. The tender is the offer which has to be accepted by the owner.8

In the case where B’s (lowest) bid was not considered because of the administrative error within A’s organisation, A is liable to B under the rules on vicarious liability, but probably only for the reliance costs. The answer is the same where A always intended to give the contract to C. In general, Danish law does not impose a more severe sanction upon a party in bad faith than upon a merely negligent party.

7See, e.g., OGH 22 Nov. 1994, ecolex 1995, 328; 28 Mar. 2000, JBl 2000, 519; 29 Mar. 2000, ecolex 2000/205 (procurement by the federation).

8Andersen, Madsen and Nørgaard, Aftaler og Mellemmænd, p. 54.

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In case (ii), B’s chance of getting the contract was not very high since its bid was not the lowest. Danish law will in general not award damages for the loss of a chance.

The fact that A is a public authority should make no difference.

England

Where A is a private company: in situation (i)(a), A is liable to B for damages for breach of contract. An invitation to tender is normally not a contractual offer: it is the tenderer (bidder) who makes an offer which the person inviting tenders is free to consider and to decide which (if any) bid to accept.9 However, A has here gone beyond such an obligation by expressly undertaking in the invitation to tender that it will give the contract to the lowest bidder. In such a case, the general rule that an invitation to tender is not a contractual offer is displaced, and the invitation forms an offer which will be accepted by the submission of the highest conforming tender.10 Here, A has bound itself to accept B’s bid, which was submitted in accordance with the rules of the bidding process and was the lowest bid. B can sue A for damages for breach of contract, calculated on its loss of expectation: the profit it will lose by not performing the contract to build the swimming pool (less any profit it is able to make, or should reasonably make,11 by obtaining alternative contracts). As an alternative to this measure B may claim as its damages for breach of contract the expenses it has incurred in preparing the bid, but these are only recoverable as long as it is not clear that it would not have recouped the expenses even if it had obtained the contract and performed it.12 B will not be able to obtain specific performance of A’s promise to award the contract to the highest bidder, since the contract has now been awarded to C, and damages will be an adequate remedy.13 B’s claims are limited to damages for breach of contract: A commits no tort by failing to consider B’s bid,14 and there is no claim in restitution (A receives no benefit).

9 Spencer v. Harding (1870) LR 5 CP 561.

10Ibid. 563; Harvela Investments Ltd v. Royal Trust Company of Canada (CI) Ltd [1986] AC 207.

11Even if it does not in fact obtain such other contracts, it will be unable to recover such part of the loss as it could have avoided by taking reasonable steps to obtain other contracts (the rule of mitigation of damage).

12CCC Films (London) Ltd v. Impact Quadrant Films Ltd [1985] QB 16.

13For discussion of the general principles of specific performance, see Burrows, Remedies for Torts and Breach of Contract, ch. 20.

14In Blackpool and Fylde Aero Club Ltd v. Blackpool Borough Council [1990] 1 WLR 1195, there was also a claim for damages for the defendant’s negligence in failing to consider

In situation (i)(b), A is liable to B for damages for breach of contract and (alternatively) in the tort of deceit.

The claim for breach of contract is identical to case (a) above: A has expressly contracted to give the contract to the lowest bidder, and has broken that contract.

This case is, however, different from case (a) in that A always intended to give the contract to C, regardless of whether another bid (such as B’s) should conform to the rules of the bidding process and be lower. The invitation to tender therefore contained fraudulent misrepresentations about its intentions; this will enable B to claim damages in the tort of deceit for losses it suffered by relying on the misrepresentations. In this case, the expenses it incurred in preparing the bid will be recoverable.

B cannot, however, claim its loss under more than one head; nor can it make inconsistent claims for its loss. So if it elects to claim its wasted expenditure in an action of deceit, it cannot simultaneously claim expectation damages for breach of contract based on the return it would have made from the contract to build the swimming pool, since those losses cannot co-exist: its claim to expectation loss is based on the assumption that it would have had to incur the expenditure to obtain the return.

In situation (ii), where B’s bid was not the lowest, A may be liable to B for nominal damages for breach of contract, but not for substantial damages. Where tenders are solicited from selected parties, all of them known to the invitor, and where the invitation to tender prescribes a clear, orderly and familiar procedure, the invitation to tender is an offer to the extent that it promises to each tenderer that if it submits a conforming tender it will at least be considered, or at least will be considered if other tenders are.15 The facts here do not quite fit this, since A’s invitation to tender is public, rather than addressed to a limited class of bidders. But it is possible that a court might be prepared to extend the earlier decision to cover this case, since the invitation to tender does appear to give very specific

properly the claimant’s tender. The Court of Appeal did not decide this finally, but Bingham LJ (at 1203) was ‘tentatively of the opinion’ that the invitor owed no duty of care to bidders in the tort of negligence, or at least that there was no duty in tort which went beyond the contractual duty, and therefore the contractual duty should be preferred.

15 Blackpool and Fylde Aero Club Ltd v. Blackpool Borough Council, above n. 14.

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undertakings about how A will deal with the conforming bids which are submitted.16 Such an obligation is, however, only to consider tenders. It does not impose on the invitor any obligation as to how to formulate its decision in the light of the tenders received.

A may therefore have impliedly contracted to consider properly the conforming bids which it receives, and if so it is in breach of that contract because it did not consider B’s bid. But even if it is in breach of such a contractual obligation, B cannot show any loss which flowed from it. Even if its bid had been considered properly, it would not have been accepted because it was not the lowest. B’s claim for breach of contract would therefore be limited to nominal damages (typically a sum such as £10) to reflect the fact of breach, but no substantial damages can be awarded. Nor (for reasons similar to those discussed in relation to case (i)(a) above) does A commit any tort by failing to consider B’s bid. The fact that A has also expressly contracted to give the contract to the lowest bidder is here irrelevant, since we do not know that it has broken the contract (was C’s bid the lowest?); and anyway B again does not suffer any loss itself since its bid would not in any event have been accepted since it was not the lowest.17

Where A is a public authority: the above analysis applies without any change. There is no special body of law governing contracts made by public authorities, and unless there is some particular statute or other regulation under which the public authority is acting and which circumscribes its powers, the normal principles of contract law apply to determine its rights and liabilities.18 Public authorities are subject to additional rules relating to public tenders for works contracts under the Public Contracts Regulations 2006,19 but the

16But in Blackpool and Fylde Aero Club, above n. 14, both judges who gave reasons emphasised the small class of intended bidders as a significant feature: see Bingham LJ at 1202 and Stocker LJ at 1203. Any extension is therefore uncertain.

17In Blackpool and Fylde Aero Club, above n. 14, the Court of Appeal agreed with the trial judge that, in principle, damages were payable (at least in contract, see above n. 14) to the bidder whose bid was wrongly excluded. But neither the judge nor the Court of Appeal assessed the quantum of damages (nor did they decide whether there was any substantial loss on the facts which could be covered by the damages).

18In Blackpool and Fylde Aero Club Ltd, above n. 14, the person inviting bids was a local authority.

19SI 2006/5, implementing Directive 2004/18/EC, replacing Public Works Contracts Regulations 1991, SI 1991/2680, as amended (which implemented Council Directive 71/305/EEC, amended by Council Directive 89/440/EEC).