13 Sep 2012

Tender documents still require careful drafting: the appeal from Ipex v The State of Victoria

by Katherine Mallik

Principals must comply with the evaluation process prescribed in the tender documentation or risk being found in breach of a process contract.

Late last year we discussed the court's willingness in IPEX v the State of Victoria to find that a binding tender process contract existed where the tender documentation required the principal to follow the tender evaluation process set out in that documentation.

This decision was recently appealed and has implications for anyone responsible for preparing tender documentation or evaluating tenders.

The tender process in IPEX

In May 2002 the Victorian Government issued a Request for Tenders (RFP) for the implementation of a new computer system in the Victorian Parliament's offices. The RFP:

  • indicated that the Government would follow the evaluation process and apply the evaluation criteria specified in the RFP (but did not specify the weighting or scoring points to be applied to the evaluation criteria);
  • specified the State's requirements for the new computer system, including the requirement that the system be innovatively designed; and
  • provided that the tender process would be subject to certain terms and conditions, including that the State would be entitled to change the conditions of tendering and reject any tenderer (including the tenderer with the lowest quotation).

As is usual, the Government also prepared a Tender Evaluation Plan which specified the tender evaluation process to be followed by the State and provided for the evaluation criteria set out in the RFP to be scored and weighted. The resulting scores, combined with an analysis of costs, were taken into account in determining the "value for money" of each tender.

IPEX submitted the cheapest tender to the Government but was subsequently advised that its tender was unsuccessful. IPEX commenced proceedings in the Victorian Supreme Court on the basis that a binding process contract had arisen between IPEX and the Government on the terms of the RFP and that the manner in which Government had evaluated the tenders had breached the process contract in a number of ways. The court found that a process contract had arisen between Government and IPEX, but had not been breached by Government.

IPEX's appeal to the Victorian Court of Appeal

IPEX appealed the decision in the Victorian Court of Appeal, claiming that there was an error in finding that Government had not breached the process contract. IPEX submitted that the Government had breached the process contract by:

  • not following the evaluation process set out in the RFP and, in particular, by not scoring the tenders on the basis of the evaluation criteria or ranking them as required by the RFP;
  • not assessing the tenders for value for money by comparing the costs of the tenders with the Government's qualitative assessment of the tenders; and
  • "subjectively" evaluating the tenders rather than "objectively" evaluating them as required by the RFP.

The appeal was dismissed, with the court finding that:

  • IPEX had not made out its argument that the Government had not followed the prescribed evaluation process or failed to score or rank tenders as required by the RFP;
  • the Government's assessment of the value for money of the tenders was carried out in accordance with the RFP and did not have to be carried out in the manner claimed by IPEX; and
  • while the Government had made a number of subjective judgments during the evaluation process, these were not precluded by the RFP.

Accordingly, while a process contract existed between the Government and IPEX, the Government had not breached that process contract.

Implications from the IPEX case for principals and tenderers

Although IPEX's appeal was ultimately dismissed, there are a number of useful tips for principals (and tenderers) arising from the IPEX case:

  • A process contract will generally arise if a request for tenders requires the principal to comply with a prescribed evaluation process.
  • If the principal intends that a process contract is to be avoided, tender documentation should be carefully drafted to maximise the likelihood that a process contract is not created. It is very important to carefully review any terms in the tender documentation which, on their face, impose obligations on the principal.
  • Tender documentation should also clearly reserve any rights which the principal might wish to exercise during the tender process, such as the right to reject tenders or vary tender processes. If the principal requires rights to amend the tender process, a process for giving effect to this by addendum must be clearly documented (including how addenda will form part of the tender documentation).
  • The principal should ensure that evaluation plans, and any other documentation setting out the method for evaluating tenders, are consistent with the request for proposals and any other representations made to tenderers. The IPEX case demonstrates that these documents, and adhering to them, will be the subject of intense scrutiny if a tender process is challenged.
  • Any departures from the tender process as set out in the request for proposals should be clearly documented as addenda to the request for proposals in a manner which does not affect the equal treatment of the tenderers or materially affect the outcome of the tender process.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.