NZ Navy contract case has IT implications

Public sector purchasers can treat tenderers differently if their contracts allow it, court decides

The process of building a frigate might seem to have little in common with ICT development projects, but the two fields face some of the same difficulties when it comes to contract law.

Lawyer Michael Wigley points to a case late last year in which shipbuilder Schelde Marinebouw failed in an action seeking judicial review of the tender process for NZ naval vessels.

Schelde objected that some information concerning pricing and specification was provided by the Ministry of Defence to Tenex, the successful tenderer, but not to Schelde.

However, Justice Gendall found that a “process contract” (an effective legal agreement covering the process of negotiation) was in force, which "specifically allowed the Ministry to do what it did,” says Wigley, “and excluded liability for exactly what Schelde was claiming for – the cost of preparing the tender and lost profits from not being the successful tenderer.”

This case will reassure public sector purchasers in a wide range of undertakings, including ICT purchases, says Wigley. “Purchasers should include a clause in their RFP that provides for a wide measure of discretion in how they run their tendering process.

“Additionally, they should… include a clause which states that the agency will not be liable in contract for any costs, expenses or losses incurred in connection with the RFP. It was these two clauses that immunised the Ministry in this case.”

Viewed from the seller’s side, however, the case can be seen as a warning to avoid being trapped in such wide-ranging process contracts, Wigley says. However, he points out that suppliers are often hesitant to sue because of the danger of being shut out of future tenders.

As part of the negotiations, vendors could try for specific provisions enforcing impartiality in such matters as information provision.

However, the finding “does not feel right to me,” Wigley says. Although Schelde has not formally appealed, “public sector agencies would be wise not to rely on the case too much, as this decision may not be the last word.”

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