Commercial property tender process

• Published date: 11 March 2023
• Subject Matter: Corporate/Commercial Law, Real Estate and Construction, Contracts and Commercial Law, Construction & Planning, Conveyancing
• Law Firm: Cavell Leitch
• Author: Mr Jeroen Vink

The tender process is widely used where a commercial property owner is engaging building contractors or is selling a property. Requests for tenders can create a separate 'process contract' and this process contract has implied duties or obligations. It is useful to understand these duties and obligations. The consequences for getting it wrong can be costly should unsuccessful parties seek compensation.

Implied terms

When a party makes a formal request for tenders (the offer) and that request is met with a complying tender bid (the acceptance) then a 'process contract' is formed completely separate from the principal agreement for the sale of property or for construction services. When a separate process contract arises there are several obligations or duties that are implied into the tender process unless they are specifically excluded by the tender document. These obligations and duties are:

• The duty to consider a tender: you must consider all compliant bids;
• The duty to act fairly and in good faith: you must treat all bidders fairly and equally;
• The duty to reject non-compliant bids: you cannot accept a non-compliant bid (although minor irregularities are acceptable);
• The obligation to consider only disclosed criteria in evaluating bids: When making a decision you must use the correct criteria when evaluating bids.
• No bid shopping: You cannot use the tender process to negotiate better prices/ terms with bidders.

Getting it right

It is standard to include some limitations on the implied obligations when setting out the terms for tender. It is important to consider the most appropriate terms to include for a particular tender situation. The following clauses and conditions often included in the terms of a request for tenders:

Privilege and discretion clauses

A 'privilege clause' reserves the right to not to accept the lowest bid or any bids. Similarly a 'discretion clause' may allow the acceptance of a non-compliant bid. These clauses allow a broader discretion when assessing tenders. It is important to note that privilege and discretion clauses do not displace the duty to act fairly and in good faith when accessing bids.

Flexible evaluation criteria

If detailed bid evaluation criteria are included with the tender then it...