The cheapest may not win

If you were the lowest bidder in a tender, would you win the contract? How about if you were the only bidder?

In the old case of Spencer v Harding, there was a tender for sale of stock in trade in one lot at a discount. However, the stock in trade was not sold to the Plaintiff who offered the highest price, but to another party instead. The Plaintiff being dissatisfied sued for breach of contract.

In discussing the matter, the judges considered the practice of tenders in building contracts. It was submitted by counsel for the Defendant that in a tender for building, the employer is never bound to accept the lowest tender. In fact, the employer does not even have to accept any bid if there is only one bidder on record. This is because the tender exercise is only an invitation for offers.

The rationale makes sense. Surely in addition to price, a consultant would have to consider whether the contractor who bid for the project has the character and capacity to delivery the work. One may even suggest that even if a contractor has the character and capacity to deliver, nevertheless an employer ought not to accept a tender that is overly low, because clearly there had been some mismatch of pricing. Ultimately, this would translate into issues as the construction progresses. Unless a tender expressly states that it would be given to the lowest bidder (which is an unusual practice), the employer’s consultants should still vet the bidders to identify a suitable contractor.

Employers and consultants need to bear in mind that the greatest interest that they seek to protect is not the Employer’s interest to save money, but the interest of the project itself in being completed properly, and on time.

Kheng Hoe Advocates advises clients in arbitration, litigation, adjudication (CIPAA) and mediation of construction disputes. We can be reached at khenghoe@khenghoe.com.