Both suppliers and purchasers should be alert to unforeseen legal problems when involved in competitive tenders.

According to lawyer, Michel Wigley, suppliers can get a false sense of comfort from limited liability clauses, and purchasers can inadvertently get caught with pre-supply commitments they don’t expect and don’t want.

In the Australian case, RACV v Unisys, insurance company RACV alleged that Unisys had not delivered on promised response times in a document imaging and retrieval system. Disputed were both the performance and the effect of the limited liability provisions in the contract against Australia’s Trade Practices Act.

Under this act and its New Zealand parallel, Wigley told a meeting of the Computer Society and the Technology Law Society, marketing statements must be accurate. Unisys had placed limitations on its liability and qualified the performance statement in the “small print” of the contract.

The case went to appeal but, in a finding on May 14, Unisys lost.

This implief, Wigley said, that basic legal principles stand: limited liability statements do not “cap” the provisions of the Fair Trading Act and any qualifications should be made up front, not quietly in another part of the document.

“A related risk is that a proposal may become part of the contract unless due care is taken,” he said. Increasingly clients required such incorporation. This signalled care in either refraining from exaggerations in the proposal, or ensuring that points exaggerated at that stage were clearly dealt with in the final contract.

There were also risks to the purchaser in this regard, Wigley said. One of its spokespeople may say something that, under a fair trading Act, is held to override what was written in the tender.

“Care needs to be taken in follow-up inquiries in the tendering process,” he says.

In Pratt v Transit New Zealand, Pratt, the bidder for a roading contract, lost on the strength of a reputation, alleged by one of the panel, for underbidding and then adding claims for supplementary payments. It claimed that negotiations had created a “process contract” — an effective contract relating to the negotiation process — and that this created a duty of good faith by Transit to the bidders. Pratt alleged bias in breach of that duty.

The case went eventually to the Privy Council, which found in favour of Transit. It said in this case both a process contract and a duty of good faith existed, but that that duty did not extend to having to prove an absolute lack of bias.

This case concerns public-sector purchasing, where scrutiny is tighter, and judicial review and examination by the Audit Office may come into play.

Private-sector purchasers might find it easier to exclude duties imposed by a process contract, but should still take care, Wigley said.

There were also risks to the purchaser in this regard, Wigley said.

One of its spokespeople might say something that, under a fair trading Act, was held to override what was written in the tender. “Care needs to be taken in follow-up inquiries in the tendering process,” he said.

In Pratt v Transit New Zealand, Pratt, the bidder for a roading contract, lost on the strength of a reputation, alleged by one of the panel, for underbidding and then adding claims for supplementary payments. It claimed that negotiations had created a “process contract” — an effective contract relating to the negotiation process — and that this created a duty of good faith by Transit to the bidders. Pratt alleged bias in breach of that duty.

The case went eventually to the Privy Council, which found in favour of Transit. It said in this case both a process contract and a duty of good faith existed, but that that duty did not extend to having to prove an absolute lack of bias.

This case concerns public-sector purchasing, where scrutiny is tighter, and judicial review and examination by the Audit Office may come into play.

Private-sector purchasers might find it easier to exclude duties imposed by a process contract, but should still take care, Wigley said.