Tenders and Bids – Perspective from Law of Contract
A tender is the same category as a quotation of prices. It is not an offer. When a tender is approved, it is covered into a standing offer. A contract arises only when an order is placed on the basis of tender. These principles were laid down by the Bombay High Court in the well known case of Bengal Coal Co Ltd v Homee Wadia and Co. The defendants signed an agreement which, among other terms, provided : “The undersigned have this day made a contract with Messrs Homee Wadia for a period of 12 months for the supply of the kind of coal from time to time as required by the purchasers.” Certain orders were placed and were complied by the defendants. But before the expiry of the 12 months they withdrew their offer and refused to comply with further orders. They were accordingly sued for breach of contract.
The court observed as follows :
“There is no contract, but simply a continuing offer, and that each successive order given by the plaintiffs under it was an acceptance of the offer as to the quantity ordered, and that thus the offer of the defendants and each successive order of the plaintiff together constituted a series of contracts. The defendants could not revoke their offer as to orders actually given, but except as to them, they had full power of revocation. ”
Where purchase orders were issued in terms of an agreement of supply but there was an option in the purchase order itself for the tenderer to refuse to supply, it was held that no concluded contract was made and therefore the contractor was entitled to refund of his security deposit.
No obligation to accept tender or lowest tender
A party inviting tenders is not bound to accept any tender, nor is it bound to accept the lowest tender. But where the party is a Government or any of its agencies, it should not arbitrarily pick and choose. It should have some rules and those rules must require reasons for departure from the normal principle to be recorded in writing. Accordingly, where an authority ignored the claim of the lowest tenderer because of his bad authority ignored the claim of the lowest tenderer because of his bad history and awarded the contract to the next lowest tenderer, the court did not interfere in the decision of the authority. Explaining the principles which public authorities have to observe the court found it to be settled by law that a public authority cannot act arbitrarily even in the matter of awarding contracts or distributing largesse. There ought to be a public element in all its decisions and it must conform to the mandate of article 14 and observe tenets of equality and fair action.
Letter of intention to accept
Sometimes a letter of intent to accept is issued before final acceptance. It has no binding efficacy on either party. The letter of acceptance only stated the corporation’s intention about acceptance of the tender. The same was not reduced into writing. The court said that there was no concluded contract and no work order had been issued. The amount deposited by the tenderer cannot be forfeited. He was entitled to refund.