Change in prices not a justification for refusal to execute tender contract

A change in the original prices quoted by a third-party supplier to a contractor after an offer has already been submitted by the contractor to a contracting authority does not entitle the contractor to refrain from appearing upon the final contract. This is what the First Hall, Civil Court held in its judgement decided on the 29 of September 2022 in the names “Agency for Infrastructure Malta vs. Restoration and Construction Services Group Limited”, whereby it condemned Restoration and Construction Services Group Limited (the “respondent”) to pay damages to the Agency for Infrastructure Malta (the “Agency”) following the respondent’s refusal to execute the contract despite having already submitted its offer. Notwithstanding that the case at hand ensued from a matter of public procurement, in order to decide the claims of the Agency, the Court provided an analysis of the respective obligations emanating from pre-contractual and contractual stages of a tender contract.

The facts of the case were as follows:

On the 13 February 2019, the Agency issued a public call for offers for the resurfacing of various rural roads. The respondent was awarded specific lots of the tender and proceeded to accept the award. Thereafter, the respondent informed the Agency that it was no longer able to enter into the contract owing to an increase in the prices originally quoted to it by third-party suppliers for bitumen, a product required for the construction of the roads under consideration. Despite having been warned of the legal consequences which would ensue if it continued to refuse to sign the contract(including claims for damages), the respondent failed to execute the contract.

In this case, the respondent argued that the action initiated by the Agency was contradictory as contractual damages were being claimed despite the relationship between the parties only reaching the pre-contractual stage. The Court rightly stated that even in the absence of a contract, contractual damages may still arise in circumstances similar to those under consideration, where only a tender offer has  been submitted. While citing from the judgement delivered by the Court of Appeal on 29 April, 2016 in the names Avukat Peter Fenech noe vs. Department of Contracts, the Court held that an offer submitted during tender proceedings creates a tacit agreement de inuendo contactu, in other words, a consensual relationship between the parties exists. Such an offer cannot simply be retracted by the contractor unless valid reasons at law can justify such retraction. The Court concluded that the Agency rightly described the claimed damages as ‘contractual’ damages even though it made concurrent reference to the pre-contractual regime.

However, despite the Court rightly concluding that the damages were contractual in nature, perhaps there is scope to argue whether this even involved a matter of pre-contractual liability at all. In terms of public procurement law, once an offer is submitted and accepted by the contracting authority, the contractual relationship has already commenced. Rather than being seen as the moment when the relationship commences, the signing of a contract in public procurement following an open call for offers should simply be viewed as the formal recognition of the already existing contractual relationship between the parties.

On the issue of whether the claim for contractual damages was justified, the Court reiterated the established principle in public procurement law that a call for offers under the open procedure binds the bidder to all the conditions espoused in the tender document. Quoting a judgement delivered by the Court of Justice of the European Union, the Court held that these conditions prohibit the bidder from engaging in negotiations with the contracting authority at a stage following the submission of the offer as this could result in a breach of the principles of equal treatment, transparency, and non-discrimination. Once the recommendation that a particular bidder be awarded the contract becomes definitive, then that bidder is obliged to appear for the final contract. This is the reason why once an offer gets recommended for approval, the contractual relationship between the parties has already commenced rendering the signing of the final contract a formality.

Whereas minor justifiable contractual amendments are permitted, there may be a breach of one of the principles mentioned above should there be a substantial contractual amendment following the submission of an offer. A contractual amendment is considered to be substantial in situations which include an introduction of a new condition in the original tender document, which new condition would have resulted in other bidders potentially participating in the tender process, or if the term of a contract is extended for a considerable period, or if the amendment alters the economic balance of the contract in favour of the selected bidder in a way that was not foreseen in terms of the initial tender.

The respondent argued that the change in the prices of bitumen quoted by third-party suppliers from the time the offer was submitted to the time the offer was approved made it impossible for it to perform its obligations emanating from the tender. The respondent argued that this amounted to force majeure and justified its decision not to appear for the final contract. The Court, however, did not accept this defence. It held that the respondent failed to provide evidence proving how a change in such quoted prices could have caused the respondent to suffer a grave financial burden justifying it to claim impossibility of executing the contract, and thus declared the respondent to be liable to pay damages to the Agency. The Court also held that the respondent’s argument to the effect that it always acted in good faith did not exempt it from liability, finding that the respondent failed to show that it did all that was possible to perform its obligations, including executing the contract at a loss.

In view of the above, the Court condemned the respondent to pay €27,183 in damages to the Agency, representing the difference between the offer submitted by the respondent and the next best offer submitted in the tender process.

This article was first published in The Malta Independent (9 November 2022).

This article was authored by Miguel Pellegrini Petit.