Pratt Contractors Ltd v. Transit New Zealand (New Zealand)

Factual and Procedural Background

Company A (the Appellant) submitted the lowest-priced bids in two successive 1997 tender rounds for realignment work on State Highway 1 at Vinegar Hill. The tenders were invited by Company B (the Appellee), a statutory highway authority that had elected to use the “weighted attribute” evaluation method set out in its Manual of Competitive Pricing Procedures (CPP).

The Appellant alleged that, on submitting its tenders, a preliminary contract arose which bound the Appellee to follow both the CPP and its own internal State Highway Tender Evaluation Manual (SHM) and Contract Administration Manual (CAM). It further claimed that the Appellee breached express and implied terms—particularly by (i) considering “financial viability” contrary to the SHM, (ii) allowing evaluators allegedly biased by prior disputes, (iii) accepting a single-envelope tender from a rival contractor, and (iv) failing to conclude the process within the period during which tenders were stated to remain open.

The trial judge (Judge Goddard) upheld the Appellant’s claim and awarded damages. The Court of Appeal reversed, holding that only the CPP was incorporated and that mere “risk of bias” was not a contractual breach. The Appellant appealed to the Judicial Committee of the Privy Council.

Legal Issues Presented

1. Whether the preliminary contract incorporated the Appellee’s internal manuals (SHM and CAM) in addition to the CPP referenced in the Request for Tenders.
2. The content of the implied duty of good faith and fair dealing—specifically, whether it obliged the Appellee to structure the evaluation to eliminate any apparent or “real risk” of bias.
3. Whether any proven breach of express or implied terms caused the Appellant to lose the contract and sustain recoverable loss.

Arguments of the Parties

Appellant's Arguments

• The CPP, SHM and CAM together formed a regulatory code incorporated by reference; departures (e.g., factoring in financial viability and accepting a single-envelope bid) therefore constituted contractual breaches.
• The implied obligation of good faith required evaluation by persons free from a “real risk” of bias; inclusion of evaluators previously critical of the Appellant breached that duty.
• But for the breaches, Company A would have been awarded the contract in the first tender round or, alternatively, would have scored highest in the second round.

Appellee's Arguments

• The preliminary contract was confined to the evaluation method expressly mentioned in the RFT; internal manuals were binding only on its staff, not on tenderers.
• The only implied term was to act honestly; public-law concepts such as apparent bias and mandatory time-limits had no place in a commercial contract for work.
• Even if procedural missteps occurred, they did not cause loss: the Regional Manager was willing to award the contract to the Appellant until legal advice (subsequently shown to be wrong) indicated time for acceptance had lapsed.

Table of Precedents Cited

Court's Reasoning and Analysis

1. Incorporation of Manuals. The Privy Council agreed with the Court of Appeal that the RFT referenced only the CPP. The SHM and CAM, intended primarily for the Appellee’s internal governance, were “not self-incorporating,” and tenderers could not rely on their mandatory language to establish contractual terms. Accordingly, complaints about considering financial viability or accepting a one-envelope bid failed.

2. Use of Sub-Attributes. The evaluation team’s subdivision of the six non-price attributes (e.g., splitting “technical skills” into experience and back-up staff) was an internal methodology consistent with the weighted-attribute framework.

3. Scope of Implied Good Faith. Citing Hughes Aircraft, the Board held that contractual good faith requires honest, even-handed assessment, but does not import public-law concepts such as avoidance of “apparent bias” or a duty to accord hearings. Evaluators may hold prior opinions; bad faith would require evidence that marks were dishonestly manipulated, which the trial judge had not found.

4. Causation. Even if breaches existed in the first round, they did not cause the Appellant’s loss. By early June 1997 the Regional Manager intended to award the contract to Company A once an acceptable performance bond was produced. The contract was lost solely because erroneous legal advice led him to believe acceptance was out of time—an eventuality within his contractual right to reject all tenders.

5. Second Tender Round. The presence of a new evaluator and altered scores did not breach any express or implied term; the second round was a fresh competition, and the Appellee was under no obligation to notify tenderers of personnel changes.

Holding and Implications

APPEAL DISMISSED.

The Board advised that judgment be entered for the Appellee with costs. The decision confirms that, in competitive tendering, only those evaluation procedures expressly referenced in the invitation documents become contractual obligations. The implied duty of good faith requires honesty and equal treatment but does not mandate elimination of perceived bias or assimilation of public-law review standards. No new precedent was established; the ruling chiefly clarifies existing principles and affirms commercial autonomy in procurement processes.