Below is a great court case on a bid bond. In this case, the bid bond expired because of delays in the bidding process. However, the owner of the project then wanted to go after the winning bidder but was unable to go after the bond, as it was expired. So, they sued.
The court held that there was affirmative duty to extend the bid bond unless the obligee asked for an extension. This makes sense as the bid bond should not last forever, especially when there is undue delay.
The morale of the story: be diligent in everything that you do.
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No need to extend bid bond if it is not requested
The Court of Appeal upheld a decision of the Public Contracts Review Board of 27 March, 2015 which held that the fact that the chosen contractor did not renew the bid bond, was not a disqualifying condition because the authority issuing the tender did not ask for a renewal.
The judgement was delivered by the Court of Appeal presided by Chief Justice Silvio Camilleri, with Mr Justice Giannino Caruana Demajo and Mr Justice Noel Cuschieri on 13 July, 2015 in a case Power Cables Malaysia SDN BHD -v- Enemalta Corporation, Contracts Director General, Tele-Fonika Kable SA.
In its appeal Power Cables Malaysia held that the Public Contracts Review Board dismissed its appeal from a decision concerning a contract for the provision of 11kV three core cable. This contract was awarded to Tele-Fonika Cable.
The tender was issued by Enemalta Corporation and one of the conditions was to present a tender guarantee of €41,000, which was to be valid until 17 October, 2014. However, the adjudication of the tender went beyond this date.
The appellant company extended the bid bond. On 24 October, 2014, the appellant company asked whether its competitors did the same and extended the bid bond. No reply was forwarded. Subsequently they were informed that Tele-Fonika was awarded the contract and on 15 January, 2015, the appellant company filed its objection to the Review Board, asking it to “examine whether the bid bond provided by the recommended tenderer had been duly extended in terms of the Request for Proposals prior to the 17th October, 2011. If the bid bond was not extended in terms of the Request for Proposals, it is submitted that the offer of the recommended tenderer and any other tenderers that did not extend their bid bond, for that matter, should be rejected”.
The appellant company complained about the amount that it had to deposit to be able to file this objection.
On 27 March, 2015, the Review Board turned down the complaint and argued that the contractor authority may have requested an extension of the bid bond but did not do so. This was in line with a change in policy at the Department of Contracts with regard to the extension of bid bonds, in order not to increase the financial burden of the companies tendering. Enemalta argued that it should have known about this and it could have asked for clarifications.
The appellant company then filed its appeal over the Review Board’s decisions, stating that a valid bid bond is a legal requisite and the other tenderers did not have one upon adjudication. However, although the Department of Contracts may exempt tenderers from presenting a bid bond, in this particular case, this was required. Furthermore, the company pinpointed the fact that there were no clarifications on this point and as a consequence, it should not lose its deposit that it had paid to file this objection.
The Court of Appeal referred to the first ground of appeal, where the appellant company argued that the tender would not remain valid when the bid bond is no longer valid itself. The company argued that it makes no sense to request a bid bond which then midway along the adjudication falls through.
This principle was held in previous judgements, such as Salvastore Mifsud -v- Kunsill Lokali, Sliema, where the tenderer failed to extend the bid bond and as a consequence lost his judicial interest in the tendering process.
The Court of Appeal held that contrary to the examples given, in this particular tender an extension of the bid bond was not requested and therefore, anyone failing to extend the bid bond could not be penalised in any way. The case may have been different if the adjudication of the tender did not take place due to the tenderer, as in the case of Mifsud quoted above, where the tenderer lodged an appeal, stopping the whole process.
At the same time, the Court agreed with the appellant company that as things stood today the bid bond is useless, because a bid bond is required at the beginning and should remain valid throughout the process. Notwithstanding this the contracting authority was free to make these conditions which should not penalise the tenders which followed these conditions.
With regard to the second ground of appeal that it was not true there was a change of policy, that there was no need of an extension of the bid bond when the adjudication does not end in time, the court pointed out that the appellant company had extended the bid bond out of choice and not because the department had requested it. In fact the guidelines of the tender did not mention this extension. The fact that there was uncertainty did not help their cause, because if there was doubt and uncertainty, it should not have affected the validity of the tenders of the competitors.
The third ground of the appeal concerned the fact that the Review Board ordered that the appellant company lose its deposit. The appellant company argued that usually the court and tribunals do not penalise the appellant when it results that the authorities placed the appellant in a position that it has to appeal. The Court agreed with this argument, in that if the norm was that tenderers were to extend their bid bond, and this had changed, this should have been clearly communicated. Therefore, the Director of Contracts contributed to this situation.
The Court of Appeal then upheld the appeal, limited to the refund of the deposit made, but turned down the rest of the appeal.