Reservations please—The importance of reserving rights in a procurement process10 February 2016
Using a well-drafted request document in a procurement process is paramount to conducting a sound process. The request document should provide proponents with the information required to lodge a value for money submission and should also provide the requesting agency with the rights necessary to deal with a range of circumstances that may arise during the process. Anyone who has experience in procurement processes will know that situations beyond what could have reasonably been contemplated when the process started can (and do) arise during the process.
This is demonstrated by the circumstances that led to the decision in Karimbla Properties (No 50) Pty Ltd v State of New South Wales & Anor  NSWSC 778. UrbanGrowth NSW, a state-owned corporation, conducted the expression of interest phase of a process for the sale of land (stage one). UrbanGrowth had resolved to begin stage two of the process and that it would invite Karimbla (a company forming part of the Meriton Group) to participate, along with other proponents. On the same day the resolution was passed by UrbanGrowth's board, one of UrbanGrowth's senior executives who had been heavily involved in the process resigned. UrbanGrowth later learned that the ex-employee had taken up a position with Meriton.
UrbanGrowth excluded Karimbla from stage two on the basis that allowing Karimbla to continue would compromise the process. This was due to a risk that the employment of an ex-UrbanGrowth senior executive by Meriton could be viewed as a conflict of interest, or perceived as giving Karimbla an unfair advantage over other shortlisted proponents.
Karimbla sought an interlocutory injunction to restrain the exchange of contracts for the sale of the land, pending a final decision. Karimbla's challenge was based on an alleged breach of procedural fairness or, alternatively, an alleged breach of a contractual duty of good faith, said to be owed by UrbanGrowth to Karimbla under an implied process contract.
Justice Beech-Jones of the NSW Supreme Court found there were low prospects of Karimbla establishing a breach of an obligation by UrbanGrowth to afford Karimbla procedural fairness (if there even was such an obligation). His Honour also found there were poor prospects of Karimbla establishing a breach of an implied process contract (the foundation of which was said to be shaky) or that, but for those breaches, Karimbla would not have been excluded from stage two. This was based on his Honour's view that—regardless of Karimbla's or its executive's intentions and whether any confidential information was actually disclosed—the fact that during the evaluation process a senior UrbanGrowth executive responsible for the evaluation commenced work with one of the bidders, had the potential to undermine confidence in the process.
Preparing the request document
While a final decision has not been handed down, the reasoning in the interlocutory judgment supports the approach taken by UrbanGrowth in excluding Karimbla. To ensure that you are able to take action, if necessary, to preserve the integrity of a procurement process, bear in minding the following tips when preparing the request document:
- make sure that the request document reserves the right to exclude a proponent in specified circumstances
- don't construe the circumstances in which a proponent may be excluded too narrowly
- refer to potential or perceived conflicts of interest as well as actual conflicts of interest, and
- ensure that the right to exclude a proponent is exercisable at the absolute discretion of the agency conducting the procurement process, without the need to give the relevant proponent an opportunity to "show cause" or to provide reasons.
Whether or not such rights can be exercised (and the manner in which they can be exercised) will depend on the particular circumstances under consideration, but the starting point is to include sufficient rights in your request document, so that you have the ability to act if the circumstances require it.