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Understanding Process Contracts in Procurement

Do you get involved in tendering for goods or services?  If so, you should be aware that there are particular legal requirements which apply to tender processes.

What is a process contract, how are they relevant to procurement and why are they important?

A process contract is a special type of contract between a Principal who runs the tender, and Proponents who lodge offers in response to the tender.  The process contract governs the tender process.

Process contracts are distinct from supply contracts, which are contracts for the supply of goods and services that come into existence once the tender is finished.

Process contracts require Principals to conduct tenders fairly, firstly by complying with any conditions of tender that are disclosed, and secondly by complying with the implied obligation of fair dealing.

The implied obligation of fair dealing is a grey area.  Simply put, it requires that Principals must act honestly, ethically, fairly, equally, in good faith, and with integrity when running tenders.  Still, like many areas of the law, difficulty arise in the application of these concepts because what they mean can be uncertain.

For example, can a Principal run a staged tender or procurement?  What if a Principal receives or is offered an inducement.  Does a requirement for equality translate to equal treatment or does it mean something else?  Can the parties negotiate during a tender evaluation, and if so, how and about what?  Can parties specifically negotiate on the issue of price during a tender evaluation, and if not, are other strategies available?

Procurement is the classic area where poor processes potentially lead to serious consequences, particularly when the resulting transaction is high value or high risk.  In these circumstances, it is therefore important that parties receive appropriate legal advice.

Please contract us at Argon Law if we can help you in that regard.

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