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GHP Piling Ltd v Leighton Contractors Pty Ltd [2012] NZHC 1695; [2012] 3 NZLR 255 (13 July 2012)

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-003231 [2012] NZHC 1695

BETWEEN GHP PILING LIMITED Plaintiff

AND LEIGHTON CONTRACTORS PTY LIMITED

First Defendant

AND DOWNER EDI WORKS LIMITED Second Defendant

Hearing: 11-15 June 2012

Counsel: SJB O'Brien and RP Chandra for Plaintiff

CJ Booth and ACF Lee for Defendants

Judgment: 13 July 2012

_{JUDGMENT OF ASHER J}

This judgment was delivered by me on Friday, 13 July 2012 at 5pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Fortune Manning, DX CP 21503, Auckland 1140.

Email: sarah.obrien@fortunemanning.co.nz and Rachael.chandra@fortunemanning.co.nz

Kensington Swan, DX CP 22001, Auckland 1142.

Email: chris.booth@kensingtonswan.com and anita.lee@kensingtonswan.com

GHP PILING LT V LEIGHTON CONTRACTORS PTY LTD HC AK CIV-2010-404-003231 [13 July 2012]

Table of Contents

_{Para No}

Introduction [1] The claim [22] Was there a preliminary contract? [27] Commercial background [39] The request for tender document [42] The response [45] Discussion of the “offer” [49] Discussion of the “acceptance” [62] Comparison with other processes [67] Conclusion [74]

Damages

Introduction [75]

The add-back of the contingency sum [85]

Analysis of damages claimed

The add-back of half the contingency figure [91]

The oscillators [94] On-site management [97] Financing costs [98] Off-site overheads [99] Overview [101]

Result [106]

Costs [107]

Introduction

[1] The plaintiff, in response to an invitation from the defendants, submitted a tender for a significant piling contract. The plaintiff claims that a preliminary contract was created by this exchange requiring the defendants to deal only with those who made offers in accordance with the procedure specified in the invitation. The plaintiff claims that the defendants, in awarding the contract to another contractor, did not follow that procedure and breached the preliminary contract. It claims significant damages arising from the loss of its chance to gain a profit on the job.

[2] The defendants deny that a preliminary contract was created or that they were bound to follow any particular procedure. They further dispute the quantum of damages.

[3] While the exact events that related to the creation of the alleged contract will need to be examined closely, the broad facts may be stated quite briefly.

[4] The plaintiff, GHP Piling Ltd (“GHP”), is a specialist piler practising in Auckland and has been in business since 1944. Its core business has been civil construction. John Colborne Yonge is one of two directors and the managing director. Mr Yonge has been employed by GHP since 1983 and has been its managing director since 1987.

[5] On 26 June 2006 a joint venture known as “Leighton Works” contracted with Transit New Zealand (“Transit”) which is part of the New Zealand Transport Agency, on behalf of Ontrack for the construction of a four lane motorway in Manukau linking State Highway 1 to State Highway 20. The two principals of Leighton Works are Leighton Contractors Pty Ltd and Downer EDi Works Ltd (now called Downer New Zealand Ltd). The contract between Leighton Works and Transit will be referred to as the head contract.

[6] The head contract included the Manukau Rail Link enabling works (“the Ontrack variation”). Those works involved earth works which would enable a railway track to be laid parallel to the new motorway in the future. The decision was made by Transit New Zealand to give the Ontrack variation works to Leighton Works. They were to get that work without a further competitive tender in relation to the new works, but this was subject to the agreement of price. Leighton Works had to keep Transit involved in the Ontrack works and obtain Transit approval to prices and subcontractors’ prices.

[7] Part of the Ontrack variation included piling works and the construction of secant pile walls. Piling works are the initial works that are undertaken in a major construction which involves the provision of foundations and retaining.

[8] In February 2009 Leighton Works sought prices and information from GHP in respect of two different piling options for the Manukau rail link station box; a ground anchor design and a sheet pile design. GHP quoted on those options, but ultimately they were not proceeded with. In early April 2009 the decision had been

made by Leighton Works against sheet piling and ground anchor options in favour of a secant piling solution.

[9] In April 2009 Leighton Works started to consider a piling wall solution known as secant piling. Secant piling involves bored tiles which are intersected, to be used primarily as a waterproof ground retention wall. A series of piles are drilled and constructed out of weaker concrete without reinforcement and drilling rigs are used to drill down between those softer piles to create a space for “hard” piles to be constructed between them. The hard piles are filled with reinforced concrete and intersect the soft piles.

[10] Neil Craig Kelly is an estimator employed by Leighton Contractors Pty Ltd, one of the two joint venturers. He was the lead estimator for the Manukau rail link price negotiation on the State Highway contract and the railway station variation. He took the lead role for Leighton Works in seeking tenders for the piling for the Manukau rail link enabling works.

[11] Initially, following the decision not to proceed with sheet piling or ground anchors, Mr Kelly had been unaware that GHP had the capability to undertake secant piling, but Mr Yonge informed him that it could. On 7 April 2009 Mr Kelly sent to GHP and two other companies, Civil Works Ltd/Seatek and Hauraki Piling Ltd (“Hauraki Piling”), a set of preliminary drawings and ground condition parameters for the secant piling options. The information was also sent to two other companies. Mr Kelly was seeking indicative costs.

[12] On 15 April 2009 GHP submitted various secant piling alternative concepts. On 4 May 2009 Mr Stewart informed the potential contractors that a final secant pile design had been provided by the designer. The phrase that he used was “the [d]esign has landed ...”.

[13] On 7 May 2009 a document which may be called neutrally a “request for tenders” document was sent by Leighton Works to various contractors who included GHP, Hauraki Piling, Civil Works/Seatek, Contract Landscapes Ltd and Hiway Stabilizers Environmental Ltd. GHP submits that this was the offer in the

preliminary contract. On 7 May 2009 the time for filing for GHP to provide the tender return was extended to 12 May 2009. On 11 May 2009 a revised enquiry document with a revised tender return date of 19 May 2009 was circulated.

[14] A tender submission was then provided by GHP on 20 May 2009. GHP submits that this was the acceptance of the offer, and resulted in there being a preliminary contract. The quote was for $9,467,123 for a two rig, 22 week option, and $9,892,153 for a three rig, 15 week option. In addition, there were two prices for hold down piles of $276,250 and $349,050. Contract Landscapes filed their tender on 19 May, Hauraki Piling on 20 May, Civil Works/Seatek on 21/22 May and a revised offer was put in by Hauraki Piling on 22 May 2009.

[15] On 22 May 2009 Leighton Works had a tender review meeting in which the piling subcontractors were discussed. At that point the possibility was raised of checking prices with another piling contractor Brian Perry Civil (“Brian Perry”). Brian Perry was part of Fletcher Construction Co Ltd which itself was a competitor in New Zealand and Australia with the partners of Leighton Works. Brian Perry had not, up to that point, been invited to provide a tender.

[16] Leighton Works held meetings with the piling contractors in contention. It is common ground that GHP was the lead bidder.

[17] At some stage at around 23 May 2009, Transit’s consultants indicated that they would have preferred more candidates for the secant piling subcontract in line with their best value for money approach. They asked if Leighton Works had considered requesting a price from Brian Perry. When they were told that such a request had not been made, the consultants recommended that Leighton Works consider requesting a quotation from Brian Perry.

[18] On 25 May 2009 Mr Kelly became aware that there had been a discussion between the New Zealand manager of Leighton Contractors Pty Ltd and Andrew Drummond of Brian Perry. He sent a copy of the request for tenders document and supporting information to Brian Perry on 25 May 2009. There were then various

exchanges between Mr Kelly and GHP and the other parties that had submitted quotes.

[19] On 17 June 2009 GHP submitted a revised price which was considerably reduced, following a request to do so by Mr Kelly. The quote was reduced to

$8,455,523 for a two rig, 22 week option, and $9,397,153 for a three rig, 15 week option. There was no change to the hold down pile option.

[20] On 17 June 2009 Brian Perry submitted a tender for the secant piling for

$6,035,253, some $2,700,000 cheaper than GHP’s revised tender. On 22 June 2009 there was a Leighton Works internal email indicating that Brian Perry was the preferred subcontractor for the work. However, there were still communications going on with GHP. At between 24 June and 28 July 2009, a standard form of subcontract was sent to Brian Perry. A revised quotation was sought from Brian Perry on 6 July 2009. In the meantime GHP had been following up inquiries from Mr Kelly as to progress.

[21] On 2 October 2009 Brian Perry entered into the secant piling subcontract with Leighton Works. Its final tender price was $7,466,947.66. GHP had failed to get the job. After correspondence it issued these proceedings.

The claim

[22] GHP asserts that the 7 May 2009 request by Leighton Works (revised on

11 May 2009) for tenders and the submission of a conforming tender on 20 May

2009 constituted an offer and acceptance creating a preliminary agreement. It claims that Leighton Works was bound to conduct the evaluation process in accordance with the terms and procedure expressed in the request for tender, and that Leighton Works was bound to deal with tenderers in a fair, equal and equitable fashion. It asserts that the preliminary agreements contained the following implied terms:

(a) that Leighton Works would act fairly and equally in its decision as to which party would be awarded the tender;

(b) that only tenders submitted in accordance with the requirements of the tender documents would be considered; and

(c) that Leighton Works in evaluating the tenders were bound by the terms they had imposed as well as by the requirements of fairness and equity.

[23] They assert that Leighton Works breached those implied terms by:

(a) considering a non-conforming and later tender from Brian Perry;

(b) dealing with Brian Perry in preference to GHP and Hauraki Piling;

and

(c) misrepresenting to GHP that it was dealing with GHP and Hauraki

Piling only.

[24] GHP claims that as a consequence of these breaches it suffered a loss of profit. It claims that GHP would have realised a profit of $884,820 plus half of the contingency allowance being $147,854, the total claim for damages being

$1,032,674.

[25] Leighton Works responded that the request for tenders document issued on

7 May 2009 was no more and no less than an invitation to treat by which GHP, along with other piling subcontractors, was invited to submit a quotation without any contractual obligation arising. They say alternatively that, even if the Leighton Works request and GHP’s quotation did give rise to a tender process contract, there was no breach by Leighton Works as alleged, because at all times Leighton Works treated tenderers who had submitted a quotation for the work in a fair and equal manner.

[26] Leighton Works also takes strong issue with GHP’s loss of profit claim and say that any loss of profits is far less than claimed.

Was there a preliminary contract?

[27] It is necessary first to consider whether a contract was formed as pleaded. If it was not, the claim fails.

[28] Although there were some differences in aspects of the evidence there are not in my view any significant factual disputes. The issue is what interpretation can be placed upon the undisputed exchanges that took place between the parties. Mr Kelly was criticised during the trial for keeping GHP involved in the tender process when Brian Perry was almost certain to get the job, and for preparing artificial papers setting out the contract sequences after the claim was made. Neither criticism is relevant to the issue of whether a preliminary contract was formed. I record that I was not satisfied that Mr Kelly had deliberately tried to create a misleading document. The sequences were clearly his own reconstruction of events.

[29] The question of whether a contract was formed can be approached from the traditional position where the language of offer, acceptance and consideration is employed. In this case Ms O’Brien for GHP asserts that the offer was the invitation of 7 May 2009 and the acceptance was the submission of GHP on 20 May 2009. The question is whether, when the relevant evidence is viewed as a whole and objectively, a concluded agreement can be discerned. The principle stated in Eccles

v Bryant¹ and quoted in Carruthers v Whitaker² is applicable:

Parties become bound by contract when, and in the manner in which, they intend and contemplate becoming bound. That is a question of the facts of each case ...

[30] An analysis purely in terms of offer and acceptance will be unrewarding. The test is rather whether, viewed as a whole and objectively, the exchanges between the parties show a concluded agreement.³ Nevertheless, a consideration of the terms and circumstances of the claimed offer and acceptance is central to determining whether

_{the parties became bound.}

¹ _{Eccles v Bryant [1948] Ch 93 (CA) at 104.}

² _{Carruthers v Whitaker [1975] 2 NZLR 667 (CA) at 673.}

³ Boulder Consolidated Ltd v Tangaere [1980] 1 NZLR 560 (CA) at 563; Wilmott v Johnson

[2002] NZCA 309; [2003] 1 NZLR 649 (CA) at [37]–[40].

[31] In carrying out the exercise I bear in mind the “two contract” approach that has been widely applied in tender cases. The test in New Zealand goes back to the decision of Markholm Construction Co Ltd v Wellington City Council⁴ applying the Canadian Supreme Court decision in The Queen in right of Ontario v Ron Engineering & Construction Eastern Ltd.⁵ The approach in Ron Engineering was adopted in Pratt Contractors Ltd v Palmerston North City Council⁶ where Gallen J quoted also from Bingham LJ’s judgment in Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council.⁷ Both the Ron Engineering decision and Bingham LJ’s dicta in Blackpool and Fylde Aero Club were relied on by McGrath J in the Court of Appeal tender decision of Transit New Zealand v Pratt Contractors Ltd.⁸

[32] The two contract analysis was referred to in Ron Engineering by Estey J.⁹ A first contract was formed when an invitation to bid was responded to by a conforming tender, and a second contract when the principal contract came into being. He observed:

The principal term of contract A is the irrevocability of the bid, and the corollary term is the obligation on both parties to enter into a contract (contract B) upon the acceptance of the tender. Other terms include the qualified obligations of the owner to accept the lowest tender, and the degree of this obligation is controlled by the terms and conditions established in the call for tenders.

[33] Subsequently Bingham LJ in Blackpool and Fylde Aero Club Ltd made the following more nuanced comment on the tendering process:¹⁰

A tendering procedure of this kind is, in many respects, heavily weighted in favour of the invitor. ... The risk to which the tenderer is exposed does not end with the risk that his tender may not be the highest or, as the case may be, lowest. But where, as here, tenders are solicited from selected parties all of them known to the invitor, and where a local authority's invitation prescribes a clear, orderly and familiar procedure—draft contract conditions available for inspection and plainly not open to negotiation, a prescribed common form of tender, the supply of envelopes designed to preserve the absolute anonymity of tenderers and clearly to identify the tender in question

⁴ _{Markholm Construction Co Ltd v Wellington City Council [1984] NZHC 232; [1985] 2 NZLR 520 (HC).}

⁵ The Queen in right of Ontario v Ron Engineering & Construction Eastern Ltd [1981] 1 SCR

_111.

⁶ _{Pratt Contractors Ltd v Palmerston North City Council [1995] 1 NZLR 469 (HC).}

⁷ _{Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195 (CA).}

⁸ _{Transit New Zealand v Pratt Contractors Ltd [2002] 2 NZLR 313 (CA) at [63]–[80].}

⁹ _{At 122–123.}

¹⁰ At 1201–1202.

and an absolute deadline—the invitee is in my judgment protected at least to this extent: if he submits a conforming tender before the deadline he is entitled, not as a matter of mere expectation but of contractual right, to be sure that his tender will after the deadline be opened and considered in conjunction with all other conforming tenders or at least that his tender will be considered if others are. Had the club, before tendering, inquired of the council whether it could rely on any timely and conforming tender being considered along with others, I feel quite sure that the answer would have been “of course”. The law would, I think, be defective if it did not give effect to that.

(emphasis added)

[34] McGrath J, having considered these decisions, and quoted this extract from Bingham’s LJ’s decision, commented in Transit New Zealand v Pratt Contractors Ltd:¹¹

Whether a request for tenders gives rise to a process contract, once a conforming tender is submitted, is in all cases a question of whether all the elements of contractual formation are made out at that point. Analysis of the terms of the invitation to tender is the starting point. Where the request makes no express commitment concerning the manner in which tenders received will be addressed, that may indicate the invitation was no more than an offer to receive them. On the other hand, as Blackpool and Fylde Aero Club indicates, the rigorous and comprehensive expression of requirements to be complied with by tenderers may give rise to an implied promise by the invitor to consider a conforming tender if others are considered. The law does not, however, have a policy which inclines towards enforcement of implied promises by invitors, even if they are public bodies, and whether there has been a binding promise as to process is to be ascertained by applying general principles of contract law concerning contract creation and implied terms.

(emphasis added)

[35] In Prime Commercial Ltd v Wool Board Disestablishment Co Ltd¹² the Court concluded that no preliminary contract for tender for the purchase of a property had been entered into. This was for two reasons. The first was that the defendant could not be said to have agreed either explicitly or implicitly to any process in relation to a prospective purchase, and secondly there was a lack of certainty as to how the

_{specific terms of any putative contract were to be determined. It could not be said}

¹¹ At [77]. Subsequently affirmed by the Privy Council in Pratt Contractors Ltd v Transit New

_{Zealand [2005] 2 NZLR 433.}

¹² Prime Commercial Ltd v Wool Board Disestablishment Co Ltd [2006] NZCA 295; (2006) 7 NZCPR 697 (CA).

that a sufficient consensus existed between the parties for a preliminary contract to have arisen.¹³

[36] It is clear therefore that in certain circumstances a preliminary tender contract will be found to exist, and the Court may imply terms in that contract that require the invitor to follow a certain process. There is no policy which leans either for or against the finding of such preliminary contracts. A Court will not assume that the submission of a tender in conformity with a tender process has created a preliminary contract. That submission may, rather, be an initial tender offer that has followed a process of negotiation. In all cases it comes down to a question of fact, and orthodox contract law principles must be applied to the preliminary exchange to discern whether a contract was created at that point. Features that in my view indicate a formal contract process at the initial stage include:

(a) A requirement for registration of tenders; (b) A requirement that tenderers pay a deposit;

(c) Detailed specifications for tender that must be complied with; (d) A stated methodology for processing tenders;

(e) Stated criteria for evaluating tenders;

(f) An express or implied commitment to accept the tender that best meets the criteria.

(g) In general, formality and prescription in the tender and evaluation procedures;

[37] It is necessary therefore to examine the broad factual background and then the actions of the parties to discern whether a contract was formed.

¹³ At [19].

[38] I bear in mind that an absence of formal contractual language is not fatal to a finding that there is a preliminary contract, and that it is customary even in those cases where preliminary contracts have been found, for the language not to be of formal offer and acceptance, but rather of invitation and tender.

Commercial background

[39] Ms O’Brien for GHP states that the claim to a contract coming into existence must be seen in context and in the commercial matrix of facts that existed at the time. She emphasised that the subcontract at issue was part of a project funded by a public entity. She submitted that there are extensive government procedures ensuring that fair processes are undertaken during tendering, and that although these do not apply directly to subcontractors, they are indicative of a reasonable expectation that fair dealing clauses in relation to tendering are likely to be applied into subcontracts. I have to say that the evidence presented did not satisfy me that this was the case, and I am unable to infer any particular expectation on the part of the parties as to fair dealing beyond that which can be anticipated in any commercial negotiation.

[40] I accept, however, her submission that it is relevant that this was a subcontract and not a head contract. The head contract process, particularly when a government entity is involved and the work is a public work, is likely to be the subject of formal procedures that are fully set out in preliminary documents. The subcontract process, because the sums involved will necessarily be smaller and less in the public eye, can be expected to be less formal. This is reflected in the actual process adopted here where there was a formal head contract, but a much less formal process followed in relation to the subcontracts. I accept also GHP’s submission that it would be customary for a head contractor to have preliminary discussions with potential subcontractors on design and pricing information before moving to a more formal tender process.

[41] It is also relevant as Mr Booth submitted that Ontrack required Leighton Works’ pricing of the Ontrack variation to be conducted on an “open book” basis. The price that Leighton Works developed and put forward for the Ontrack variation

work was open to examination by Transit and Ontrack to ensure and encourage “best value for money practices” and might be disapproved. A consultant company, Bond Construction Management Ltd had been employed specifically to oversee this process. Leighton Works as a head contractor was in the unusual situation of being directly supervised in relation to costs on the Ontrack variation. Mr Yonge acknowledged that he was aware of the open book pricing, and that the contractor would “seek competitive tenders for subcontracts and present the best of these for the client’s approval”. Leighton Works could be expected to be cautious about entering into a preliminary contract where it was bound to accept a particular tender, and run the risk of that subcontract being unacceptable for one reason or another to Transit, and GHP knew this. Leighton Works would want flexibility. This is a background factor indicating an objective basis that a preliminary contract was unlikely.

The request for tender document

[42] The document sent on 7 May 2009 which GHP claims was the offer that it in due course accepted, was a standard form Leighton Works document. It was accompanied by a letter stating: “Following our previous correspondence, please find attached our enquiry for the SH20–1 variation [Ontrack] Main Works Phase, Secant Piling Package” (emphasis added). It had no header, and was from a base template into which insertions could be typed, and it could be emailed. There was a header logo in colour with “Leighton Works” on it and the email was from Neil Kelly addressed to John Yonge of GHP. At the outset it contained these standard words:

We invite you to submit a quotation for the tender and scope of works described below. Your quotation should be based on the information given below and in attachments, if any. Please provide your nominated outputs and availability to the schedule items. Please contact the writer ASAP if you have any queries or do not intend to price the package. Your quotation is to be valid for 90 days and exclude GST. A full set of tender documents are available in our office should you wish to view them.

[43] It then set out a tender return date which was 12 May 2009 at 4pm. It referred to the scheme (the Manukau rail station), the client (Ontrack/ARTA/Transit NZ) and the scope of the work, which was a secant pile wall and certain

specifications. There was then some detailed information set out under the following

_headings:

General Contract Information

The contract is divided into two separable portions. Description of Contract Works

Due Date for Completion

Contract Data

Liquidated Damages

Health and Safety

General Requirement

Payment Retention Insurance + Bond Variations

_{Confidentiality Agreement}

[44] There was varying detail under the various headings. In relation to the “Description of Contract Works” there was reference to the overall works but nothing specific. The due date for completion was stated to be:

Phase 1, Pre-Construction – End Apr 09 to End June 09

Phase 3, Station Box – End June 09 to End Jan 10

The contract data was described beside “Conditions” as “Leighton Works standard Contract Conditions”. The contract type was stated to be “Target Cost with Risk” and the defects liability period to be 52 weeks. For liquidated damages it was stated that they were to be advised. There was a general and presumably standard form reference to health and safety. Under the “General Requirement” heading it was said that the contract works, including materials and workmanship, shall comply “with the enclosed specifications. Otherwise your services and goods provided shall be fit for purpose”. There were no specifications attached. In relation to payment retention, the reference was to the total sums retained being “TBC”. That meant

effectively that they were to be advised in due course. There were some detailed references to the insurance and bond requirements and it was stated that Leighton Contractor Pty Ltd’s preference is to go back to back with subcontractors but that this could be negotiated on a case by case basis. There was also a reference to variations having to be ordered by the engineer, and a specific “Confidentiality Agreement” was referred to placing a confidentiality obligation on tendering parties.

The response

[45] Mr Yonge responded to Mr Kelly on the same day stating that preparing a price by the following Tuesday was a “pretty big ask” and asking effectively for more time. Mr Kelly replied on the same day asking when he could realistically put in a price.

[46] On 11 May 2009 Mr Kelly sent to Mr Yonge a second request for tenders document in the same form as the earlier document, but with the tender return date being shown as 4pm on 19 May 2009. If the 7 May 2009 request for tenders document was an offer, this was a revised offer. There was a revision in the scope description which was summarised under the heading “Rev 1 issue” with some differences in particulars. On 19 May 2009 Mr Kelly sent some further information to tenderers. Mr Yonge of GHP sat down and prepared his proposal with detailed pencil pricing calculations that have been produced.

[47] On 20 May 2009 Mr Yonge forwarded GHP’s quote to Mr Kelly. His letter began “Manukau rail station – piling quotation” and then stated:

We have pleasure in confirming our remeasure quotations, GST exclusive for these works on the following conditions.

We have based our quotation on the documents provided.

This tender shall remain valid for a period of one month from the date hereof.

Mr Yonge then set out the details of the secant piles, hold down piles and a wall that was to be constructed. He referred to the programme and equipment, reinforcing, general issues, insurance and payment and dispute resolution.

[48] It is at this point that Ms O’Brien submits a contract was formed. The offer was the tender forwarded on 7 May 2009 (varied on 11 May 2009), and the acceptance of the quotation of 20 May 2009.

Discussion of the “offer”

[49] Leighton Works in their request document of 7 May 2009 used the word “invite” asking parties to submit “a quotation” which was for “the tender”. It was described as an “enquiry” in the accompanying letter. Mr Yonge’s response of

20 May 2009 reflects that wording in that his response was a “piling quotation”. Giving these words their natural meaning, the 7 May 2009 request is not expressed in the language of an offer capable of acceptance. The language used is one of an invitation to quote. The response of GHP does not contain any language indicating acceptance of the preliminary contract offer. It is in the language of a quote. Thus, the words in themselves are not consistent with there being an offer and acceptance, or, to look at them objectively and in the round, a contract.

[50] There was a good deal of focus in submissions by the plaintiff on the use of the word “tender”. Indeed, the word “tender” or “tenderer” is used seven times in the request for tender document. However, the fact that the word “tender” is used does not assist, particularly in the ascertainment of whether there was a contract. Indeed, the use of the word “tender” when it is a “request” for tender tends to signify the start of a process leading to an offer rather than there being already a concluded contract. It is used in the request for tenders in the sense that the quote that is being sought will be the tender. The word is used in the request for tender document interchangeably with the word “quotation”.

[51] However, this analysis of the words used is far from conclusive. Undoubtedly the parties had in mind the main contract which would be formed if a tender was accepted, and this was reflected in their language. It can be expected that the preliminary contract might not contain the usual offer and acceptance terminology.

[52] Some matters arguably point to the request of 7 May 2009 being an offer. These are:

(a) The use of the word “tender” (given that the tender process on occasions is known to give rise to preliminary contracts). There can be no doubt that GHP’s quotation of 20 May 2009 was a “tender” in the sense of it being an offer to supply a service;¹⁴

(b) The smallness of the group invited to tender, which supports an inference that a particular mode of dealing is being promised;

(c) The requirement of confidentiality, which involves acceptance of an obligation by GHP to Leighton Works;

(d) The insertion of a specified tender return date, which is consistent with there being a contractual offer; and

(e) The requirement that the quotation be valid for 90 days, which would be said to involve an acceptance of an obligation by the tenderer.

[53] In relation to the use of the word “tender”, as observed, that word in itself has no magic. The invitation to tender on its face means just that; an invitation to quote. It does not indicate that the invitation to tender itself is an offer capable of acceptance.

[54] As to the requirement of confidentiality, although it is headed “Confidentiality Agreement” I accept Mr Booth’s submission that it is really no more than a notice to a prospective tenderer of the confidentiality obligation, which in any event existed at equity in the absence of a contract.¹⁵

[55] While the quotation is stated to be valid for 90 days, this can be seen as no more than a requirement that the offer, constituted by the quote that is to follow, will

¹⁴ See the definition of “tender” in the New Zealand Oxford Dictionary as including “an offer, esp.

_{an offer in writing to execute work or supply goods at a fixed price”.}

¹⁵ Coco v AN Clark (Engineers) Ltd [1968] FSR 415 (Ch) at 419; Attorney General for the United

Kingdom v Wellington Newspapers Ltd [1987] NZHC 377; [1988] 1 NZLR 129 (CA) at 140–141.

remain open for that period. It is commonplace for quotes to be stated to be open for a set period, and this does not signify that a contract is created in itself by the request and the initial offer.

[56] Other factors point to this not being a contract, and the request for tender document of 7 May 2009 not being an offer capable of acceptance. These are:

(a) The absence of any registration requirements;

(b) The absence of a requirement for a deposit from tenderers (such a deposit being required in Pratt Contractors Ltd v Palmerston North City Council);

(c) The absence of a requirement for a formal tender procedure, such as the provision of an envelope or quotation method for tenderers (an official envelope was considered relevant in the tender case of Quay Stevedoring Services Ltd v ENZA Ltd);¹⁶

(d) The tender documents were not detailed in relation to the conditions of the construction contract. The New Zealand Standards Institute NZS3910:2003 “Conditions of contract for building and civil engineering construction” might have been expected to be prescribed, but were not. Mr Yonge accepted that he knew nothing of the defendants’ standard terms. It is clear indeed that the proposed contract with Leighton Works would involve standard conditions that were different from the New Zealand standard. The tenderers would not know what standard conditions would apply;

(e) Under the heading “General Requirement” the statement is made that the contract works “shall comply with the enclosed specifications” but no specifications are listed. There was evidence from Mr Drummond, a Brian Perry civil estimator, that specifications would usually

_{accompany a request for a quotation;}

¹⁶ Quay Stevedoring Services Ltd v ENZA Ltd CA214/00, 15 November 2001 at [19].

(f) The preference that the terms of the Leighton Works contract be consistent with the terms of the subcontract was signalled, and it was stated that “this can be negotiated”. This is not the language of an offer capable of acceptance, and of contract formation. It is the language of negotiation;

(g) A number of important terms that it could be expected would be defined in the preliminary contract were not defined. In particular, the issues of whether there could be liquidated damages and if so, how much, and whether there could be payment retentions and if so, how much, were left for further negotiation. This is again consistent with the parties being in a state of negotiation, rather than having agreed to a strict contractual format in a preliminary contract which could lead then to a binding main contract;

(h) The request for tender document did not specify that tenders would be evaluated in terms of the lowest price conforming method, or any method, or in accordance with any other criteria. It could be expected that there would be a set and enforceable procedure that was to be followed if a preliminary contract was being formed. Otherwise, the terms on which any offer would be processed were left uncertain. This is why GHP has been obliged to suggest implied terms governing its right to be awarded the tender. There was therefore no term indicating how or on what basis the contract would ultimately be awarded to the successful tenderer. This lacuna is more consistent with the parties being in a process of negotiation rather than forming a preliminary contract;

(i) There was no commitment to accept a tender that complied best with any criteria.

[57] I accept that the fact that not all the terms of the final contract are settled in the preliminary contract is not fatal to a contract being formed. Nevertheless, the greater the areas of uncertainty as to the tender process ahead, the less likely it is that

there was a preliminary contract. Objectively, it can be expected that the parties will set out a detailed and settled process if they intend to create a contract.

[58] If, for instance, GHP had offered the lowest price, and a tender with a far more expensive price was successful, the question that arises is whether that would that be a breach. What was the term of the preliminary contract as to how tenders were to be processed? Ms O’Brien submitted that it could be implied that the tender which was clearly the best in terms of “relative value and credibility” would be the tender that had to succeed under the contract. The vagueness of the language indicates a problem with this submission. How is relative value and credibility to be evaluated? This crucial term is uncertain and would be most difficult to apply if there was a breach.

[59] Similarly, what would happen if Leighton Works insisted on a very high sum for liquidated damages, or a very high sum for retentions? What process would there be in the preliminary contract for dealing with such an impasse? How could GHP adjust its price to reflect this adverse term? In fact nothing could be done if negotiations were over and there was a contract, and GHP would be presumably bound by potentially unreasonable terms. This uncertainty indicates an absence of a preliminary contract, and a state of affairs consistent with an invitation to quote in an ongoing negotiation.

[60] It is also significant that Mr Kelly was quite willing to extend the tender return date. Although the tender return date appears to have been extended to all parties, it signifies an element of informality inconsistent with there being a preliminary contract.

[61] For these reasons the request for tenders does not have the mark of an offer capable of acceptance, even in terms of a preliminary contract.

Discussion of the “acceptance”

[62] Further, the so called “acceptance”, GHP’s quote of 20 May 2009, did not

correspond to the terms of the request for tender. The request for tenders had

specified a 90 day period of validity. The GHP quote differed in a material way, providing that it remained valid only for one month from 20 May 2009. In the language of offer and acceptance, the offer and acceptance did not conform. An acceptance is only effective if the accepting person agrees to be bound by the terms proposed in the offer.¹⁷ The need for conformity of the tender with the terms and

conditions of the request was emphasised both in the Ron Engineering decision¹⁸ and

in Coco Paving 1990 Inc v Ontario (Transportation)¹⁹ where the Ontario Court of

Appeal held that any bid to be valid had to be “compliant”.

[63] Such a lack of correspondence between the offer and the acceptance is particularly telling if the so called acceptance contains a difference which works against the interests of the offeror. This is the case here, where GHP’s insertion of a shorter time period during which its tender would remain open worked to the disadvantage of Leighton Works.

[64] The provision of a “tagged” (technically non-conforming) tender is common in the industry. This was put forward by the plaintiff as indicating that the difference between the offer and the acceptance was not material. However, while tagged tenders may be common in terms of industry practice, there is every possibility that in all the quotes where this occurs there is no preliminary contract formed.

[65] Mr Yonge explained that it was common for tenderers to tender for no more than one month because of the obvious practical problems in holding a tender out for too long. That may be so, but this may mean that it is common in these subcontract situations for there to be no preliminary contract. The fact that Mr Yonge felt free to depart from the terms of the request for tender and insert a shorter period for the validity of the quote is another indication that, looking at the matter objectively, no contract was formed.

[66] The parties’ subsequent conduct does not indicate that a preliminary contract was entered into, as it does not indicate that the parties regarded the tender

_{framework as settled following GHP’s initial offer. Mr Yonge felt able to submit a}

¹⁷ _{Reporoa Stores Ltd v Treloar [1958] NZLR 177 (CA).}

¹⁸ _{Ron Engineering, above n 5, at 122.}

¹⁹ Coco Paving 1990 Inc v Ontario (Transportation) (2009) ONCA 503 at [4].

substantially reduced tender on 17 June 2009. Another contractor, Hauraki Pilling, also submitted a revised quotation on that date with Civil Works/Seatek being invited to go to a further meeting the following day. This is an indication that the parties did not regard themselves as bound by a process whereby they had to provide a quotation by the date specified, which would then be processed and responded to within the time specified. The position was flexible, consistent with the parties being in a state of negotiation rather than a contract.

Comparison with other processes

[67] It is useful to compare this request for tenders document to the earlier request for documents sent by Leighton Works to GHP on 9 February 2009, which resulted in the first offer by GHP to provide piling services. The initial wording of the request for tenders was exactly the same. The scheme and client details were the same and the quotation requested section was filled in with the date of 15 February

2009. The scope, rather than secant pile walling, was sheet piling, and specific details were given. The same details were given for general contract information and the description of contract works. There were different dates for the due date of completion. The conditions of the contract data were the same. The liquidated damages were also to be advised. The health and safety and general requirements were the same. The payment retention was filled out in the 9 February 2009 request, the amount to be retained being 10 per cent of the value to completion and five per cent for the duration of the defects liability period. The insurance and bond period was filled out in the same way, as were the variations and the confidentiality agreement portions.

[68] It is significant that the parties did not treat the 9 February 2009 request for tender and the offer in response from GHP of 18 February 2009 as creating a contract. If the parties at that point did not consider themselves bound, it is less likely that they were bound by the later similar process.

[69] Mr Yonge denied ever having received the defendant’s enquiry document for the sheet piling option, but given that there is no suggestion that at that point a preliminary contract was formed, this is irrelevant. The relevance of the exchange is

that the parties used similar documentation to record a position which neither thought was contractually binding.

[70] The wording of Mr Yonge’s written quote was also the same wording on

20 May 2009 as that used when he responded to the initial tender request for the original sheet pile driving proposal on 18 February 2009. He commenced by saying “We have pleasure in confirming our ...” and then setting out the price. In that earlier offer he also stated that the quotation would be valid for one month and gave some detail of the work to be done. It contained a similar reference to dispute resolution at the end. This being an exchange that Mr Yonge does not suggest led to a contract is again an indication that the 20 May 2009 offer was a step in a long negotiation, rather than an acceptance of a preliminary contract.

[71] Mr Anthony Dean, an experienced quantity surveyor and building and construction dispute consultant called by GHP, expressed the view that on his interpretation of the documents, there was a tender process in place. That was clearly the case but begged the question whether a contract was formed, a matter on which Mr Dean was not in a position to give an opinion.

[72] Ms O’Brien submitted that the enforcement of the basic provisions of tendering was essential for subcontractors in the construction industry. That undoubtedly would be so where preliminary contracts are formed, and where a procedure for awarding tenders is articulated. However, I do not consider that this argument means that the usual threshold for discerning whether a contract has been formed can in some way be lowered, and that a contract should be found to exist where none was intended. And given the greater inherent informality, it is less likely that preliminary contracts will be found to exist where the main contract is a subcontract, and not a head contract.

[73] Finally it must be observed that it is very difficult to see how a term could be implied, even if there was a contract, that precluded Leighton Works from seeking further lower quotations at a later point should it choose to do so. That would be incompatible with the right of Transit to disapprove a subcontractors’ price for the Ontrack variation. If, as may well have been the case here, Transit did not wish to

have any of the tenderers as subcontractors, why should it not be open to Leighton Works to seek further quotations? Leighton Works intervened and obtained a price that was much better as it might have been expected it could do so. In terms of the traditional test in relation to implied terms, it is not so obvious that it goes without saying that no further tenders could be sought in such a circumstance, or indeed that a prohibition on further tenders was necessary to give the contract “commercial

efficacy”.²⁰

Conclusion

[74] Viewing the evidence as a whole and objectively, no concluded agreement can be discerned. No corresponding offer and acceptance can be discerned. The parties’ actions do not indicate that they intended to be bound. The exchange as it was left relevant matters unresolved and unclear. I conclude that GHP has failed to prove that any preliminary contract was formed.

Damages

Introduction

[75] Having found that there was no preliminary contract, this disposes of the claim. However, I will now briefly consider the claim for damages.

[76] The plaintiff claims that if it had not been for the defendants’ breach it would have succeeded in its bid and been awarded the contract. It claims it would have made a profit of $1,032,674 from that contract. The defendants did not contest that the measure of damages was the profit lost to GHP as a consequence of it not being awarded the subcontract.

[77] I am satisfied on the evidence that, but for the acceptance of the late Brian Perry bid, GHP would have been awarded the secant piling subcontract. Although a claim for damages by a tenderer will generally proceed on the basis of a loss of a chance, given the effective concession on the part of the defendants that GHP was

clearly the leading bidder prior to the involvement of Brian Perry, I conclude that

GHP would have succeeded in its tender bid but for that development.

[78] The defendants, while accepting that GHP was the leading tenderer prior to the involvement of Brian Perry, nevertheless strongly contested the quantum of damages claimed. The defendants did not submit an alternative figure, but rather focused on specific aspects of the claim and argued that they were considerably overstated.

[79] The claim refers to the secant piling works being undertaken on the basis of the 17 June 2009 offer²¹ for an overall price of $8.45 million using two rigs over 22 weeks, or $9.4 million for three rigs over 15 weeks. Although the two options were given, the claim itself is based on the cheaper 22 week option being successful. A component of those works related to hold down piles tendered for $408,000. The plaintiff’s claim is based on penciled working calculations prepared by Mr Yonge for the tender. I agree with the comment made by a consultant to the Australian piling industry called by Leighton Works, Mr Mark Johnson, that the working papers are

difficult to follow and understand. They do not provide an internally consistent profit calculation, but rather working notes made at the time to help prepare the tender.

[80] It is necessary to set out a breakdown of the plaintiff’s claim for loss of profits. This has not been easy, as Mr Yonge’s notes where he calculated the GHP profit did not set out what was cost and overhead and what was profit. I did not find his evidence on how he calculated the lost profit he claims as easy to follow, but I was assisted by Mr Dean’s efforts to rationalise the claim. My general impression is that Mr Yonge genuinely thought, and still thinks, that GHP would have made a good profit, but that he is not sophisticated when it comes to preparing his costings for quotes, and even now has difficulty in breaking down the calculation of the expected profit.

[81] Of the total sum claimed, $147,854 was half of a contingency allowance of

$295,708 which Mr Yonge claimed to have included in his 17 June 2009 revised quotation price.

[82] The approach of Mr Johnson, and an accountant called for the defendants, Mr John Cregten, has been to consider aspects of the damages claim and to query the assumptions made by Mr Yonge and Mr Dean in putting forward that claim. The first issue to be considered is the suggestion put forward by the defendants that the significance of this job (involving the receipt of sums over four times GHP’s revenue earned in the proceeding year) was such that there were significant risks as to GHP’s ability to carry out the work. Mr Cregten in particular emphasised the strain on GHP’s physical and financial resources if it was to complete the project on time, given that it was by far the largest job it had had in recent years.

[83] I do not accept that GHP would have been unable to do the work if it had been awarded the contract. Having heard Mr Yonge and considered the history of the company and its accounts over recent years, I consider that he would have found a way to put together the resources to fund and complete the work. While the accounts for 2009 showed declining receipts, and recent history a lack of very big jobs, the company appears to be solvent and Mr Yonge to be resourceful. I am satisfied that he would have found a way to get the job done. GHP would, however, have been stretched to its limit in terms of funding and resources.

[84] It is necessary now to consider the specific items of challenge to the damages claim.

The add-back of the contingency sum

[85] GHP’s breakdown of the secant pile tender price of $8,455,523 (the sum on which damages was calculated) was broken down as follows:

Plant and equipment costs $1,975,393

Material and supply costs $4,172,634

Labour costs $821,060

P & G (site overheads) $341,958

Margin for profit and risk $848,770

Contingencies $295,708

Tendered sum $8,455,523

[86] GHP’s breakdown of the hold down pile tender price of $408,940 was as

follows, this being the amended figure put forward by Mr Dean:

Plant and equipment costs $109,192

Material and supply costs $191,644

Labour costs $43,676

P & G (site overheads) $28,378

Margin for profit and risk $36,050

Total $408,940

[87] The margin for profit and risk were therefore $848,770 for the secant wall and $36,050 for the hold down piles. The total was $884,820 to which was added half of the contingency of $295,708.

[88] Mr Johnson, who I am satisfied is an expert in the piling industry and able to comment on New Zealand conditions, contested the add-back of the 50 per cent contingency. He also asserted that there should have been a contingency for unknown factors of $100,000 and a deduction for the financing of GHP’s plant based on a recovery of all costs of $300,000. There should have also been a sum deducted for off-site overheads.

[89] Mr Cregten, an experienced forensic accountant called by the defendants, had other criticisms. He said that there would be other costs that would have been incurred in the course of the job that had not been taken into account, being:

(a) the preparation of a detailed financial proposal to the bank including supporting accounting forecasts etc;

(b) valuation fees in respect of the business assets securing the loan and possibly over the personal assets required to shore up the security;

(c) legal fees to re-document the facility; (d) bank establishment fees; and

(e) interest charged until such time as loans were repaid.

[90] Mr Cregten also stated that there would have been a three per cent change in variable costs amounting to $264,000, and interest at 14.4 per cent for five months on equipment worth $1.6 million, the figure being $96,000. If an eight per cent rate was used the sum would have been $50,000, or if 10 per cent was used, $62,500.

Analysis of damages claimed

The add-back of half the contingency figure

[91] The allowance fee of $295,708 is not found anywhere in Mr Yonge’s working papers. It appears to be a derived rate and is to be found in Mr Dean’s summary sheets. It is made up of the amounts of $10,588 for concrete, $202,400 for hard piling, $55,000 for soft piling and $27,720 for excavators, the total being $295,708. The contingency allowance claimed is a notional and assumed figure lacking the support of hard evidence. I also accept Mr Booth’s submission that it is illogical to allow for a contingency for unknown factors at the beginning of a job, and then to assert when the job is not performed that only half of it would have been used.

[92] Mr Johnson in his evidence stated that he did not think that Mr Dean could reasonably predict that only 50 per cent of the contingency would have been used and that the other 50 per cent would have been converted into profit. Mr Johnson thought that the contingency figure could just as easily have been twice the amount allowed.

[93] I am not satisfied on the balance of probabilities that there was any precise contingency allowance for the amount claimed in the original estimate, and I am also not satisfied to the required standard that 50 per cent of any contingency would not have been required. I consider that the contingency allowance that I have no doubt

Mr Yonge would have loosely factored into his calculations would not have been unduly generous. The bid on which his claim is based was, after all, a pared down bid. He would not have been unnecessarily generous in his allowance for contingencies. I reject this aspect of the claim.

The oscillators

[94] In his original estimate for the secant piling works Mr Yonge allowed for the purchase of two oscillators to be used to assist in the drilling. In a second estimate for the revised quotation on 17 June 2009 both oscillators were removed from the pricing. It was Mr Johnson’s opinion that this was an ill-advised move and left GHP exposed if the drill rig had not been able to drill to the required level of efficiency. In his opinion GHP should have allowed for the cost of at least one oscillator on the job. Therefore, this should have been deducted from the profit which GHP otherwise claims would be made on the project. The sum involved for the hire of an oscillator was $330,000 being 110 days hiring the oscillator at $3,000 a day (110 days was the estimated duration of the contract).

[95] Mr Yonge maintained that when he re-calculated for his second quote, he realised that he would not need the oscillators. However, Mr Dean accepted in cross-examination that it would have been prudent to have had at least one oscillator on site to boost the drilling ability of GHP’s machines. I am satisfied that this is so.

[96] However, the full deduction of $330,000 seems to me excessive. It is not clear that the oscillator would have been required to have been on site the whole time. In the circumstances I consider it appropriate to allow for half of the deduction claimed for the oscillator being $165,000.

On-site management

[97] Mr Johnson considered that $50,000 should have been deducted to take into account the costs of on-site management. Mr Yonge claimed that on-site management which would have been conducted by him and his son was already built in to his costings. In my view this is the sort of allowance that it could be expected

Mr Yonge would have taken into account in calculating his plant and labour daily rates. I am satisfied that no extra deduction is required on this count.

Financing costs

[98] Mr Johnson also argued that there should be a deduction for financing costs in relation to the excavator. Mr Yonge maintained that those costs had been built into his calculation, and I accept that evidence.

Off-site overheads

[99] Mr Johnson was of the view that a contribution should be made for off-site overheads. Mr Dean asserts this is normally 20–33 per cent. Mr Yonge claimed that this had already been taken into account in his calculations. I note Mr Cregten’s criticisms of a lack of provision for fees and interest. At an eight per cent interest rate Mr Cregten allowed a sum of $50,000 for the funding of those overheads including the repayment of loans.

[100] I consider in all the circumstances that deduction to be fair. I therefore deduct $50,000 on account of overheads/interest not included in Mr Yonge’s calculations.

Overview

[101] The following deductions must be made therefore from the estimate of lost profit of $1,032,674:

Contingency allowance $147,854

Oscillator $165,000

Overheads/interest $50,000

Total $362,854

[102] In my view the lost profit that resulted from GHP not obtaining the Leighton

Works contract came to this figure of $669,820.

[103] This is a net return of 7.92 per cent on the contract sum. It is somewhat less than the 10 per cent that it was indicated in evidence could be the expected profit margin in a contract of this size. On the other hand, as I have stated, I am satisfied that in general terms GHP was going to be stretched in doing this job and would have had to borrow money and was likely to strike particular difficulties because of the unusual scale of work it was facing. I am satisfied on an overview, taking into account Mr Dean and Mr Cregten’s general comments that this figure for loss is fair and appropriate.

[104] I put to one side the much lower tender offer which was ultimately successful made by Brian Perry. The sum there was $7,466,947.66. However, Brian Perry is associated with Fletcher Building Ltd and it could well be that there were economies of scale, and equipment and skills available which would not have been available to GHP.

[105] Therefore, if I had found for the plaintiff on liability I would have awarded damages of $669,820.

Result

[106] The plaintiff’s claim is dismissed.

Costs

[107] There seems to be no reason why costs should not follow the event and be at a 2B basis. However, in case there are factors that I am not aware of, I reserve the issue of costs. If necessary parties are to file submissions on costs, the defendants within 14 days and the plaintiff within a further 14 days.

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Asher J