Failure of Advisor in Drafting a Tender Budget?
A discussion of the judgment of the Arnhem Court of Appeal
of 7 April 2009, LJN: BI2152
Introduction
In the Newsletter of May 2009 we have informed you that a bidder
who has submitted a too low bid cannot simply escape from being
awarded the contract by relying on his
abnormally low bid. Submitting a bid is for
the account and risk of the bidder; this includes any mistakes
the bid may contain. The question is whether the advisor who
prepared the tender budget is liable to pay damages to this
bidder, as the occasion arises.
The Case
The general partnership Elfbou, a joint venture of two building
contractors, has submitted a bid for a construction project in
Oldenzaal. Elfbou engaged the services of Nibag, a firm of building
consultants to prepare the tender budget. Nibag prepared a tender
budget amounting to €1,644,969.95, to be increased by 2%
administrative costs and 3% general costs. The total building sum
calculated by Nibag amounted to €1,728,204.
In view of the current financial circumstances it was of great
importance to Elfbou to secure the contract for the building
project. Therefore Elfbou decided not to include the usual margins
for profit and risk, and to bid at a price of €1,644,969.95. Elfbou
turned out to be the lowest bidder, and was granted the contract.
The amount of the bid of number two turned out to be only €65,196
higher than Elfbou's bid.
After having been granted the contract, Elfbou discovered that
it could not carry out the work at a cost-effective level. Elfbou
took the position that Nibag had made mistakes when preparing the
tender budget, as a result of which Elfbou had submitted a too low
bid. According to Elfbou, Nibag had failed to include a large
number of cost items in its preparation of the tender budget; its
calculations with alternative work and materials differed from the
specifications; the correct offers had not been requested, or the
requested offers had been misinterpreted; and insufficient units
and quantities that could be derived from the specifications had
been budgeted.
All this constituted an imputable failure on the part of Nibag.
Elfbou estimated the loss it had incurred and would still incur as
a result of this failure at an amount of €225,680.
Nibag defended itself by arguing that the alleged loss incurred was
Elfbou's own doing as Elfbou is a professional party. Nibag was
of the view that it was Elfbou's responsibility to check the
correctness of the tender budget prepared by Nibag.
In the first instance, the Court of Almelo allowed the claims of
Elfbou. Nibag then appealed against this judgment.
The Judgment of the Arnhem Court of Appeal
The Court of Appeal established first and foremost
that Elfbou would not have incurred a loss if it had not been the
lowest bidder. The difference with the bid of number two is more
than €65,000, which is 3.7% of the bid price. If Elfbou would have
applied the usual margins for profit and risk, it is likely that
its bid would not have been the lowest. The Court of Appeal held
that although the decision not to include these margins was
Elfbou's own commercial decision, Elfbou had to be able to rely
on it that the tender budget prepared by the advisor contained no
mistakes that would cause the amount of its bid not to be
cost-effective.
On the other hand, the Court of Appeal held that Elfbou could
also not simply have assumed that the tender budget prepared by
Nibag was correct. Precisely because Elfbou intended to bid at a
low price, and to exclude the usual margins for that reason,
checking the tender budget was very important. The Court of Appeal
also deemed it relevant that after bidding, mistakes cannot be
remedied anymore. According to the Court of Appeal, a check is not
the same as renewed preparation of the budget, since it is possible
to make random checks. The Court of Appeal finds this even more
adamant since Elfbou claimed that Nibag had made big mistakes, at
least some of which could have been discovered in a random
check.
Since Elfbou failed to check the tender budget prepared by Nibag
without a valid ground, the Court of Appeal ruled that Nibag was
not obliged to compensate the loss incurred by Elfbou. The Court of
Appeal deemed it plausible that part of the mistakes for which
Nibag was blamed would have been discovered and corrected if a
random check had been performed. Taking into account the relatively
small difference between Elfbou's bid and that of the number
two, the Court of Appeal considered that a correction of only part
of the mistakes made by Nibag in the tender budget would have
caused Elfbou not to be the lowest bidder. In that case Elfbou
would not have incurred a loss.
Consequences for Practice
Nibag's own-fault defense was successful. This judgment of the
Arnhem Court of Appeal may have rather drastic consequences for
practice. A building contractor who engages an advisor to prepare a
tender budget must perform some sort of check of this tender
budget. If this check is not performed, the advisor may not be
liable to pay damages in the event that the tender budget contains
mistakes. It is not necessary to redo the entire calculation; a
limited check may suffice. I also like to add the comment that in
this particular case Elfbou deliberately left out the margins for
profit and risk, so that in the opinion of the Court of Appeal its
interest in a correct tender budget was even greater.