Is a perceived conflict of interest enough to derail a tender process? by Australian lawyer Liana Westcott of the firm Russell Kennedy (see original published article here).
Beech-Jones J of the NSW Supreme Court has just finished grappling with procedural fairness, process contracts, bases for judicial review and LinkedIn profile updates in order to hand down his ex tempore judgment in Karimbla Properties (No 50) Pty Ltd v State of New South Wales & Anor.For a story that is not a repetition but does rhyme with this theme, see another recent conflicts case from Lexology, this one in the US:
The matter arose out of a tender for the sale of land at Macquarie Park by UrbanGrowth, a NSW corporate body established by legislation. UrbanGrowth planned a two-stage process commencing with an Expression of Interest and then proceeding to an Invitation to Tender with shortlisted entities.
One of the potential tenderers hoping to develop the site was Karimbla, part of a group of companies known as the Meriton Group.
Unfortunately, one of UrbanGrowth’s officials running the tender process was on both sides of the fence – simultaneously conducting the shortlisting process for UrbanGrowth and applying for a job with Meriton. Predictably, he neglected to declare this conflict of interests to UrbanGrowth or, it seems, to the independent probity adviser appointed to oversee the process.
Karimbla was shortlisted for participation in the second stage of the process, but things came unstuck when the gentleman’s UrbanGrowth colleagues noticed he had updated his LinkedIn profile with his new job – at Meriton.
A series of meetings followed and, after an exchange of correspondence on the issue, UrbanGrowth determined that the defensibility of the tender process had been tainted sufficiently that Karimbla / Meriton should be excluded from further participation. Although there was no evidence that confidential information had actually been leaked to Karimbla / Meriton, or that any favouritism had actually been afforded to Karimbla / Meriton in the shortlisting process, UrbanGrowth argued that the perception created by the circumstances was such that other tenderers could not be confident in the transparency and fairness of the process, and may withdraw if the issue was not resolved.
Meriton sought an injunction to prevent UrbanGrowth from continuing with the tender process or, alternately, to prevent an exchange of contracts flowing from the tender process. Counsel for Meriton raised a number of arguments around the amenability of the tender process to judicial review, the source of UrbanGrowth’s power to exclude a tender and the existence of a process contract requiring fair dealing by UrbanGrowth.
The Court (rightly in our view) dismissed the application, and in doing so made a number of useful observations drawing on existing case law:
• The right to exclude a tender does not generally have a statutory basis, and accordingly will not be subject to judicial review.
• While it is possible for a process contract to be formed by the issue of an approach to market, a properly drafted exclusion of legal relations in that document will generally be effective to negate a process contract.
• The fact that UrbanGrowth’s decision to exclude was based on perception only and not actual wrongdoing by the tenderer did not undermine its validity.
Ultimately, the application for injunction was dismissed and UrbanGrowth was able to proceed with the second stage of the tender process – without Karimbla / Meriton. While the outcome was largely positive for
UrbanGrowth, it was unfortunate for Karimbla / Meriton. By failing to identify the clear conflict inherent in employing a member of the UrbanGrowth tender team and declaring it proactively to UrbanGrowth, they lost the opportunity to win an attractive development opportunity.
With any luck, the case will prompt government entities to look more closely at their conflict of interest policies and practices, to ensure that employees and potential tenderers understand precisely what is expected of them, and are held accountable when those obligations are not met.
Access to pre-solicitation information without mitigation plan: a recipe for rescission
The Court of Federal Claims (“CFC”) recently made clear that mere access to pre-solicitation information creates a potential Organizational Conflict of Interest (“OCI”) that can invalidate an award.