10 May 2021

Court rules tender appointment letters are not contracts

Submitted by Gerrit Davids
Court rules tender appointment letters are not contracts

In a recent matter in the Supreme Court of Appeal (SCA), a local municipality learnt a very expensive lesson in that a “suspensive condition”, inserted in a letter of appointment is not necessarily part of a final contract.

In essence, the case revolves around a specific set of “Contract–conditions in the preliminary letter of appointment”, which were ultimately excluded from the final contract.

The municipality issued an appointment letter to the successful bidder and stated that the final appointment was “Suspended” subject to the bidder, submitting a set of documents, which included, Proof of Insurance; Surety letter from the guarantor; Letter of acceptance; Program of work and Occupational Health and Safety Plan [and names of personnel to implement it]”.

The Bidder accepted the appointment in writing and “Signed a Supply and Development Agreement”, which clearly stipulated the terms and conditions applicable to the Contract.

The “Appointment Letter”, also expressly stipulated that the eventual development of the property would be governed by a written agreement, which would outline the terms and conditions of the contract.

However, during the negotiations of the final Contract, the Bidder pointed out to the municipality, that the “Set of Documents” as requested in the “Appointment Letter” bears no relevance to property development tenders and the latter agreed to exclude the “Suspensive Condition” from the final document, with the result that the Bidder did not submit any of the “Requested Documents”.

Subsequently to signing the “Contract”, the municipality cancelled the “Agreement” on the basis that the Bidder failed to submit the set of documents, which were requested in the initial “Letter of Appointment”, to which the Bidder instituted legal action for “Breach of Contract”.

The Bidder argued that the “Suspensive Condition”, which was part of the “Letter of Appointment”, never became part of the “Terms and Conditions of Contract” of the final Agreement, with the result that it was not required to provide it to the municipality.

The Eastern Cape Division of the High Court ruled in favour of the Bidder and the municipality took the matter to the SCA, where it was ruled that “Accordingly, the Agreement was clearly not subject to the alleged “Suspensive Condition” in the letter of appointment as submitted by the appellant.”

According to Gerrit Davids, Lead Advisor, TaranisCo Advisory, tendering agency, “It is important that both organs of state as well as bidders to tenders, have a clear understanding as to, which terms and conditions, will govern a final Contract between them in order to avoid expensive litigation in Court.

”Davids says, “For that reason, it is even more important, especially for bidders to ensure that they have a full understanding of what constitutes the General Conditions of Contract (GCCs) as well as whether they have accepted any “Suspensive Conditions” or not, which could come back to haunt them.”

“On the other hand, it is also very important for bidders to upskill their knowledge around the GCCs, especially to use it to their own advantage, e.g. in terms of how to negotiate additional work under an awarded contract from the organ of state.”

To read more about the General Conditions of Contract: Click Here

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Gerrit DavidsLead Consultant
TaranisCo Advisory CC
Web Site: http://www.taranis.co.za
Mobile. +27 (0) 82 496 1657

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