Roading & Asphalt Ltd v South Waikato District Council

• Jurisdiction: New Zealand
• Judge: Keane J
• Judgment Date: 08 June 2012
• Neutral Citation: [2012] NZHC 1284
• Docket Number: CIV 2010-463-473
• Court: High Court
• Date: 08 June 2012

Between

Roading & Asphalt Limited

Plaintiff

and

South Waikato District Council

Defendant

[2012] NZHC 1284

CIV 2010-463-473

IN THE HIGH COURT OF NEW ZEALAND

HAMILTON REGISTRY

Claim for damages for breach of contract and breaches under Fair Trading Act 1986 and Local Government Act 2002 — plaintiff alleged that defendant council failed to award its solid waste contract in line with its tender documents — plaintiff was incumbent waste contractor — tender document stated respondent would evaluate tenders according to the “Lowest Price Conforming Method” but that the lowest tender might not be accepted — plaintiff tendered the lowest but respondent accepted higher rival tender on basis of the net cost to the rate payer when allowances were made for waste diversions, savings in landfill space and waste levies — allegation that defendant had breached the terms of the tender and an implied duty to treat all tenderers fairly and equally — whether the tender entitled the defendant to evaluate tenders according to the criteria it had identified — whether criteria gave the defendant any ability to accept any tender apart from the lowest.

Counsel:

P P Buetow & M B Lake for Plaintiff

J A Macgillivray & M S Crocket for Defendant

JUDGMENT OF Keane J

1 In April — May, 2010, the South Waikato District Council invited tenders for a contract for ‘solid waste disposal operations at the Putaruru Transfer Station and Newell Road Landfill in Tokoroa for a two year period’, capable of being extended to a third year. Tenders, complying with the Council's terms of tender, and taking into account the terms of the contract the Council proposed entering into, were to be made in the form the Council prescribed by Friday, 21 May 2010.

2 The Council's terms of tender stated that it would evaluate tenders according to the ‘Lowest Price Conforming Method’, in two stages. First, each tender was to be assessed against six non-price attributes ‘and no others’, on a pass/fail basis — relevant experience, track record, technical skills, resources, management skills and methodology. At the second stage any tenders that qualified were to be rated according to price.

3 The terms of tender made it clear that the Council did not commit itself to accepting the lowest or any qualifying tender. The terms stated that ‘the lowest or any tender will not necessarily be accepted’; and, in completing the tender document, tenderers confirmed that they understood that the Council was ‘not bound to accept the lowest or any tender’.

4 The Council received three tenders, two of which survived the Council's scrutiny at the first stage. One came from Roading and Asphalt Limited, that had held the solid waste contract for eight years. The price it tendered was $1,032,220. The other came from Materials and Processing Limited, that then held the contract to transport residual waste from Putaruru to Tokoroa. It tendered $1,072,083.

5 Despite the fact that RAL had tendered the lower price, the Council decided to accept MPL's tender. On 31 May 2010 the Council advised RAL that MPL's tender had been accepted because ‘the cost to Council’ of the MPL bid was $1,000,265, plus GST. On 2 June it confirmed to RAL that MPL had tendered $1,072,083.50, exclusive of GST, but that the ‘cost to Council’ of MPL's bid was less than RAL's bid. It said this:

In its assessment of the tenders received, the Council took into account the Contractors' methodology; and the net cost to the rate payer when allowances were made for waste diversions, savings in landfill space and waste levies.

6 RAL immediately contended that, in accepting the MPL tender, the Council had breached the terms of tender. RAL accepted that the Council could decline to accept the lowest or any tender. But RAL contended that, if the Council chose to accept any tender, it had to be the lowest. The Council, by contrast, contended that its only duty was to evaluate tenders by the two stage process. It was then able, it contended, in the exercise of its discretion whether to accept the lowest or any tender, to accept MPL's second lowest tender.

7 In this proceeding RAL contends, principally in contract, that the Council awarded the substantive contract in breach of the express terms of tender, and also in breach of an implied duty to treat all tenderers fairly and equally. It contends as well for breaches of the Fair Trading Act 1986 and the Local Government Act 2002. The Council accepts that its terms of tender did give rise to a contract with tenderers governing the tender process. It denies any breach and any want of fairness and equality.

8 The Council also accepts that, if RAL had been awarded the contract it would have earned each year $165,317, plus GST; over the two years of the contract $330,634. It denies that, even if it is in breach, it caused RAL any such loss. RAL, the Council contends, would never have been awarded the contract. On that basis also it denies any liability to RAL for the third optional year of the contract.

9 RAL and the Council differ as to how satisfactory their relationship was in the eight years during which RAL held the solid waste contract. RAL relies on the fact that their three year contract had been extended for two years by option and then for three more years by yearly increments. The Council says, by contrast, that after the Waste Minimisation Act 2008 came into force in July 2009, and it became liable to pay a $10 levy for each tonne of waste deposited at the landfill, RAL showed no interest in diverting and recycling waste.

10 In the same vein, RAL contends that the priority the Council gave to waste diversion in the assessment of tenders was completely unheralded. Whereas, the Council contends, RAL, more than any other tenderer, should have known that waste diversion was a Council priority of increasing importance. This case turns finally, I consider however, under all three causes of action, on two issues as to the terms of tender.

11 One of those issues is whether they entitled the Council to evaluate tenders according to the criterion it identified, ‘the net cost to the ratepayer’, allowing for ‘waste diversions, savings in landfill space and waste levies’. The other is whether they gave the Council any ability to accept any tender apart from the lowest.

Council's decision

12 The Council awarded the solid waste contract to MPL relying on the recommendation of its Tenders Board on 31 May 2010. The Tenders Board itself gave no reason for its recommendation but, as the Council accepts, relied on the reasons set out in a memorandum to the Board, also dated 31 May 2010, from its Services Manager, Andrew Pascoe.

13 Mr Pascoe began his evaluation by saying that the contract was to be for two years only, because it was then anticipated that within two years the Council would have a materials processing facility at the Tokoroa landfill and a different type of operating contract would be required both for the landfill and that facility.

14 Mr Pascoe then set out the monthly rates tendered by RAL and MPL and the third tenderer to operate the Tokoroa landfill; the principal component in their tenders. They had been asked to propose three rates. The first rate was to assume that waste deposited at the landfill each month would be less than 500 tonnes, the second that it would be between 501 – 1000 tonnes, and the third in excess of 1000 tonnes. The critical rate, Mr Pascoe said, was the middle rate. At the time of tender the average amount of waste deposited at the landfill each month was 690 tonnes.

15 Only RAL, Mr Pascoe said, had tendered the same price for any volume below 1000 tonnes. MPL and the other tenderer had offered a lower rate for any volume below 500 tonnes. If then volumes at the tip face reduced, Mr Pascoe said, RAL's tender offered no benefit to the Council. (Though RAL's single rate was lower than MPL's and the other tenderer's lowest rate.)

16 Mr Pascoe then spoke about a second, and as it turned out, more crucial feature of the tender calculation each tenderer had been required to make and that was the offsetting bonus each was entitled to claim for recyclable material diverted from the landfill each month. As to that he said this:

Within these rates is an item, ‘bonus for approved material diverted from the landfill face and management on site as specified’. This item was in the contract to encourage the operator to recycle material that can be recycled and is going over the face at the moment. An estimate tonnage of 2,000 tonnes for Tokoroa and 600 tonnes for Putaruru was specified in the document, this was based on a best estimate on what can be recycled.

17 There was a ‘large difference’, Mr Pascoe said, between the bonus rates claimed. RAL claimed $2.50 per tonne, $500 for Tokoroa and $1500 for Putaruru. By contrast, MPL claimed $21.86 for Tokoroa, $43,720, and $27.86 for Putaruru, $16,716.22. Though MPL's claimed bonus exceeded that of RAL by $38,720, and that largely accounted for the extent to which its price for operating the landfill exceeded that of RAL also, $58,568, Mr Pascoe considered MPL had made the right call.

18 Mr Pascoe's first reason was that MPL thus had a significantly greater incentive than RAL to divert recyclable materials from the landfill and was likely to save considerably more landfill space than RAL. Saved landfill space, he said, had a distinct value to the Council. An economic analysis the Council had received just that month from Harrison Grierson, consultants, as to the relative costs of its options for waste disposal, he said, ‘puts a value on landfill space saved of $22/M3 = $22/tonne allowing for future cost of capping.’

19 The second reason why Mr Pascoe considered MPL's bonus claim preferable was that...