Case No. C 443
Department of Contracts
The complaint
After responding to a call for tenders issued by the Foundation for Tomorrow’s Schools of the Ministry of Education, and submitting its proposals to the Department of Contracts in July 2002, a company engaged in the provision and installation of engineering services felt aggrieved when its submissions were rejected outright on the grounds that its bid bond was invalid.
Although the company claimed that the bank which issued this bid bond had given the necessary assurances to the director general of the Department of Contracts regarding the validity of this guarantee, and had also provided an amended bank guarantee to replace the old document, the department was resolute and stuck to its original decision not to consider the offer by the company.
As a result, the tender was awarded to the company’s competitor whose offer was priced Lm20,000 higher.
Alleging that its tender had been unjustly disqualified and that the tender evaluation process had been vitiated by a departure from approved procedures, the company approached the Office of the Ombudsman for an investigation.
Facts of the case
On 9 July 2002 a local company submitted an offer to the Department of Contracts for the supply, installation and commissioning of variable air volume ventilation plant at a boys’ secondary school.
The company claimed that it met all the requirements laid down in the tender dossier issued by the Foundation, although at the same time it admitted that as a result of a genuine error by the bank which provided the required bid bond to the Department of Contracts, this guarantee was inadvertently dated 9 August 2002 instead of 9 July 2002.
The company pointed out, however, that this was clearly a typing error because banks do not issue post-dated bank guarantees.
The company drew the attention of the Ombudsman to the procedures adopted on the closing date for the submission of tenders when proposals found in the tender box were opened and summarily reviewed by officials of the Department of Contracts. According to tender instructions, contractors were required to submit all the necessary documents in two sealed envelopes: the first envelope would contain the bid bond while the second envelope would contain the completed form of tender, priced bills of quantities, technical literature and other technical information. The company made particular reference to section 1.22.6 in the tender dossier prepared by the Foundation for Tomorrow’s Schools which stated:
“Tenders unaccompanied by a valid original bid bond (Envelope No. 1) on the closing date and time of tender shall not be considered for award of this contract and Envelope No. 2 in the tender offer shall be discarded unopened.”
The company narrated that when officials of the Department of Contracts opened the bids that were received, and the company’s documentation was being examined, it was noted that these officials were at one point engaged in discussing matters related to the bid bond. However, when company representatives inquired about the matter, the officials replied that everything was in order and in turn proceeded to open the company’s second envelope.
The company held that since the officials of the department had decided not to discard this envelope and had even opened it, this was taken to mean that the bid bond enclosed in the company’s first envelope had been accepted and considered valid. It was at this stage that the company became aware that its proposal was Lm20,000 cheaper than the offer by the other contractor.
Soon after the official opening of these two tenders, the schedule of tenders was placed on the notice board at the Department of Contracts and the company realised that its offer had been disqualified because of the wrong date that appeared on the bid bond. The company immediately wrote to the Director General of the Department of Contracts to object to this exclusion. It considered its disqualification from the tender adjudication process to be unjust because despite the wrong date on the bid bond, the covering letter in its tender submissions indicated quite clearly that the offer was valid for a four-month period starting from 9 July 2002. Moreover, despite its wrong date, even the original bid bond stated that the guarantee would expire on 9 November 2002 in line with tender stipulations. The company therefore requested that its offer still be considered valid.
At the same time, in order to rectify this situation regarding the bank guarantee that had been declared invalid and to further strengthen its case for the reinstatement of its tender, the company sent an amended bank guarantee with a corrected date that was issued by the bank in replacement of the old bid bond. A few days later the bank management itself wrote to the Department of Contracts to confirm that the original bid bond was still valid and that any claims made under this guarantee would be honoured as from the date when it was issued (9 July 2002) even though the bond was erroneously dated 9 August 2002.
When the tender award committee undertook its review of the documents and submissions received in response to the call for tenders, members of this committee considered an explanatory letter sent to the Director General of the Department of Contracts by the bank management which contained an admission that the complainant company was not to blame for the error and should not be penalised for this genuine mistake. The committee decided, however, that the offer by this company should be disqualified because of the wrong date on the bid bond by the bank and awarded the tender to the contractor who had submitted the only other offer which was considered eligible in all respects.
When, on 22 August 2002, the Department of Contracts informed the company that its offer was rejected because it had not presented a valid bid bond, the company reacted sharply to this exclusion. It claimed that it had been disqualified unjustly for an error that had been committed by its bankers and that all along it had acted in good faith. Furthermore, it claimed to have satisfied all the tender conditions and to have forwarded the relative mandatory bid bond as required by the tender dossier.
Outcome
The Ombudsman raised the matter with the Department of Contracts and gained access to the file papers related to this call for tenders and the ensuing developments.
The Ombudsman ascertained that when the tender award committee was faced with the issue of the validity of the original bid bond presented by the complainant, its members had decided to seek legal advice on the matter before reaching a decision on the award of the contract. Legal advice was that this tender could not be legally considered as having been supported by a valid bid bond as requested in the tender dossier. In view of this ruling, the committee agreed that the tender should be disqualified.
At this stage, the Ombudsman noted the ample references in section 1.14 of the tender dossier issued by the Foundation for Tomorrow’s Schools regarding the provision of a bid bond to the Department of Contracts by interested contractors.
Paragraph 1.14.1 stated that each tender had to be accompanied by a valid and original bid bond issued by a Maltese bank to the amount of Lm3,000 in the form of a specimen bid bond that was attached to the dossier. This guarantee had to be valid for a period of four months from the date set for the submission of tenders and was intended as a pledge that would be forfeited in the event that a submission was withdrawn before the stipulated four months or if the successful contractor failed to provide the performance bond within seven days of receipt of the letter of acceptance.
Paragraph 1.14.3 stated ominously that offers which were not accompanied by the mandatory bid bond on the closing time and date fixed for the submission of tenders, would be disqualified.
Furthermore, paragraph 1.17.1 gave the Director General of Contracts the right to reject a tender that was not accompanied by a valid and original bid bond.
Aware of this strong emphasis in the tender dossier on the provision of a valid bid bond, the Ombudsman was of the opinion that although the complainant pleaded that the covering letter stated that the offer was valid for four months from 9 July 2002, this letter could not, however, take the place of a valid bid bond since any bank guarantee has, of course, to be issued by a bank.
The Ombudsman also noted that the dossier issued by the Foundation had made it amply clear that all tenders had to be accompanied by a valid and original bid bond in the form of a specimen bond that was annexed to the tender document. Two important paragraphs in this specimen bid bond stated that:
“We… hereby guarantee to pay you on your first demand in writing (the) maximum sum of three thousand (3,000 Malta liri) in case the tenderer withdraws his tender before the expiry date or in the case the tenderer fails to provide the performance bond if called upon to do so in accordance with the Conditions of Contract.
…. This guarantee expires within four (4) calendar months starting on the closing date of tender, that is, it is valid for four (4) months from the closing date of this tender at the close of business…”
The Ombudsman held the view that regardless of the date of the issue of the bid bond by the complainant’s bank, the bid bond presented by the complainant failed to reproduce the exact words of the prescribed form. It did not refer to the closing date of the tender and made no mention of a guarantee in respect of the performance bond as stipulated in the Foundation’s specimen form.
Besides the wrong date, therefore, the bid bond submitted by the complainant did not provide the required guarantee in respect of the performance bond. It was therefore not valid and, in accordance with the conditions of tender, the Department of Contracts was right to reject this offer.
On these grounds, the Ombudsman ruled that there was no administrative failure on the part of the Department of Contracts and the complaint was not upheld.