When Contract Tenders Go Wrong

When tendering for work, there is a natural temptation for a bidder to pitch his case in the best light possible. However, there is a line between what is and is not acceptable. Cross that line and the bidder may find himself in legal hot water. Having got the contract, an inability to deliver on time and in accordance with the contract may result in the bidder having to pay a substantial amount in damages.

This is vividly illustrated by the recent decision in BSkyB Ltd. v HP Enterprise Services UK Ltd. In March 2000, BSkyB issued an invitation to tender for the design, development and integration of a new customer relationship management system. The contract was worth £48m. The defendant, known at the time as Electronic Data Systems (EDS), tendered for and won the contract. The project was to be completed in two stages within an overall timescale of eighteen months. Things did not go well. In fact, full functionality of the system was not completed until March 2006, by which time EDS had been removed from its role as systems integrator. The total costs of the project amounted to £265m.

BSkyB sued EDS for damages of £700m. Amongst numerous other allegations, BSkyB claimed that EDS had fraudulently misrepresented its ability to deliver the project within the stipulated timescale. The Judge ruled in favour of BSkyB. It is quite unusual for fraud to be alleged because of difficulties of proof. Here, the point was of some significance. Although the contract capped EDS’s liability for damages at £30m, the law says that you cannot limit your liability for fraud.

The case still has some way to go. The final amount of BSkyB’s damages has still to be quantified but, given that the Judge made an interim award of damages of £200m, it is unlikely to be less than that figure and may well be significantly more. Also, given the sums involved EDS may well appeal the decision.

Meanwhile, what lessons should suppliers take from this case? In BSkyB, the Judge found that the fraudulent misrepresentations were down to one individual, the bid team leader*, and it is tempting to see this as a “one bad apple” case. However, suppliers would be well advised to review their bid protocols and procedures to ensure that they are sufficiently robust to prevent promises being made which cannot be kept and to curb the natural over-exuberance of individuals caught up in the cut and thrust of a tendering process.

If you would like to know more about the implications of this case, please contact David Dees or Nick Crook.

*The team leader’s credibility was not enhanced when he claimed in court that he had completed an MBA at Concordia College, St John when, in fact, he had bought the qualification online. Counsel for BSkyB managed to purchase a similar MBA, albeit with better grades, for his dog Lulu from the same website!

Filed: 08/03/2010 11:39:24