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Be careful in making prognoses in tendering documents

Be careful in making prognoses in tendering documents

The number of journeys provided in the performance of the contract lagged drastically behind the number included by the contracting party in the prognoses in the tendering documents. The transport company therefore found that it had erred in tendering for and concluding the transport contract. It therefore annulled the contract and demanded damage compensation. This was awarded (in part) by the District Court. The Appeal Court of The Hague quashed the District Court’s judgement, however. The prognoses were not faulty (Appeal Court of The Hague, 20 September 2009; LJN: BT 2451).

Prognoses
The municipality of Albrandswaard put out a European call for tenders in 2005 for collective demand-based transport. The tendering documents included a prognosis for the number of journeys (per distinct category) that were to be provided. The prognoses reported that the figures given were indications from which no rights could be derived.

Performance lagged far behind the prognoses
The contract was awarded to Zorgvervoercentrale Nederland B.V. (ZCN), which was the economically most advantageous tenderer. The two parties signed the contract on 7 July 2005. Immediately after the start of performance of the contract, it was evident that the demand for the transport lagged (approximately 30%) behind the demand forecast in the tendering documents.

Dissolution by the municipality and annulment by the transport company
During performance of the contract, ZCN failed to meet a number of punctuality requirements. After a number of warnings and fines, the municipality dissolved the contract with ZCN. ZCN then in turn annulled the contract. It claimed it had erred in concluding the contract because of the prognoses. It felt that if accurate prognoses had been given at that time, it would have tendered differently (offered a higher price).

ZCN then summoned the municipality. In addition to confirmation of the annulment of the contract, it demanded damage compensation. In first instance the District Court (partially) awarded ZCN’s claims. The Appeal Court did not agree however.

Were the prognoses faulty?
The Appeal Court ruled that a prognosis is a prediction for the future, the realisation of which is, in principle, at the tenderer’s risk. This may not be the case if the prognosis is faulty, the Appeal Court said.

‘A prognosis may be faulty if the actuality deviates to a great extent from what was forecast. A major deviation does not always point to a faulty prognosis however. In the case at hand, the (major) deviation could also have been due to other circumstances, which arose later during performance of the contract and ended up preventing realisation of the prognosis’, the Appeal Court stated.

In short, the Appeal Court found that a reasonably competent adviser/contracting party acting reasonably would not have based its actions on assumptions other than those which were used in this case. ZCN could also be blamed for failing to keep up with the prognosis. According to the Appeal Court, it could not be ruled out that the poor quality in performance (the failure to meet punctuality requirements) was partly responsible for the lack in demand.

Outcome of the proceedings
The outcome was that the annulment by ZCN was not legally valid. The municipality’s dissolution of the contract was legally valid however given ZCN’s failures in performance of the contract and the earlier warnings from the municipality. The Appeal Court also awarded part of the damage compensation demanded by the municipality: including some of the costs for obtaining external expert advice, the internal costs and the extra costs the municipality had to pay because the contract with ZCN had been terminated prematurely and it had to conclude a new, more expensive contract.

Conclusion: be careful in drawing up prognoses
It follows from this judgement that if a prognosis contained in the tendering documents does not materialise, the tenderer whose expectations for the future have been disappointed must in principle accept this disappointment as part of his entrepreneurial risk. This may not be the case if the prognosis is faulty, however, and based on incorrect starting points. In that event there may be error on the part of the tenderer and consequently liability for compensation on the part of the contracting party.

Contracting parties should be very careful in drafting their prognoses therefore. The mere mention that no rights can be derived from the prognoses does not suffice.

 

Tony van Wijk

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