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Importance of Careful Drafting for Council Contracts

Background

Case Note: Port Macquarie-Hastings Council v Diveva Pty Limited [2017] NSWCA 97

In a recent decision, the Court of Appeal of NSW made a determination which is particularly instructive for Councils when undertaking any tender process. The decision highlights the importance of carefully drafting contracts and the need to ensure that sufficient information is provided to potential tenderers during the tender process.

In 2011, Diveva Pty Limited (Diveva) successfully entered into a contract with Council to supply and lay asphalt around Council’s local government area. The contract had a simple “option” clause which merely stated that the period of the agreement was to be two years “with a future twelve (12) month option available”.

Diveva conducted works under the contract throughout 2011 and 2012 but Council observed significant defects in the works during this period. Due to the defective work, in March 2013 Council advised that it would not exercise the option to extend and a new tender would be advertised.  In April 2013, Diveva gave notice that it would exercise the option to extend for a further 12 months. Council asserted that the option was not a unilateral clause for the benefit of Diveva and could only be exercised by the Council or by mutual agreement. Therefore, Council commenced the tender process and entered into agreement with another company for those services.
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