Pre-contractual liability, bona fides and the Just Solutions International snafu

It appears the previous Government created a unit/department/state owned company within the Ministry of Justice called Just Solutions International to provide advice or (allegedly) run prisons in other countries, namely Saudi Arabia. I will leave to one side the irony of this commercial operation arising from a Government which is divesting from managing its own prisons to talk about some alien concepts under English law: pre-contractual liability/culpa in contrahendo and good faith/bona fides. Yes, even the words come in a different language.

David Allen Green has a nice write up on the FT about the JSi saga. By all means read it. But pay attention to this bit:

It appears from the statement that the MoJ would like to pull out of the tendering process but it cannot, and this is because it would be liable to a “financial penalty”. In other words, the MoJ has somehow managed to incur legal liability in respect of a commercial bid, even before any services contract is signed.

Emphasis mine.

Any law graduate from a civil law jurisdiction will probably not be able to graduate without knowing what culpa in contrahendo is and why it exists. On the other hand, to common law graduates, the idea that a party may incur in legal liability before a contract is signed looks absurd. But then, there is no general principle of good faith in English contract law, so why should good faith be applicable even before the contract is signed? This different approach to liability is compounded by two other significant differences in contract law: i) civil law regimes allow for penalty clauses for non-compliance; ii) civil law regimes also allow parties to demand contract compliance in court and not only damages for non-compliance. When it comes to contract law, civil law systems are from Venus and common law ones from Mars.

In what concerns public procurement, culpa in contrahendo (usually going hand in hand with the obligation to keep tenders submitted and bonds) makes perfect sense by reducing opportunity costs for the contracting authority (and to the market). By raising the price of someone dropping late in the procedure, willing participants signal to the contracting authority (and the rest of the market) about their commitment to the project. They do so by raising the transaction costs for each participating supplier, while reducing them for the contracting authority which will not be saddled with non-serious bids.

At the same time it also forces the contracting authority to behave in a predictable fashion, i.e. not to launch a tendering procedure without being certain it wants to take it right until the end lest it not have to pay at least the negative damages incurred by all participants. It cuts both ways.

I am not privy to the bid JSi submitted, nor consider myself entitled to comment on Saudi Arabia's legal regime, but such clauses are not unheard of in international procurement procedures, even in jurisdictions which I would not classify as civil law. They simply constitute conditions of participation, just as previous experience and insurance requirements are too. To my (biased) legal eyes, they look fairly run of the mill and quite obvious.

But to a common lawyer perhaps they do not. Which should be enough for said lawyer to think twice before expressing disbelief at them generating legal obligations.