The High Court has dismissed a Sh232 million damages claim against the Special Economic Zones Authority (SEZA) over the cancellation of a tender for the construction of the Naivasha Industrial Park.
The court ruled that a notification of award does not create a binding contract and that the authority lawfully cancelled the tender before execution.
The dispute arose from a 2021 government tender for piling and substructure works at the Naivasha Industrial Park in Nakuru County, a project intended to boost local investment, reduce import bills and create jobs.
Yang Guang Property Design & Manufacturing Limited said it won the bid at Sh255 million, accepted the notification of award, furnished a performance bond and signed contract documents that were never countersigned.
The firm sued after the authority reassigned the works to another contractor, seeking compensation for the performance bond value, loss of profits, mobilisation costs, unused labour and equipment.
Following the notification of award, the company conducted technical research and mobilised equipment, including a crane with a trailer for transporting pillars, an excavator, a loading machine, a drilling machine, two pick-ups, a concrete mixing plant and a welding machine.
Managing Director Lejia Chen testified that the firm also booked 20 rooms for workers, engaged five engineers for specialised works, entered into contracts with them and later compensated them.
He argued that the company assumed significant financial risk by securing a bank guarantee for the performance bond, which affected its ability to pursue other tenders.
‘Being overzealous’
However, the court rejected the claim, emphasising the distinction between procurement notifications and binding contracts.
Citing Sections 87(4) and 135(4) of the Public Procurement and Asset Disposal Act, the court stated that “a notification… does not form a contract nor reduce the validity period for a tender.”
It ruled that a binding procurement contract must be in writing and signed by both parties — conditions that were not met in this case.
“Even if the plaintiff anticipated contract signing, such expectation cannot override express statutory provisions. Further, since the tender documents expressly permitted cancellation prior to contract execution, the Notification of Award cannot, in law, amount to a promise capable of giving rise to legitimate expectation,” the court noted.
The court described the company’s mobilisation of equipment and labour as premature and unauthorised, stating that such actions should only commence after formal contract execution.
“The company should not have mobilised the workforce and machinery it allegedly did and for which it claims compensation from the defendant due to being overzealous,” the court said, affirming that notifications signal intent, not obligation.
Authority’s discretion
SEZA justified the cancellation by citing budgetary constraints and revised technical requirements.
Geotechnical findings, the authority said, required piling works to be integrated with ongoing construction at the Naivasha Special Economic Zone site to ensure continuity, reduce costs and prevent conflicts.
The court upheld the authority’s discretion under the tender documents to terminate the process before execution, citing clauses that allowed the employer “to accept or reject any tender, and to cancel the tendering process… at any time prior to the award of contract, without thereby incurring any liability.”
Although the cancellation letter was issued after the tender validity period had lapsed, the court ruled that termination was still permissible under the tender terms.
It found no evidence of arbitrariness, concluding that the decision was based on legitimate administrative and engineering considerations.
The court also dismissed the claim of legitimate expectation, reiterating that statutory provisions clearly state that a notification of award does not constitute a contract.
Claims related to the performance bond failed as well, as the authority never invoked it and the contractor did not seek its discharge promptly.
“The plaintiff has no legal basis for contractual damages, loss of profits, mobilisation losses, or any of the financial claims advanced,” the court said, dismissing the case in its entirety.
