A small software company is taking the Australian Tax Office to court in a case that could expose the way federal government tenders are approved, awarded and sometimes vetoed.
The Melbourne-based Reveal Tools had been the successful applicant to supply workplace productivity software to the ATO and allegedly told its tender had been superior to the existing supplier.
But now the company has now launched a potential David and Goliath legal battle after the ATO abruptly said the contract had been cancelled in "the public interest".
Reveal Tools has lodged a $4.5 million claim in the Federal Court alleging the ATO has attempted to crush the company.
The company's chief executive Paula Crouch acknowledges the "David and Goliath" factor in taking on the might of the Tax Office.
"Without a doubt. They're certainly outgunning us with lawyers and money. But we feel that the ATO should be held to account," Ms Crouch told The World Today.
"But if we can get to court and be heard, then I rate our chance of winning as better than even odds."
Reveal Tools lodged a $6.7 million bid for the ATO contract in February 2011 and spent $770,000 over 12 months developing the proposal.
Ms Crouch says she was advised by the ATO in July 2011 that Reveal Tools was the preferred tenderer only to later learn in a telephone call that the deal was off.
The ATO's reasoning, according to Ms Crouch, was that it was no longer in the public interest to continue with the tender.
"I was absolutely devastated," Mr Crouch said.
"From champagne and celebrations we met with their lawyers and finalised the contractuals and we given the heads up that it would take about two weeks for them to sign off on the final contract.
"It was all handshakes and smiles. Then come December I got a call and they just said they'd basically changed their mind, they didn't have the budget and the whole thing was off."
The ATO has refused to comment on the legal challenge from Reveal Tools, which will be heard in the Federal Court on Friday.
"We are unable to comment on matters before the court. The ATO adheres to the Commonwealth Procurement Guidelines," a spokesman told the ABC.
The case could shine an unwelcome light on how the federal government's multi-billion dollar tender process is administered.
Reveal Tools has cited the recent case of $223 million tender for the Australia Network which was cancelled by the Gillard government after a panel recommended it be awarded to Sky News.