With the widespread release of vaccines and summer approaching, the likelihood of at least a somewhat more normal life seems vastly increased. Given this, I thought I would write about a more “normal” aspect of construction law, not only for the reader’s benefit but also for my own – a year of writing about COVID-19 has made the subject tiresome. So, below is Part One in a series we are releasing on procurement and the tendering process.
Canadian law has a relatively well-established set of principles governing the tendering process for construction contracts. These principles start from the proposition that competition – not negotiation – is the method for ensuring that the owner achieves the best price or value for the contracted service. In achieving this goal, Canadian courts at every level have laid out broad rules governing the tender process that they will impose on parties – even when there is strong language to the contrary. The principles are:
- The integrity of the tendering system must be protected and maintained;
- An owner has a general obligation to treat all tenders fairly and equally; and
- No tender is to gain an unfair advantage over another tender.
There principles have resulted in the creation of a “two-contract” system of tendering. In this system, the owner’s call for tenders or requests for proposals (RFP) and each bid submitted in response form a “Contract A” whose terms govern the request and response. “Contract B” is the contract between the owner and the successful bidder for the services and goods requested by the owner.
To suppose a fair and efficient tender process, courts have applied the principles outlined above and set out some basic rules. For example, if the request for proposals includes the right language, owners can give themselves the discretion not to accept the lowest or any tender. However, the discretion derived from such language generally extends only to a compliant bid. Similarly, courts will require that all bidders must receive similar information. Equally, a fair process requires that a bid, once tendered, cannot be withdrawn or changed except in accordance with the rules outlined in the RFP. Finally, and again enforcing a fair process, courts frown on bid-shopping.
However, contract principles do apply so that clear terms governing the RFP that do not call into question the basic fairness of the procurement will be applied. As a result, “privilege” clauses, i.e, clauses that permit the owner not to accept the lowest bid, or which limit the liability for damages arising from a flawed tender process, will be upheld.
Finally, a variety of special rules and administrative directives can apply to procurements undertaken by public institutions which outline limits on the discretion of the procuring entity and on the actions of bidders.
If you would like to know more about the key elements of the tender process, or have any other questions or concerns, please do not hesitate to reach out to us.
Written by Jeremy Power, a lawyer in our Toronto office