This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
When using a Contract A bidding process, the most that can be done to mitigate the risk of a bid-shopping claim arising out of an overbudget bid situation is to clearly disclose the maximum budget and expressly state that any bids that are over that budget will be deemed non-compliant and rejected. This could increase the chances of obtaining a summary dismissal for non-compliance if a bidder subsequently sues after a cancellation, and thereby reduces the time and expense of defending against a lost profit claim. However, this approach is not popular among project teams that feel that disclosing the budget would dilute the competitive tension in the bidding process, nor would it solve the original objective of awarding a contract, even if scaled-down, for the intended project, since the rescoped contract would still need to be re-tendered or directly awarded. Once fresh steps are taken after a cancellation decision, the original low bidder can still bring a Contract A lost profit claim and the subsequent actions of the purchasing institutions can still be scrutinized in legal proceedings through the lens of the original tendering process. This approach only serves to contain the risk of the lost profit claim by allowing for a greater likelihood of summary dismissal against a non-compliant plaintiff bidder who bid over the limit; it does not eliminate that bidder’s right to bring such lost profit actions and is only viable if project teams are willing to disclose their budget prior to receiving bids and then cancel their projects if bids come over that budget. While mitigating the lost profit claim risk to a certain degree, this approach does not solve the problem of how to get the originally tendered work awarded and performed without incurring further legal risk.
As the Canadian Contract A cases illustrate, the only safe way out of the catch-22 situation of overbudget bids in a Contract A process is to find more money and award to the low bidder. Any other option can attract a lost profit damages claim. Based on the specific facts of a case, that claim may or may not be successful, but it will have to be defended or settled out of court, resulting in unavoidable costs to the purchasing institution once it finds itself in an overbudget bid situation in Contract A.
Beyond finding more money, the best solution to the problem of Contract A risk is to avoid the Contract A tendering process rules in the first place and use the negotiated Request for Proposals (RFP) format under traditional contract law rules that permit price negotiation as an express part of that contracting process. Price-reduction negotiations with the best bid and, if necessary, cancellations, are much safer when conducted under rules that do not allow losing bidders to bring lost profit claims. Otherwise, the only other solution for those purchasing institutions that insist on using the Contract A bidding rules is to find more money for the project, since they will have to find more money to defend the lost profit claim whether they like it or not.
