This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
The January 2011 Guysborough (Municipality) v. Resource Recovery Fund Board Inc. decision of the Nova Scotia Supreme Court illustrates how the use of flexible Request for Proposals (RFP) formats can protect purchasers from protracted lost profit claims by avoiding the Contract A process contract rules. In this case, the Court granted the purchaser’s application for summary dismissal of a bidder’s lost profit lawsuit after finding that the RFP in question did not create a binding Contract A bidding process.
The case dealt with an RFP issued by the Resource Recovery Fund Board Inc. (referred to in the decision as RRFB) for the processing and recycling of scrap tires. The Municipality of Guysborough submitted an unsuccessful proposal and sued for its lost profits due to alleged problems with the evaluation process. RRFB brought an application for summary judgment, maintaining that the RFP in question did not create a Contract A bidding process and was therefore not subject to lost profits claims.
The Court summarized the issue in the summary dismissal application as turning on whether the RFP in question had in fact created a Contract A:
The Municipality’s claim is first grounded upon an allegation that the RRFB owed the Municipality a duty of fairness arising out of a contract that resulted from the submission of the Municipality’s proposal. RRFB takes the position that there was no such contract, and as a result, there was no such duty. If a contract is found, then this application for Summary Judgment must fail. If no contract is found, then this application will succeed on this ground.
The Court held that the issue should be decided by reviewing the terms and conditions of the RFP in question. In its defence, RRFB cited detailed provisions from the RFP that supported its assertion that the procurement process did not create Contract A. After reviewing those provisions, the Court agreed and concluded that the RFP did not create a binding Contract A bidding process and instead was a mere invitation to submit proposals for the opportunity to enter into negotiations for a potential contract under traditional contract law:
I have come to the conclusion that these parties did not create a Contract A as defined in Ontario v. Ron Engineering, supra. I find that the RFP language makes it clear to all proponents that this is anything but a tender call. It is not obliged to accept any of the proposals and it has clearly reserved to itself the right to reject all proposals. I accept the RFL does provide that the Proponents are to provide details in their submission as well as proof of financial stability. I find that the RFP provides only very general guidance. The details are left to the Proponents. I do not find that the provision of some detail by RRFB changes this from a proposal call to a tender.
As stated in Buttcon Limited v. Toronto Electric Commissioners, [2003] O.J. No. 2796:
Established timelines and deposit requirements are common to both requests for proposal and formal tender situations. They alone do not establish whether a particular situation is or is not a formal tender situation. Deposits were required in Mellco, supra, yet the court there held the request for proposal to be a mere invitation to treat and not a formal call for tenders.
I am satisfied that the RFP represented an invitation to propose and nothing more. The benefit at the end of the exercise was the opportunity to negotiate a contract to recycle used tires. There was no intention by the issuance of the RFP to create contractual relations with the Municipality. Consequently the Municipality has no case for a breach of a contract, and as such, this aspect of the application must succeed. The RRFB has satisfied me there is no genuine contractual issue for trial.
After finding no Contract A, the Court summarily dismissed the bidder’s lawsuit.
As this case illustrates, by conducting a competitive RFP process outside of the Contract A framework, purchasers can significantly decrease the risk of lost profit claims and, if legally challenged, can potentially avoid protracted legal entanglements by launching successful summary defences. To help leverage these positive risk mitigation strategies, purchasing institutions should ensure that they develop flexible tendering formats that allow them to engage in open competition while avoiding lengthy litigation.
