This article is an extract from the 5th edition of Government Procurement.
In its September 2017 decision in Saskatoon Surgicentre Inc. v. Saskatoon Regional Health Authority, the Saskatchewan Court of Queen’s Bench dismissed a lost profit claim against the Saskatoon Regional Health Authority (referred to as SRHA) after finding that the tendering process in question did not create a Contract A bidding process contract. The dispute dealt with a negotiated Request for Proposals (RFP) for surgical services. The plaintiff competed in the bidding process and then sued the SRHA for lost profits after losing that competition. The SRHA sought the early dismissal of the trial proceedings, arguing that its negotiated RFP did not create a Contract A bidding process and, as a result, an action for lost profit damages could not proceed.
In considering the case, the Court summarized the following factors raised by the plaintiff, Saskatoon Surgicentre Inc. (referred to in the decision as SSI), as indicators of whether Contract A was formed in the challenged bidding process:
SSI says Contract A was, indeed, formed and it relies upon Tercon Contractors Ltd. v British Columbia (Transportation and Highways), 2010 SCC 4 (CanLII), [2010] 1 SCR 69 [Tercon Contractors SCC], as illustrative that tendering law can apply to a procurement process considered by the owner to be an RFP process. SSI cites the following reasons why the Supreme Court found a valid Contract A was created in Tercon Contractors SCC: (a) bids were irrevocable for 60 days; (b) bid security was required; (c) any revision of bids were to be in writing; (d) the detailed evaluation criteria was stated to be the only evaluation criteria; (e) a sample of the project contract was attached to the RFP; (f) pricing was fixed and non-negotiable; (g) the proponent was required to substantially accept the terms of the sample contract or be disqualified; and (h) proponents had to submit a signed proposal form or be disqualified.
In considering these factors, the Court ultimately concluded that no Contract A was ever created. Rather, the Court determined that the tendering process in question, which used negotiated RFP protocols, was not designed to create Contract A, so the plaintiff’s lost profit claim could not proceed to trial.
In considering the different factors, the Court first focused on the irrevocability of the bid price, which is typically recognized by Canadian courts as the primary factor informing the formation of Contract A. While in this instance there was some ambiguity in the terms of the RFP, the Court ultimately concluded that there was no formal irrevocability requirement for pricing:
Irrevocability of Proposals
Did the RFP make proposals irrevocable, indicative that Contract A may have been intended? Paragraph 12 of the RFP states: “All proposals should be held firm for 120 days from the RFP close date.” [Emphasis added.] Does this statement mean something different than, for example, “All proposals shall be irrevocable for 120 days from the RFP close date?” Using “should” rather than “shall” connotes something being “advisory,” something less than “mandatory.” Using “held firm” suggests something less than “irrevocable.” One must think that such language used by an entity like SRHA, which procures goods and services regularly, was knowingly chosen for precise reasons. I find that paragraph 12 does not make bids unequivocally irrevocable. To assist in determining whether paragraph 12 makes bids irrevocable one might invert the inquiry and ask whether SRHA could invoke the implied term of irrevocability of a bid (a corollary of finding Contract A) if a proponent wished to amend its proposal after the closing date. If the express words of an RFP authored by an owner do not clearly require a bid to be irrevocable, I suspect that a court would be hesitant to imply a term of irrevocability in the owner’s favour. Accordingly, in choosing the equivocal statement that proposals “should be held firm,” SRHA must have realized that by stepping out of Contract A it was gaining flexibility but forfeiting rights as well.
SRHA’s requirement that proponents “should” hold pricing “firm” for a specified time was not the same as requiring that pricing “shall” remain “irrevocable” for a specified time, which appeared to be the strongest aspect of the plaintiff’s Contract A argument, as that clause could have been construed as requiring bidders to be bound to their pricing for a predetermined period, which is the core factor that differentiates Contract A binding offers from more traditional revocable contractual offers in a negotiated bidding process. Given that this ambiguity can be seized on by plaintiffs in an attempt to establish Contract A in support of a lost profit claim, purchasing institutions should avoid any language that implies a request for a binding and irrevocable offer (such as requiring “firm pricing” or that bidders “hold their pricing” during the bidding stage). Rather than taking false comfort in vague “firm pricing” clauses, purchasing institutions that use negotiated RFPs should enforce proponent price offers by incorporating those offers into the contract awards of selected proponents, and by rescoring, disqualifying, and, in the event of recurring misrepresentations, barring bidders who fail to honour their price offers once selected. These methods and sanctions can serve as a substitute to requiring the formal irrevocability of pricing that leads to the creation of the Contract A and resulting lost profit claims in many Commonwealth jurisdictions.
Secondly, the Court also relied on the fact that the RFP in question did not contain predetermined and prescriptive performance requirements (which is typically required in an irrevocable Contract A bidding process, as certainty of terms serves as the foundation for firm and non-negotiable price offers), but instead sought creative solutions from suppliers which would subsequently be negotiated into any resulting contract award:
The Nature of the Solicited Services – Encouragement of Innovation
Justice Dillon stated that the court must look to the owner’s intention respecting the tender call. On this theme, Justice Vertes in Socanav Inc. v Northwest Territories (Commissioner), [1993] NWTJ 369 (QL) [Socanav], at paragraph 21, offers an expanded description of how the court might discern the owner’s intentions under different forms of procurement:
If there is a distinction between the two forms of soliciting offers, it may be this. When the government knows what it wants done and how it should be done (such as a construction project), it will already have its plans and specifications and is looking simply for the best price. On the other hand, when the government knows what it wants done, but not how to go about doing it, it seeks proposals on methods, ability, and price. Then it can negotiate on the best method to achieve the best value.
This distinction is eminently sensible. Often an owner – frequently a government agency – knows exactly what it wants done and knows how to do it. Sometimes, though, the agency’s goal is clear but the method to accomplish the goal is uncertain and might best lie within the proponents’ expertise. For example, if a city is looking to build a bridge with exact engineered specifications respecting its dimensions and the strength and quality of its materials, without deviation or substitution, and is primarily focused on minimizing cost, a true tendering process will lead to formation of Contract A. Procuring specified, quantifiable or measureable goods or services readily invokes a Contract A result because the owner precisely states what is expected and bidders know exactly what is at stake. Procuring less quantifiable, perhaps new or experimental, services is different. The owner may seek proponents’ participation by way of proposals, especially when the proponents have particular skills and expertise beyond those of the owner. Obliging an owner to merely accept the lowest cost proposal for base services with disregard to innovative proposals for different or additional services could offend the intention of certain RFPs.
I find that SRHA’s desire to seek services for a variety of surgical procedures was a new venture with goals and objectives stated in the RFP but with several attendant uncertainties. Put in the context of Justice Vertes’s words in Socanav: Does SRHA’s RFP show an intention “to seek proposals on methods, ability, and price” so that it could “negotiate on the best method to achieve the best value?” I find several instances where SRHA’s RFP clearly leaned to a solicitation of methods and ability to provide the medical services, not just a solicitation of price for base services.
In the RFP, SRHA explained what it was trying to achieve under the Saskatchewan Surgical Initiative. Its goal was far more complicated than building a bridge or constructing a building with stated inflexible specifications. Bridge-building, for example, hardly needs a goal statement unlike SRHA’s new venture into providing surgical services outside of a hospital setting to reduce patient wait times. SRHA stated its goal in the RFP:
The ultimate goal of this RFP process is to increase capacity and improve access to surgical services and to reduce wait times in support of the Saskatchewan Surgical Initiative.
SRHA also stated it objectives: shorter wait times for surgery, a better experience for patients and families and safe, high quality care. The successful proponent would be “expected to help reduce wait times and wait lists by providing additional surgical services…”
SRHA not only “permitted,” but “encouraged” proponents to submit innovative proposals to further SRHA’s goals and objectives. The RFP twice states (paragraph 11 and Appendix A): “Alternative or innovative proposals are encouraged.” This invitation to provide alternate proposals illustrates that the final form of the surgical services was flexible and exploratory. As Justice Metivier stated in Leeds Transit when the design and components of the project are not yet know, suggesting Contract A could be formed upon receipt of proposals is “hard to imagine.” He wrote at paragraph 23:
It is hard to imagine any form of Contract A arising in circumstances where the City does not yet know the final design or the final components of the buses. These aspects were not resolved until after all the proposals had been received and clarifications and further additional components were added. All of which occurred after the submissions of the proposals.
When an owner expressly encourages innovation and alternatives to the stated base services, suggesting that any proponent’s proposal is compliant (or non-compliant) with the terms of an RFP, is a difficult argument to make. SRHA’s express solicitation of innovative and alternative proposals, which actively sought out proposals different than the base services specified in the RFP, essentially makes the characterization of bids as compliant or non-compliant illusory. In this case, did all who answered the RFP understand that only compliant tenders would be accepted? I cannot see how this argument can be made when paragraph 29 of the RFP expressly states that any proposal could be accepted, rejected, negotiated or modified.
Appendix 1) of the RFP specifically contemplates receipt of non-compliant proposals: “Proponents are required to acknowledge…compliance / non-compliance with each item in the RFP and to provide additional comments and explanations where indicating disagreement or non-compliance.
The authors, in Bidding and Tendering (5d ed) at 337 offer advice to owners wishing to solicit innovative ideas during a procurement process, suggesting they move from a true tender (Contract A) process to a request for proposal process. They write:
Some hold the view that the restraints of Contract A stifle innovation during the bid process. … If an owner believes that pent-up suggestions for innovation lie in the minds of bidders, it should consider modifying its procurement process by abandoning Contract A, and by going on a voyage of discovery with a true RFP. Make the process suit your goals.
Whether or not the drafters of the RFP used by SRHA were aware of this advice, they effectively followed it.
As the third factor in its analysis, the Court seized on the fact that the RFP contemplated contract award negotiations as part of the evaluation and award process as reflecting an intention not to create a Contract A bidding process:
Negotiation – A Corollary of a True Request for Proposals
As Justice Dillon in Tercon Contractors BCSC stated, an offer to negotiate is generally not considered to give rise to contractual relations because a long-standing principle of contract law holds that a bare agreement to negotiate has no legal effect. I also accept Justice Vertes’s statement in Socanav that a proposal seeking a description of different methods of providing a service shows an owner’s intention to “negotiate on the best method to achieve the best value.” Similarly, in Bidding and Tendering (2d ed) at 239 the authors state that a properly drawn RFP “asks parties for expressions of interest and… then to undertake negotiations with one or more parties whose proposal(s) appeal to the owner.” If, as Justice Vertes and the authors state, negotiation is the ultimate goal of a properly drawn RFP, I find that this intention was expressly and repeatedly stated to proponents in SRHA’s RFP. Paragraph 13 states: “Competitive negotiation may be part of this RFP process” with SRHA reserving “the right to negotiate any and all purchase terms and conditions (including price) with any Proponent in its sole discretion.” Paragraph 16 goes further: “SRHA may, in its sole discretion, engage in competitive, multi-Proponent negotiations as part of this RFP process.” Paragraph 22 – “SRHA may invite one or more Proponents to negotiate and finalize a service agreement or terms acceptable to SRHA” – is yet another reference to the RFP leading to negotiation of a final contract.
An invitation to negotiate, repeatedly and expressly stated in SRHA’s RFP, augurs against finding Contract A. As Justice Dillon stated, an offer to negotiate generally cannot give rise to a contractual relationship. Furthermore, to the extent that alternate and innovative services beyond those stated as base requirements were anticipated by the RFP, I fail to see how SRHA and a proponent could be contractually bound, even impliedly, to such services because such services, previously unseen by SRHA, would be, at best, an offer from the proponent. Whether or not SRHA would be prepared to accept such innovative and alternate services surely would have to be a matter of further agreement between the parties and, by necessity, further negotiation.
An express and clear reservation of the need to negotiate the terms of a service or construction contract is antithetical to the formation of Contract A. The Supreme Court of Canada in M.J.B. Enterprises states that in submitting a tender a person is not able to negotiate over the terms of the bid. The court wrote at paragraph 40:
…a contractor submitting a tender must submit a valid tender and, in submitting its tender, is not at liberty to negotiate over the terms of the tender documents. Given this, it is reasonable to infer that the respondent would only consider valid tenders.
Since the rules applied to the Contract A bidding processes contemplate a one-shot, fixed, binding bid approach to bidding, with no subsequent alterations permitted to address tender compliance, performance terms, or related pricing, the Court relied on the negotiation rules in the RFP as evidence of the intention not to create a binding Contract A bidding process.
The Court then considered the express statements of intention as the fourth factor of its analysis. While the Court noted that there was no express statement disclaiming the intention to Contract A, it found that the statements contained within the RFP could be interpreted as reflecting an intention not to be bound to a Contract A bidding process:
Did RFP Expressly Exclude Formation of Contract A?
Admittedly, given the explosion of litigation over Contract A formation and courts’ repeated statements that they must interpret tender documents to divine the parties’ intention, I am surprised that tender documents, including SRHA’S RFP, simply do not state: “Any bids received under this RFP will not attract responsibilities or rights by either SRHA or proponents under a Contract A analysis.” or, on the other hand when Contract A consequences are desired, “Any proposal received under this RFP shall attract all the rights and responsibilities of Contract A.” One would think that such a direct statement would sharply focus the attention of bidders and assist the court in determining the true intent of the RFP and not dash the reasonable expectation of the parties. Although, I have not found such a direct statement in SRHA’s RFP, paragraphs 27 and 29 come close. In bold print, paragraph 27 states:
27 This RFP is not intended to, and shall not, create any binding obligation on the SRHA to purchase all or any of the Services, or to enter into any service contract related thereto.
Paragraph 29 states that SRHA reserves the right, in its sole discretion at any time and for any reason to reject any or all proposals, including the lowest cost proposal.
Any proponent responding to the call for proposals from SRHA received fair notice that its proposal or anyone else’s proposal would not create any binding obligation on SRHA or obligate SRHA to enter any service contract. While I agree with SSI that SRHA was under Ministerial pressure to meet a mandate to reduce wait times, a mandate is not an imperative to enter an ill-advised contract. As far as the potential proponents were concerned, clause 27 should have forewarned them that Contract A would not automatically come into existence.
This aspect of the Court’s analysis, which relied on the aforementioned standard clauses in the RFP as evidence of no Contract A intention, remains questionable since those clauses are so standard that they also appear in Contract A bidding documents. At best, such clauses could be construed as neutral to the Contract A analysis. The lack of an express statement, one way or another, regarding the intention to create Contract A can also be taken as neutral in informing the Contract A analysis. The Court’s observation that the intention could have been expressly stated in the solicitation and, in retrospect, should have been to avoid any resulting ambiguity, remains useful for future reference. Given the amount of Contract A lost profit claims aimed at the bidding process in Commonwealth jurisdictions, purchasing institutions would be wise to address this issue directly in their solicitations, so their intentions are made plain and remain less subject to retroactive interpretive dispute.
As the fifth factor of its analysis, the Court noted the use of standard and materially non-negotiable contract terms as prerequisites to a binding, irrevocable Contract A bidding process, and contrasted that approach to the negotiated RFP under review, where the performance terms remained subject to negotiation and adjustment:
Contract B Included
One of the indicia of Contract A being implied is whether the tendering documents include the form of the contract to be awarded, essentially the terms to be found in Contract B. Understandably, an owner wanting to compare bids will want to make all bids “apples,” and exclude “oranges.” That is, an owner will want virtually identical terms, and no other terms, included in the bid. I find a strong degree of predictability of other characteristics of an RFP accompany the presence of such a draft agreement attached to a tendering document. Requiring no deviation in standard terms of the eventual contract suggests a project whose specifications are already ascertained and measureable. It suggests that bids not following the form of the attached contract will be rejected out of hand as being non-compliant. It suggests that negotiation will be unnecessary and will not accompany or follow the owner’s receipt of the tender. It reveals that the most significant component of the response is the price since most other significant terms are immutable.
The effect of a draft agreement when a tendering document solicits specific goods and services arose in Canamerican Auto Lease and Rental Ltd. v Canada, 1987 CanLII 5277 (FCA), [1987] 3 FCR 144 [Canamerican]. Justice Heald endorsed the findings and reasoning of the trial judge respecting the effect of attaching a service contract to the tendering documents. Justice Heald accepted the trial judge’s assessment at paragraph 10 “that not every tendering process will create a preliminary or initial contract.” He then endorsed the trial judge’s finding that in this instance Contract A was formed. Justice Heald quoted the trial judge’s statement:
The industry was invited to submit tenders on very specific terms and conditions; in fact virtually all the terms of the final rental contract were contained in the tender specifications.
I agree that a tendering process procuring “very specific terms and conditions” respecting services or goods, lends itself to attaching a boilerplate contract to the RFP. The more specific the terms of the service, the more likely a final agreement can be attached to the tender and the less likely will there be an implication that other terms are welcome or will be negotiated.
Paragraph 14 of the RFP states that a written service agreement must be signed respecting any purchase of services. Appendix G, titled, “Draft Contract” was attached to the RFP. (For some reason, although the RFP was entered in evidence and appendices A to F were included, Appendix G was not included.) Paragraph 14 states:
14 A service agreement (or other written agreement) shall be required to be signed in connection with any purchase of services by the SRHA. Unless otherwise agreed to in writing by the SRHA, the terms and conditions set out in Appendix G shall be deemed to be included in each such written agreement, and any agreement entered into ty the parties shall not deviate substantively from the terms of Appendix G. any objections in respect of such terms and conditions must be clearly set out in Proponent proposals. In the absence of any such objections, SRHA will assume that the Proponent accepts the draft service agreement as presented.
Paragraph 15 of the RFP lends further meaning to paragraph 14. It anticipates that proponents might choose not to be bound by the terms of Appendix G. Paragraph 15 of the RFP states:
15 SRHA has made every effort to prepare reasonable terms and conditions in the proposed services agreement. The extent to which a Proponent accepts, rejects or proposes modifications to be proposed services agreement will be taken into account in the evaluation of proposals. It is important to note that contract terms and conditions are a key area for SRHA. Contract terms and conditions are an overriding consideration in the RFP process and any proposal may, in the sole discretion of SRHA, be rejected by SRHA at any time on the basis of proposed contract terms and conditions that are unacceptable to SRHA. [Emphasis added.]
A proponent’s express ability to reject or modify terms of the attached service agreement is indicative that, unlike the trial judge’s finding in Canamerican, the contract attached to SRHA’s RFP was not in “final form.” It was not a type of “take-it-or-leave-it” condition that necessarily applied to every proponent’s response.
I find other terms of the RFP suggest a significant degree of latitude was allowed proponents in responding to the RFP. Since proponents were encouraged to provide alternative or innovative proposals. SRHA could not author or include unexpected proposals in an attached agreement.
In Clause 3 of Appendix A – “Scope of Services, Expected Volumes and Term of Service Engagement” – SRHA was flexible respecting the commencement date of services contract: “The agreement shall ideally commence October 1, 2011, or at the earliest date possible.” One might suspect that SRHA was prepared to show flexibility respecting the commencement date because a reasonable commencement date would necessarily depend on the nature of the services that a proponent was offering.
Furthermore, accepting that the nature of services might vary from proponent to proponent, the attached contract had to be less than “final.” The RFP states a final agreement would result only after further negotiation:
The following table is representative but not necessarily exhaustive of the types and volumes of day surgical services expected to be provided by the successful Proponent.
Proponents should base pricing on this table; however, actual volumes and procedures mix will be subject to negotiation with the successful Proponent prior to a contract being awarded. Any subsequent changes to contracted procedure volumes and types of procedures will be mutually agreed upon between the SRHA and the successful Proponent.
Alterative or innovative proposals are encouraged, and shall not be limited to the day surgical procedures listed below.
These clauses reveal the spirit and intent of the RFP. The RFP prompted responses for several types and volumes of surgical procedures but left open-ended several aspects of surgical services that a proponent might wish to offer to SRHA. Axiomatically, then, SRHA’s attached contract could not be “final.” I find that although a form of the service contract was attached, it set out only base requirements, but the RFP anticipated services that were encouraged to be alternate, innovative and subject to negotiation.
Far from SRHA wanting conformity among proposals, a task made easy by a mandatory attached contract and indicative of a pure bidding process, SRHA encouraged divergence among proposals. It did not want all “apples” but instead encouraged “apples and oranges” so it could choose which, among various options, would further it goals.
As the Court’s analysis of this final factor illustrates, fixed form contracts remain an underpinning of fixed and irrevocable Contract A bidding processes. The RFP processes that seek creative solutions are typically incompatible with predetermined specifications or prefabricated and non-negotiable agreement terms and conditions. In this instance, the negotiability of the contract terms served as another indicator weighing against the creation of a Contract A bidding process. Project teams that anticipate the need to potentially adjust their standard terms as part of the contract award process should therefore use a negotiated RFP process that enables the customization of their final contract awards and steer clear from the no-negotiations restrictions imposed under a Contract A bidding process.
As this case illustrates, the creation of Contract A and the exposure to lost profit claims will turn on the details contained within the specific solicitation document. Where purchasing institutions want to avoid these risks, they should use properly structured negotiated RFP processes that enable the evaluation of innovative proposals and the negotiation of final terms and conditions based on the offers contained within the best proposals.
