This article is an excerpt from Government Procurement, which is available for purchase.
In its April 2013 decision in Everything Kosher Inc. v. Joseph and Wolf Lebovic Jewish Community Campus, the Ontario Superior Court of Justice summarily dismissed a breach of contract claim after determining that the negotiated RFP issued by the purchasing entity never created binding contractual relations between the parties.
The dispute originated with an RFP issued by the Joseph and Wolf Lebovic Jewish Community Campus for the provision of food services. As the court noted, when the RFP was issued in 2006, the campus remained under construction and the precise scope of the required services was therefore not known to the parties. The RFP terms contained express provisions stating that no binding contractual commitments would be created through the submission of proposals and that any contract award was subject to the completion of negotiations and to the formal signing of a contract with a selected proponent. Notwithstanding prolonged discussions and the exchange of multiple draft contracts, the RFP process never culminated in the award of a final contract. In the interim, the proponent entered into separate food service arrangements with another party that operated out of the Campus. The Campus issued a new RFP for food services in 2011. The proponent sued, arguing that Campus had improperly terminated a ten-year exclusive contract that it had been awarded pursuant to the 2006 RFP.
The court disagreed, finding that the RFP in question was not a Contract A bidding process and did not result in binding legal relations between the parties. Rather, it only gave the selected proponent the opportunity to enter into contract award negotiations:
28 Counsel for the Defendants submits that the language of the 2006 RFP was prompted by the Supreme Court of Canada’s holding in its well-known decision in R. v. Ron Engineering and Construction (Eastern) Ltd.,
[1981] 1 S.C.R. 111. The essence of that decision is that tender documents must be analyzed closely in order to determine whether they can form a binding agreement. In the Court’s words [at 120]:
- The revocability of the offer must, in my view, be determined in accordance with the “General Conditions” and “Information for Tenderers” and the related documents upon which the tender was submitted. There is no question when one reviews the terms and conditions under which the tender was made that a contract arose upon the submission of a tender between the contractor and the owner …
29 Unlike the tender at issue in Ron Engineering, the document that the Plaintiff responded to in 2006 made it clear that it was not an offer that would lead to a firm acceptance. Rather, as the courts have said elsewhere, the 2006 RFP was “a request for proposals and nothing more. The prize at the end of the exercise was…the opportunity to negotiate for a contract”. Buttcon Ltd. v. Toronto Electric Commissioners (2003), 65 O.R. (3d) 601, at para 30 (SCJ).
30 While the 2006 RFP created an obligation to negotiate terms over a 90 day period, it presented to the Plaintiff nothing more than an opportunity to attempt to conclude an agreement. It was not itself a binding document. As the Court of Appeal put it in Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991), 79 D.L.R. (4th) 97, at 104 (Ont CA) “the ‘contract to make a contract’ is not a contract at all.”
The court also noted that parties were never able to come to terms on any final agreement, having left many key terms unresolved notwithstanding their prolonged negotiations:
31 The evidence is clear that both the Plaintiff and the Campus were working toward a detailed written contract, and that such an agreement in writing was specifically required by the 2006 RFP. The parties exchanged draft contracts and leases even after the 90 day period had expired, but this still did not result in a concluded agreement. The final draft exchanged in October 2007 was never signed as there were still substantial terms to be concluded.
32 Courts have found that a binding contract does not exist where the fact that “subsequent discussions and negotiations would [still] be required concerning fundamental details of the contract is apparent.” Buttcon, supra, at para 47. Here, the evidence of both parties indicates that the capital investment obligations, revenue sharing, responsibility for property taxes, termination provisions, and other clauses all remained unresolved.
In its decision, the court applied long-standing Supreme Court precedent which recognizes that not every tendering process automatically creates binding contractual commitments between the parties. It concluded that in this case the RFP never created any such commitments:
33 Given the wording of the 2006 RFP, “[a contract] does not automatically spring into existence upon the making of a tender, and if it does, its terms must be ascertained as with any other contract, and not be derived from some abstract legal paradigm.” Naylor Group Inc. v. Ellis-Don Construction Ltd. [2001] 2 S.C.R. 943, at para 35. In the present case, no such terms can be ascertained.
34 Most importantly, both parties understood that the Campus was undergoing design changes, and so no firm contract could be reached at that time. The exchange of draft agreements, which included leases for as yet undetermined space, “goes no further than to indicate a willingness that negotiations might continue, rather than that an agreement had been concluded.” Harvey v. Perry, [1953] 1 S.C.R. 233, at para 15. There is simply no basis in the record for concluding that a firm contract, or that the material terms of a firm contract, had been agreed upon. Ossory Canada Inc. v. Wendy’s Restaurants of Canada Inc. (2007), 36 O.R. (3d) 483, at para 27 (Ont CA).
The court also noted that parties involved in direct commercial negotiations such as those held under the RFP in question did not owe one another a duty to negotiate in good faith and were under no duty to come to terms in they were unable to reach a meeting of the minds:
39 In adopting this view, the Plaintiff puts its position with sincerity, but misapplies the duty of good faith in contracting. Where there is a contract in place, a party may well have a duty to carry out its terms in good faith. But a party’s duty in satisfying agreed-upon performance standards is a different matter than a party’s duty in the negotiating process where no agreement has yet been reached. Mesa Operating Ltd. Partnership v. Amoco Canada Resources Ltd. (1994), 19 Alta. L.R. (3d) 38, at 44 (Alta CA).
40 A party may not misrepresent material matters to the opposite party during the course of negotiating an agreement. That, however, is significantly different from what the Plaintiff is alleging here when it alleges that the Defendants acted in bad faith. The English Court of Appeal has recently confirmed that there is no general duty in contract law, such as that suggested by the Plaintiff’s position toward the Defendants, that would compel a party engaged in negotiations over a proposed agreement to act in anything other than its own self-interest. Mid Essex Hospital Services NHS Trust v. Compass Group UK & Ireland Ltd (t/a Medirest) [2013] EWCA Civ 200, at paras 92-95 (CA).
41 It is certainly the case that there is no legal obligation on a negotiating party to extend agreeable terms to the other side in order to facilitate the conclusion of the negotiations. This is particularly the case where the interaction of the parties is over a document such as the 2006 RFP, which states that there is no firm contract yet in place and provides considerable latitude for bargaining. Mannpar Enterprises Ltd. v. Canada (1999), 173 D.L.R. (4th) 243, at para 59 (BC CA).
After concluding that the Campus made no material misrepresentations regarding contract award that could be relied on by the proponent to advance a claim, the court summarily dismissed the lawsuit. As this case illustrates, not all tendering processes create the legal risks and restrictions associated with the Contract A tendering model. By using properly constructed negotiated RFPs, purchasing entities are able to conduct competitive bidding based on the norms of traditional contract law, which offer the parties greater flexibility in coming to final contract terms, along with less legal exposure in instances where the bidding process does not culminate in the award of a contract. In this particular instances, the containment of legal risk included the ability to obtain the summary dismissal of a lawsuit launched by an unsuccessful proponent, which stands in marked contracts to the protracted litigation that often arises out of Contract A based tendering disputes.
