By Marilyn Brown
(Originally published in the Fall 2011 edition of Caveat Emptor, the magazine of the Ontario Public Buyers Association.)
Since the seminal decision of the Supreme Court of Canada in the case of Ontario v. Ron Engineering and Construction Eastern (Ltd) in 1981, purchasing entities in Canada have struggled to survive in the world of Contract A. It’s a world in which a notional contract full of express and implied legal obligations, with the power to override even clearly articulated disclaimers, generates a steady flow of costly litigation. After thirty years of battling claims and allegations of breach of the express and implied duties of Contract A, and struggling unsuccessfully to fight back from within, many institutions are ready to leave the strange and unpredictable world of Contract A behind them. The problem is, getting out is not that simple. In fact, even figuring out whether you’re living in the world of Contract A can be a challenge.
How did I end up in the world of Contract A?
The first step to avoiding Contract A is understanding how this mysterious contract is created in the first place. Essentially, it works like this: When a purchaser issues a tender call, it’s offering to enter into Contract A, while also inviting bidders to make it an offer for Contract B. If a bidder submits a compliant tender, the bidder is both accepting Contract A and offering to enter into Contract B. The offer to enter into Contract B is binding because of the terms of Contract A. When the purchaser accepts a bidder’s tender, it is accepting the Contract B offer.
However, in various decisions since Ron Engineering, the Supreme Court of Canada has recognized that not every procurement document constitutes an offer to enter into Contract A. By issuing an appropriately drafted document, purchasers can elect to operate outside of Contract A and govern themselves by the law of traditional negotiations. In the 1999 decision of the Supreme Court of Canada in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., the court held that the creation of Contract A depends on intention, specifically “whether the parties intended to initiate contractual relations by the submission of a bid in response to the invitation to tender.” The following year, in Martel Building Ltd. v. Canada, the Supreme Court emphasized that the wording of the tender call is crucial: “whether the tendering process creates a preliminary contract is dependent up on the terms and conditions of the tender call.”
It is clear that the courts will look to the substance and not the form of the procurement document to determine the contractual rights of the parties. The clearest indicator of Contract A is irrevocability of bids. The requirement for bid security, or an expressly stated requirement that bids remain binding during an irrevocability period, would almost certainly be considered clear evidence of an intention to create contractual rights and obligations in the procurement process. While purchasers may find the concept of irrevocable bids attractive, requiring bidders to honour their bids comes at a cost. In many cases, the right to enforce irrevocable bids is simply not worth the legal risks and inflexibility inherent in a traditional Contract A process.
How do I escape the world of Contract A?
Having come to the conclusion that the risks outweigh the benefits, how can a purchaser ensure that the process it undertakes keeps it safely outside the world of Contract A? Unfortunately, it may not be enough to leave out the bid bond or delete the statements that speak to binding bids and irrevocability periods. Where the document does not expressly state what is intended, the question will depend on the court’s interpretation of the presumed intention of the parties. In some cases, the courts have found that Contract A has been created by procurement documents that are silent or ambiguous with respect to irrevocability of bids.
The bottom line is that if you aren’t clear in expressly stating your intentions in your procurement document, you may be surprised by what a court finds was intended. A simple statement that the procurement process is not intended to create a formal legally binding bidding process is a good start, but be careful that express statements in one part of your document are not inconsistent with other parts. Taking your old traditional tender call template and tossing in a statement of intent won’t do the trick if you’ve forgotten to remove the reference to binding bids or irrevocability buried elsewhere in the document. These sorts of ambiguities and inconsistencies will inevitably be held against the purchaser. If you’ve decided it’s time to leave the world of Contract A behind, make a clean break with a new set of carefully developed simplified procurement formats that won’t leave the courts guessing at your intentions.
