By: Paul Emanuelli
This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
Based on a review of the last 40 years of Canadian case law for the preparation of the Canadian Law Certificate, and in response to evolving domestic and global public procurement industry practices, the following 20 points of law summarize the rules governing the use of negotiated RFPs in the Canadian public sector:
- Unless an organization or jurisdiction imposes its own restrictions (e.g. in its statutes, bylaws, policies, or procedures), there is no legal obligation to use public openings or low bid Invitation to Tender formats for construction projects or for any other type of public tendering process in Canada.
- Since it has been widely documented that public tender openings facilitate bid-rigging, price-fixing, and collusion, Canadian public institutions should immediately replace those procedures with confidential electronic bid submissions. Paperless bidding platforms are better at managing bid deadlines and they also create digital audit trails so institutions can maintain proper records of fair bidding procedures and monitor broader pricing patterns for price-fixing and collusion. Removing public openings also removes one of the only valid reasons for requiring irrevocable bids and creating Contract A.
- Purchasing institutions have the right to select the tendering format they use in any specific bidding process. That right is not restricted unless an organization self-imposes restrictions on its use of tendering formats at its local level. The rules contained in Canada’s domestic and international trade treaties, which are based on global standards, expressly recognize the use of negotiated RFPs. Furthermore, the use of negotiated RFPs is not prohibited by statutory rules in any common law jurisdiction in Canada.
- Contract A rules (which give bidders the right to sue for lost profits) do not apply to all bidding procedures. The application of Contract A depends on the specific rules of the specific tendering documents used in a tendering process.
- Limitation of liability clauses in Contract A documents are ineffective in preventing lost profit lawsuits and are highly uncertain in protecting a purchasing organization from lost profit awards.
- Even if successfully defended, Contract A lost profit claims can result in protracted lawsuits and significant non-recoverable litigation costs incurred by the purchasing institution.
- The use of clearly drafted negotiated RFPs has served as an effective shield against bidder lost profit claims and has significantly increased the chances of obtaining summary dismissals to avoid lengthy trials and reduced unrecoverable litigation costs.
- Contract A rules can apply to some RFPs, but they do not apply to all RFPs.
- What a purchasing institution names its tendering document does not determine whether Contract A applies. (e.g. naming a solicitation a “negotiated RFP” does not automatically avoid Contract A, and calling it an “Invitation to Tender” or “tender call” does not automatically create Contract A).
- The primary indicator of Contract A is the requirement of irrevocable bids. Requiring irrevocable bids (with or without bid bonds) will likely create Contract A with compliant bidders.
- Where the solicitation rules are vague, the courts have applied multiple secondary factors to apply Contract A even if there is no irrevocability requirement. Those secondary factors have included the use of traditional formal tendering procedures, tender compliance standards, a detailed scoring matrix, and pre-established non-negotiable contract requirements and terms, since those factors have traditionally been associated with Contract A.
- Clarity helps avoid Contract A. The secondary factors noted above are not determinative of whether Contract A applies when the solicitation document has a clear statement of intention not to create Contract A and has no bid irrevocability requirement or other contradictory content.
- Negotiated RFPs can and should be used with formal procedures and compliance standards, including detailed evaluation rules, provided that there is a clear statement of intention not to create Contract A and no irrevocability requirement. The secondary factors will not override a clear statement of intention, especially where the request for creative proposals and the negotiation of final terms are expressly contemplated in the bidding process.
- Properly structured negotiated RFPs allow for the structured evaluation of competing proposals and for the negotiation of final contract terms. They also allow for the post-bid negotiation of contract improvements, including price improvements, using traditional contract negotiation rules.
- “Hybrid RFPs” that attempt to blend negotiations and irrevocable bids will likely create Contract A and should not be used since negotiating within Contract A is high risk and can expose the institution to, among other things, bid-shopping lost profit claims. As noted above, limitation of liability clauses within Contract A, or within “hybrid” models that are found to create Contract A, do not prevent lost profit claims, and offer unreliable protections.
- Some plaintiffs have attempted to argue that a “free-standing” fairness duty gives them the right to sue for lost profits even outside of Contract A (based on tort claims or other unrecognized grounds). Those claims have been rejected by the higher courts and in the most recent decisions.
- Negotiations under traditional contract law do not create good faith or fairness duties (i.e. giving the other party the right to sue for damages if negotiations fail) under contract law, tort law, or otherwise. Unless parties expressly agree to negotiate “in good faith” and make preliminary commitments regarding the award of a potential contract, failed commercial negotiations will not typically result in the right to sue the other party for monetary compensation.
- All public sector tendering procedures, including those using negotiated RFPs outside of Contract A, remain subject to administrative law governance standards. Those rules impose due process duties that require, among other things, transparent criteria and procedural fairness. Failing to meet those standards can result in the courts voiding any resulting evaluation or award decision, irrespective of whether the tendering process was a Contract A process or negotiated RFP process. However, judicial review remedies are procedural and do not include lost profit damages.
- Public institutions should use negotiated RFP formats drafted by experienced legal counsel and should have those documents legally reviewed before any tendering process, especially when tendering for major projects, to ensure that they will not create Contract A and that they will satisfy administrative law due process standards.
- All treaty-mandated bidding processes in Canada remain subject to bid protest procedures. Federal bid protests at the Canadian International Trade Tribunal can result in lost profit awards based on statutory remedies granted against federal government entities irrespective of the tendering format. However, provincial and territorial bid protests are limited to procedural remedies, similar to those under administrative law court challenges, and do not include lost profit damages.
The last decade has seen a rapid acceleration in the use of negotiated RFPs across the Canadian public sector. As we head deeper into the 2020s, public institutions should ensure that they are using professionally designed tendering templates and that they are obtaining project-specific legal advice when using negotiated RFPs.
