This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
This discussion covers the top ten defects that are common in improperly structured tendering templates.
1. Frankenstein Formats
Notwithstanding all the tendering-related litigation in recent decades, many organizations continue to improvise with “one-size-fits-all” tendering formats that assemble random, irreconcilable provisions into a single template. These “chop and paste” mash-ups attempt to merge Contract A concepts and traditional contract law principles in runaway formats with legal consequences that are impossible to properly manage, predict, or control.
2. Vague Price-Holding Provisions
Contract A is based on the unequivocal irrevocability of a bid for a prescribed time period. However, many tender calls fall short of creating Contract A certainty by vaguely asking bidders to “hold” their pricing or require that pricing be “valid” for a prescribed time period. These vague pricing provisions send purchasing institutions into a legal grey zone between Contract A and traditional contract law.
3. Negotiating Over Irrevocability Provisions
Contract A replaces negotiation with fixed-bid “one-shot” tenders. Properly designed negotiated Request for Proposals (RFPs) are based on traditional contract law, with negotiations serving as the embedded operating system for contract award. These two systems are mutually exclusive, yet many purchasing institutions continue to ask for irrevocable bids while reserving the right to negotiate over those bids even though the courts defined this practice as bid-shopping years ago.
4. Sole and Absolute Discretion Clauses
Whether they are running a Contract A bidding process or engaging in a properly structured negotiated RFP process under traditional contract law, public institutions are subject to strict administrative law fairness duties and can expose themselves to significant legal risks if they fail to follow strict due process protocols in their bidding processes. Sole and absolute discretion clauses purport to give purchasing institutions legal immunity from arbitrary decision-making, but a long legacy of litigation shows that the courts take a different view of the latitude afforded by these false comfort clauses.
5. Cancellation Clauses
There is no such thing as a risk-free public procurement or the risk-free cancellation of a public tendering process. While tender call terms may contain reserved cancellation rights, bidders in a government procurement process have the right to sue to challenge the fairness of a cancellation decision. The courts serve as the ultimate arbiters of any challenged cancellation decisions, which means that pushing the cancel button may take a purchasing institution on a one-way trip into legal entanglement.
6. Overbudget Bid Provisions
Once a Contract A bidding process crystallizes with the submission of compliant bids, there is no safe escape out of an overbudget bid situation, except finding more money. Whether the organization tries to negotiate its way out of the situation or decides to cancel and retender, its next step remains subject to legal challenge and lost profit claims. The failure of the courts to chart a clear course out of overbudget bid situations under Contract A fixed-bid tendering represents one of the most significant defects in the Canadian process contract tendering system.
7. Mandatory Waivers
A non-compliant tender is legally incapable of acceptance. Full stop. Procurement provisions that purport to give a purchasing institution the right to waive bid irregularities are a lawsuit waiting to happen. Rather than becoming the next case study on the “substantial compliance” test, purchasing organizations would be well served to manage their mandatories and reduce the recurring trip hazards that habitually cause their bidders to become non-compliant in the first place. They would also be well-served by integrating transparent rectification cure periods into their flexible negotiated RFP formats.
8. Limitation of Liability Clauses in Contract A
The only way to effectively limit the Contract A liability of lost profit claims is to avoid creating Contract A. Once Contract A is created, the ultimate effectiveness of liability disclaimers is highly suspect. In fact, these provisions are completely useless in preventing a determined bidder from initiating a lawsuit and potentially dragging a purchasing institution through protracted legal proceedings. As case law has proven, properly drafted negotiated RFPs are a far more effective method of enabling the rapid dismissal of lost profit claims and thereby serving as a deterrent against the initiation of lost profit lawsuits.
9. Best-Value Clauses
Your project team needs to decide early whether it plans to award based on the low bid or based on transparent high-score factors. Hedging your bets with the reserved right to award based on undisclosed, best-value considerations leaves the organization open to a bid dispute if a bidder decides to challenge the decision-making process behind the post-bid, best-value determinations.
10. Optional Process Provisions
Reserving the right to conduct a site visit, demonstration, product testing process, interview, or any other improvised post-bid procedure is no substitute for a properly planned, transparently described, and properly followed evaluation process. Bid evaluations should not be an improvised “choose your own adventure” created in an ad hoc fashion after bid submission. Improvised evaluation procedures are a trial tested entry point into the realm of bid dispute challenges, lost profit awards, and court-based contract award cancellations.
