By Clive Thurston
Special to Ontario Construction News
This past year a disturbing trend has been brought to my attention about a tender process being used by a few owners.
In response to this I wrote an article in Ontario Construction News regarding when Contract “A” arises, pointing out the risks involved to both contractors and owners when attempts are made to circumvent this process. (See Tender, RFP, RFQ: When does “Contract A arise?, March 20, 2023.)
There are many people who by now have forgotten what the procurement world looked like prior to Ron Engineering. For those of us who were around then back in 1981, we referred to it as the “Wild West” days and for good reason.
Neither owner nor contractor owed any duty to the other. Prices could be withdrawn, and owners felt they could do whatever they wanted. What was missing were the safeguards and guarantees that our system now provides because of the Contract “A”/Contract “B” decisions.
The establishment of Contract “A” through the Ron Engineering case was followed by others dealing with an owner’s obligation, duty of fairness, and contractors’ obligations. A great deal of additional follow-up legal cases strengthened the most important parts the system.
In response to the development of this process, owners became focused on the privilege clause. Numerous battles have been fought (with more likely to come) over whether or not the privilege clause is absolute. Despite the best efforts of legal minds to write the perfect clause, it has yet to be constructed, which is a very good thing.
If a clause were created that gave the owner complete outright control with no obligation or duty of fairness to the contractors, it would be a disaster for both sides. I am told by some legal experts that such a clause means that those bidding the job would not owe any obligation to the owner either.
The Tercon case left the door open for somebody to write that clause and, in my opinion, it is a waste of time and effort and will not solve the problems that the industry is facing.
We are in an era of extraordinary times and the pressure on this industry to deliver projects has never been greater, yet we face substantial challenges from labour supply, supply chain, rising costs, and more, all of these things at a time when our industry is needed most to provide jobs and rebuild the economy.
For years I have advocated that the adversarial approach to the procurement of design and construction is wrong. We need to work in a far more collaborative and communicative manner to ensure that things move forward. The attempt for one side to gain the upper hand and be able to dictate to the other party is a negative factor that will contribute to problems on any project.
Attempts continue by some owners trying to gain this upper hand. I was recently provided with the following privilege clause.
1.34 PRIVILEGE CLAUSE.1 The Owner shall have the right to accept any Bid or reject any Bid without explanation in its sole and unfettered discretion. The Owner may reject or accept any, or any part of, or all Bid and also may award a Contract to other than the Bidder submitting the lowest price. The Owner does not bind itself to accept the whole or any part of any Bid. In particular, if only one response is received, the Owner may reject it. The Bidder acknowledges and agrees that nothing contained herein, in the Bid documents or elsewhere, no act done or expense incurred by it in the preparation and submission of its Bid, no trade or industry customer or practice, and no representation or assurance that may have been made or given to it by or on behalf of the Owner shall in any manner legally bind the Owner, in any circumstances, to accept a Bid, the lowest price, only a Bid submitted in compliance with the requirements herein, or any Bid at all. The Bidder further acknowledges and agrees that the Owner shall have complete and unfettered discretion in this regard and may reject any or all Bid or may accept a Bid in whatever manner, at whatever Bid price, on whatever terms and for whatever reason as the Owner in its sole and unfettered discretion considers to be in its own best interests, all without liability or obligation of any kind to any of the Bidders.
Despite the entire one-sidedness of this privilege clause, experiences have taught me that the courts are not very sympathetic to these clauses and that without substantial reasons given for not accepting a legitimate, compliant low bid, that challenges in court to these types of clauses have, for the most part, been successful.
If this was the only issue, I believe that any challenge would have a strong chance to be successful but prior to that even happening I would hope that contractors would express their dismay at such a one-sided clause that basically allows for bid shopping and take appropriate action to protect their business interests.
Unfortunately, this has been made even worse with the addition of the following clause.
1.37 NO CONTRACT A AND NO CLAIMS.1 This Bid is not intended to create and will not create a formal, legally binding bidding process and will instead be governed by the law applicable to direct commercial negotiations. For greater certainty and without limitation: 1. this Bid will not give rise to any Contract A based tendering law duties or any other legal obligations arising out of any process contract or collateral contract; and.2 neither the Bidder nor the Owner will have the right to make any claims (in contract, tort or otherwise) against the other with respect to the award of a contract, failure to award a contract or failure to honour a Bid submitted in response to this Bid. 2. This Bid process is intended to identify prospective Bidders for the purposes or negotiating potential agreements. No legal relationship or obligation regarding the procurement of any good or service will be created between the Bidder and the Owner by this Bid process until the successful negotiation and execution of a Contract for the acquisition of such goods and/or services. 3. While the pricing information provided in Bid will be non-binding prior to the execution of a Contract, such information will be assessed during the evaluation of the Bids and the ranking of the Bidders. Any inaccurate, misleading or incomplete information, including withdrawn or altered pricing, could adversely impact any such evaluation or ranking or the decision of the Owner to enter into a Contract. 4. The Owner may cancel or amend the Bid process without liability at any time. 5. These Terms and Conditions of the Bid process: 1. are intended to be interpreted broadly and independently (with no particular provision intended to limit the scope of any other provision). 2. are non-exhaustive and will not be construed as intending to limit the pre-existing rights of the parties to engage in pre-contractual discussion in accordance with the common law governing direct commercial negotiation; and .3 are to be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein.
Make no mistake that this is not a tender in any way shape or definition therefore none of the protections provided under the normal tendering process of Contract A and Contract B apply.
It is essentially clear that in reviewing these clauses together that the owners intend to do whatever they want by using all of the information submitted by anyone foolish enough to submit prices, to negotiate with whoever they wish and use that information to come to a price.
It is long been a problem in our industry that these types of onerous and egregious processes exist because a few contractors fool themselves into thinking that they’ll be okay if they submit. Instead, all contractors do is confirm in the minds of a few procurement people that we as contractors will bid anything because we gullible and therefore, they treat us as such.
Unless the industry takes a stand and refuses to participate in processes like this those responsible for procuring our services will continue to believe that they are right and that they can get contractors to do whatever they want and accept any and all risk.
I don’t believe that to be true. While president of the Ontario General Contractors Association (OGCA), I led many battles against onerous conditions and supplementary clauses and we were successful because we stuck together. Rarely, in over 75 years did a member ever break ranks.
The problem now is this process is not just appearing in the ICI sector. It is appearing in all sectors and it must be opposed. Work with your association to stop this trend. Whoever is out there spewing this “snake oil” is trying to convince owners they will be better off. This needs to be stopped, and owners need to know that in these times we have to work together and trying to get an edge over one another is not how we will survive these troubled times.
It is my sincere hope and belief that you in the industry, no matter your sector, recognize that this is wrong and it must be stopped!
Stand together, work with your associations, tell these misguided people that this is not the way to deliver successful projects.
Clive Thurston is president of Thurston Consulting Services Inc. He can be reached at (416) 399-2250 or email clive@thurstoncs.com.