By Clive Thurston
Special to Ontario Construction News
Owners procuring construction services have a number of methods open for their use. Sometimes, however, there is a misconception on how they should be used in the context of Canadian construction procurement law, leading to confusion as to when “Contract A’ arises. This can have serious ramifications for both the owner and the bidders.
Much of the debate surrounds when a “Contract A”, as established in Ron Engineering, arises. In many tender calls, “Contract A” arises upon the submissions of tenders by bidders, and when one of these is accepted by the owner, that leads to a “Contract B”. But not always.
For example, a RFP is a request for a proposal, and is generally used when there is a need for more sophisticated analysis of the goods or services required beyond merely price. We have also seen the rise of RFQs, being requests for quotation, which appear to be a simplified form of competitive bidding and interchangeable with a tender. The language of these documents is sometimes unclear as to whether or not a tender contract (“Contract A”) is intended, including all of the rights that would normally accompany such a process.
When does a tender solicitation give rise to the creation of a “Contract A”? The question as to when “Contract A” arises is not absolute. Based on the information, I have been able to gather, it would appear to come into existence when the tender meets certain requirements such as the following: Are the bids irrevocable? Is there a mandatory deadline to submit the bids? Is there bid security? Is the form of the construction contract specifically set out? Is there a commitment to enter into the construction contract upon acceptance? And are there evaluation criteria specified?
If these criteria are present in a tender, it is more than likely that a “Contract A” will arise upon the submission of tenders to the contracting authority. The key here is whether or not the tender request contains language that indicates that it is an invitation, submit a binding price which the owner will accept, or whether it is merely an invitation to negotiate a deal with the preferred bidder, resulting in nothing more than the possibility of a contract if that negotiation is successful.
This raises issues for both bidders and owners. Where a tender is not intended to create a “Ccontract A”, the obligations normally found in that contract can be avoided thus relieving the owner of any alleged breaches of those obligations. Without any commitment by the owner to enter into a construction contract, the question that needs to be asked is: does the duty of fairness still remain?
Owners who consider themselves relieved of any obligation to treat the bidders with fairness could consider themselves free, for example, to award to a noncompliant bidder. This would be a risky strategy and not one beneficial to the owner. Reputation is everything in our industry and owners attempting these actions will see push back from the industry that could lead to bidders not bidding.
Without “Contract A’s”, owners risk losing the benefit of price competition as there is no assurance that a contract will be awarded, even to the lowest bidder. Why would bidders go to the time and expense to submit in such circumstances?
I strongly believe that the “Contract A/Contract B” model established by Ron Engineering has more benefits, for both parties, than a simple invitation to treat. It preserves the integrity of the bidding system and improves competition amongst the bidders, who are expected to submit their best prices and to hold those prices. When bidders are assured that a contract will be awarded, as distinct from an uncertain process in which further negotiation is assumed, they will be more inclined to making the investment to preparing good bids that best respond to the owner’s requirements.
It is incumbent upon bidders to pay very close attention to the wording of tenders to determine whether a “Contract A” is intended, or simply a negotiation? Owners should be wary of circumventing the “Contract A/Contract B” process for the aforementioned reasons, including the possibility that bidders, including their subtrades and suppliers, will not hold their price or withdraw from the bid entirely before any construction contract is concluded, all of which is extremely risky to owners. Trying to circumvent the normal tendering rules to gain an advantage may prove to be no advantage of all.
The best way for bidders to respond to these efforts and to affect change is to work with their local association to contact the owner and convince them this is not in their best interests. Associations can provide an excellent forum to approach owners to convince them to use fair and reasonable tender practices to attract the best bidders with the best prices.
Research for this article is based on the excellent book Municipal Procurement second edition by Kevin McGuinness and Stephen Bauld (LexisNexis) where the definitions and explanations of these methods is discussed and explained. I consulted with several legal authorities and a number of industry stakeholders in preparing this article.
Clive Thurston is president of Thurston Consulting Services Inc. He can be reached at (416) 399-2250 or email clive@thurstoncs.com.