Requests for Proposals

The recent decision in Tercon Contractors Ltd. v. British Columbia’s Ministry of Transportation and Highways changes the status of Requests for Proposals in relation to tender law. The Tercon case heard in the B.C. Supreme Court in 2006 indicates that if an “RFP” has the key characteristics of a tender, a binding contract could be created when a compliant proposal is submitted. This may not be the result intended by the contracting authority!

Some 35 years ago in 1981, the Supreme Court of Canada created “Contract A” and “Contract B” in tendering in the case of Ontario v. Ron Engineering and Construction (Eastern). Contract A is the implied contract created upon submission of a compliant bid in response to a tender process. The terms of Contract A are found in the tender documents. Once the successful proponent has been selected, Contract B, the actual contract for construction, will be signed.

After more than three decades, the distinction between Contract A and Contract B in tendering is well understood by the construction industry. However, RFPs have typically been considered to be outside the ambit of the decisions in Ron Engineering. Generally RFPs have been considered more subjective: often fixed “bid” prices are not required and there are few objective evaluation criteria. In fact, before the Tercon case, the leading court decisions in B.C., Manitoba and Ontario had rejected the proposition that RFPs fell under the contractual rubric established in Ron Engineering.

Now, however, Tercon leaves RFPs susceptible to claims based on tender law principles. Owners and consultants should now carefully consider the wording and structure of their RFPs.

Tercon: a change in team members

In the Tercon decision, the B.C. Ministry of Transportation issued an RFP to six proponents shortlisted through an earlier Request for Expressions of Interest. The procurement process was to select a design-build contractor for the Kincolith Highway, a project worth approximately $30 million. The RFP stipulated that only shortlisted proponents were eligible to submit proposals. The RFP also said that if there were any material changes to the composition of a proponent since the request for expressions of interest, that proponent must apply for re-qualification.

The project was awarded to Brentwood Enterprises. Tercon Contractors was found to be the next best proponent. However, after being shortlisted under the request for expressions of interest, Brentwood formed a joint venture with Emil Anderson Construction, something Brentwood neglected to mention in its proposal. The Ministry, of course, had not approved the change in team members.

Tercon Contractors sued the Ministry, alleging that Brentwood’s proposal did not comply with the terms of the RFP and should have been disqualified based on tender law principles. Tercon claimed the Ministry had breached Contract A by awarding Brentwood the construction contract and had breached its obligation to conduct its dealings with Tercon Contractors fairly and in good faith. The court agreed and awarded Tercon over $3 million in damages based on the loss of profits that it would have received if it had been awarded the contract.

The Tercon decision

Madam Justice Dillon found that the Ron Engineering Contract A analysis applied to the RFP at issue. She outlined various factors that might lead to such a determination:

* the formality of the procurement process;

* if tenders are solicited from selected parties;

* if there was anonymity of tenders;

* if there is a deadline for submissions and for performance of the work;

* if there is a requirement for security deposit;

* if evaluation criteria are specified;

* if there was a right to reject proposals;

* if there was a statement that this was not a tender call;

* if there was a commitment to build;

* if compliance with specifications was a condition of the tender bid;

* if there is a duty to award contract B; and

* if Contract B had specific conditions not open to negotiation.

Justice Dillon did not assert that any one of these factors was more determinative than the other. She considered the RFP elements as a whole. Further, the judge stated that the title or label on the tender documents was not necessarily determinative.

Avoid creating a “Contract A”

If the owner does not intend to create contractual relationships by its RFP and wants freedom to negotiate, it should consider the above factors. For instance, the owner may want to compare widely divergent solutions to a problem (“apples and oranges”) in which case, a tender process would not be appropriate; the RFP would be better drafted as a non-binding invitation with express terms indicating that it is not intended to create a contractual relationship.

To avoid imposition of Contract A for an RFP process, the owner and its consultants should consider the following:

(1) The structure should be less formal than a tender call and further details could be requested from the proponents i.e. the RFP should not necessarily contain all the project specifics.

(2) The RFP should clearly state that it is not a tender call. It could even expressly state that it does not commit the owner to enter into a contract. For example, in a 2000 case heard in the B.C. Supreme Court, Maple Ridge Towing (1981) Ltd. v. Districts of Maple Ridge and Pitt Meadows, the RFP stated in bold type that the owner was not obligated to any proponent until a written agreement was signed. That statement showed that the owner did not intend to be contractually bound by the RFP.

(3) Avoid soliciting submissions from specific parties as this indicates an intention to create contractual relations.

(4) If the bids are stated to be irrevocable, a court may find that contractual relations were intended.

(5) Consider whether a security deposit is really required. The decision in Ron Engineering asserted that the purpose of bid security is to ensure the performance of the bidder’s obligations under Contract A.

(6) An RFP will be more likely considered to create contractual relations if the evaluation criteria are specific and include a duty of fairness.

(7) Avoid implied or express terms indicating that only a compliant bid will be accepted.

(8) Clearly state that the RFP is an offer to negotiate. Although this approach may not be determinative, negotiations are typical in an RFP, while tenders specify price and other essential terms that are fixed and non-negotiable. Note that if you attach the form of contract that must be signed upon the awarding of the project, it may be considered indicative of a tender call.

(9) A court is less likely to find a Contract A exists in circumstances where details of the project (e.g. location and size) are not included in the RFP. For instance, in a 2003 case in the Ontario Superior Court of Justice, Buttcon Ltd. v. Toronto Electrical Commissioners, the owner did not know whether the project required one or two buildings so the court noted it was difficult to find a contract if there was no certainty of terms.

Many aspects of a typical tender call may point to an intention to create contractual relations. If your client has no such intention for the procurement process, clearly the RFP document should be carefully drafted.

Owen D. Pawson is a partner with Miller Thomson, LLP in Vancouver. Cherisse Friesen is an articled student.