Standardized documents and legal agreements

The use of standardized tender documents for municipalities has been an issue for many years. Most municipalities do use standard form contracts as the basis for nearly all of their procurement. Usually standard form terms and conditions are set out in the tender or RFP documentation. Any formal contract entered into after the award of the contract through competitive process will be entered into primarily as a matter of record, confirming the award and the contractors acceptance of that award. It is very unusual for any negotiation to follow the completion of the contract competition.

As a general rule, the use of standardized documentation reduces the transaction costs associated with the supply process and allows suppliers to quote a lower price for the materials that are to be supplied. Although there is standard “precedent” language (sometimes called boiler plate) which will largely be replicated in the procurement contract, no single form is ideally suited to all situations. Thus from a strictly legal perspective, the particular needs and circumstances of a given transaction will always militate in favor of some variation from any “standard” model.

However, from a financial perspective, for low dollar value (four figures or less), routine purchases, the unique circumstances of the transaction are rarely of sufficient importance to justify a departure from the standard form. In the average transaction, one must balance the legal benefit in preparing a document to suit the specific needs of the transaction, against the transaction cost saving benefits of reliance on a standard form.

In practice, special documentation is likely to be prepared only for major purchases. On the other hand, there are still some advantages in having a legal review of documentation (with perhaps some minor modification of documentation), even for transactions in the five-figure range.

The following is a list of some additional considerations that should be taken into account by a lawyer when drafting supply contracts relating to a municipality:

Formal Requirements: Generally speaking, there are limited formal requirements under Ontario law (and the laws of most of the common law provinces of Canada) with regards to form. However, where the Agreement contains elements that bring it within the scope of a security agreement under the “Personal Property Security Act,” consideration should be given to the formal requirements of the act.

Where an agreement constitutes a sale in bulk under the “Bulk Sales Act,” it is necessary to comply with the registration provisions of the Act and formal requirements governing the payment of the price. In some cases, the provisions of an agreement must include certain special statutory conditions, as for instance under the “Municipal Conflict of Interest Act,” Municipal by-laws invariably impose similar requirements with respect to city staff.

Incorporation of Other Documents: Given the widespread practice of tendering in municipal contracting, it is common to incorporate both the tender documents and the contractor’s bid into the ultimate formal contract.

Few municipalities have the resources to undertake a painstaking analysis of a bid to insure that it complies in all respects with the tender instructions and other documents provided to the bidder. Accordingly, if a bidder wishes to depart from the specifications or some other aspect of the tender instructions, the onus should be placed squarely on the bidder to bring the necessary changes to the express attention of the municipality. Since the tender process largely excludes the opportunity for negotiation, there is considerable risk to any bidder which seeks to depart from the terms of the tender in any material respect.

Several other factors that need to be explored are: Identification of the Parties; Terms of the Agreement; Credit; Performance Default; and Price and Payment.

It is critical for municipalities to create documentation that can be completely understood by the bidders.

Stephen Bauld, Canada’s leading expert on government procurement, is a member of the Daily Commercial News editorial advisory board. He can be reached at stephenbauld@bell.blackberry.net.