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PACE speaker discusses ‘grey areas’ in procurement evolution

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The procurement process is evolving from traditional bids to request for proposals (RFP) and along with those changes come some issues, says construction lawyer Glenn Ackerley, a partner at WeirFoulds LLP.

He was one of the speakers at the Grand Valley Construction Association’s fifth annual PACE (Problem-solving, Accountability, Collaboration and Execution) event held recently in Waterloo, Ont. The purpose of the event was to engage and encourage dialogue between industry stakeholders on issues that impact how business is conducted.

Ackerley explained there is a trend towards RFPs as opposed to traditional bids.

"There is a bit of a mess going on out there as far as procurement in general," he explained. "It’s a grey area. There are a lot of moving pieces and as we layer, upon layer, upon layer on the process, it starts to get really muddy because you’ve got legal principles but then you’ve got fairness principles as well, but they don’t necessarily mesh.

"You’ve got legal frameworks being abandoned in lieu of other frameworks that are thought to be less risky from a legal perspective."

Procurement was simpler prior to 1981, he noted.

"There was a tender called by a public authority, bidders submit bids that was considered to be a legal offer. The owners opened the envelopes looked at the prices, picked one, that was acceptance and that created the contract. They went on and built the project and there were claims and litigation and happy construction lawyers," said Ackerley. "This is the way it used to work. There was lots of litigation but it was really about the projects not about the procurement process leading to the award of the contract."

Along came the Ron Engineering and Construction case of 1981, a Supreme Court of Canada decision on the law of tendering contracts, which dealt with the issue of whether the acceptance of a call for tenders for a construction job could constitute a binding contract.

The court found that the tender call is, in fact, an offer by the owner to run a process that the bidders can participate in that involves certain obligations.

So as a bidder, if you submit a compliant bid, that itself creates a so called "Contract A." Of course the owner will take one of those bids and accept it and that creates "Contract B." Both contracts can lead to claims and litigation.

"As a contractor when you submit a bid to an owner you are entering into a contract that the law has imposed. That is very important because for the last 35 years, what the courts have been grappling with is what does that contract contain…what are the terms and conditions of the contract," said Ackerley.

The RFP process is now being undertaken more regularly over the traditional bid process, Ackerley said.

In RFPs, proponents submit proposals, the owner evaluates them, selects a preferred proponent and often there is negotiation and then they enter into the contract.

"What this does is eliminate, it seems at least, that contractual piece that the tender has," said Ackerley. "We’re back to offer and acceptance. Perhaps there is some negotiation leading to a contract and that other Contract A we talked about disappears in this scenario. What I am going to challenge you to think about today with this trend is what is actually happening legally when you make that change."

The key thing that Contract A gives you is that bids are irrevocable, whereas proposals, in law, are not, Ackerley explained.

"The problem that I throw out there for you to think about is, how do you move into a non Contract A role of an RFP which everybody seems to be doing and yet behave as though you have a contract because they are mutually exclusive," said Ackerley. "You either do or don’t have a contract set of obligations."

Although not a new concept, owners have been increasingly using litigation bans, or exclusionary/reprisal clauses in contracts, to prohibit a company from bidding on future projects for a set period of time if that company currently or has previously been involved in litigation with the owner.

"It used to be pretty straightforward, then we added Contract A to deal with the irrevocable bids being pulled which created a contractual framework, which created contractual duties of fairness and so on which leads to lawsuits over breaches by the owner of its duties, which has owners layering on protective measures in terms of clauses," said Ackerley. "But now we’re moving away to RFPs where there are no contracts but we still want protective measures. This is the evolution."

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