In setting policy, governments may choose to abandon proposed programs and terminate initiatives.
While governments have no general authority to terminate contracts, they are not obligated to proceed with a tender and award a contract merely because they have invited bids.
At least where the contracting authority reserves a right to reject all bids, it may elect to cancel a project and not award a contract, even where it determines that at least one of the bids it received is compliant with the requirements of the tender.
There is no binding obligation that arises to proceed with the project merely because bids are solicited through a tender.
Even in the absence of a reserved privilege to reject “all tenders” it can be argued that a contracting authority not only has, but must have, the right to back away from a planned purchase until such time as it awards the contract.
It is quite possible all prices quoted by the bidders in a tender will exceed the budget allocation for the purchase. Even if this is not the case, the benefit derived from the purchase may well be less than the cost of the purchase. Additional facts may become known prior to the award of the contract, which may make it ill-advised to proceed.
The foundation of any contract is ultimately the apparent intent of the parties to enter into a binding legal relationship.
In such circumstances, one cannot assume any contracting authority would bind itself to award a contract, even if such circumstances existed.
The primary purpose of a tender is to get a price for securing a supply or carrying out a project. Unless one assumes that a reasonable buyer would commit first, and then inquire of the price, it is unrealistic to suggest that the contractor is bound to proceed before the award of the substantive contract for the supply or project in question.
Over and above these considerations, which apply in the case of any purchaser, a government or public agency necessarily requires the right to revise its policies and priorities.
Moreover, the willingness of one level of government to proceed with a project may be influenced by the availability of a transfer payment or other assistance from another level of government.
Even if the policy at the contracting level of government remains the same, that government may need to change its plans in response to a funding change imposed on it by the other level of government. Any of these circumstances is sufficient to necessarily imply the cancellation of a tender.
In order to conclude that a tender contract has arisen, it is necessary to satisfy the basic requirements of a contract. Thus, from both a public policy and contract efficiency perspective, there would seem to be good reason to presume an implied right to discontinue with the tender should no satisfactory bid be received or should the policies or priorities of the government change.
However, any such cancellation must be bona fide, in the sense it amounts to a genuine decision not to proceed, rather than a surreptitious attempt to discontinue one tender process in order to allow a non-compliant or otherwise ineligible bid to secure the contract in question.
A more difficult question is whether a municipality may terminate a tender or RFP and then immediately proceed to negotiate a contract either with one of the bidders in the original tender or RFP (other than the low bidder), or with some outside party, for substantially the same contract.
Given the state of the law in this area, absent a reserved privilege expressly allowing the municipality to do so, either course seems fraught with risk, particularly where the scheme is put into place after bids have been submitted and opened.
Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com.
Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.
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