The award of municipal contracts may be confirmed simply by way of the issue of a purchase order or it may be confirmed by way of the execution of a formal agreement.
A purchase order is normally used when the resulting contract is straightforward and will contain the municipality’s standard terms and conditions.
A formal agreement should be used when the resulting contract is complex and will contain terms and conditions other than the municipality’s standard terms and conditions as set out in the tender.
It is the responsibility of the purchasing manager and the city solicitor to determine if it is in the best interest of the municipality to enter into a formal agreement with the supplier.
Reserved rights of this kind should be clearly spelled out in the terms and conditions governing the tender or RFP.
Provisions along the following lines are typical of the language required:
- The city may require a successful bidder to enter into a contract for work in such form and on such terms as may be approved by the city solicitor, but those terms shall be consistent with these instructions, all addenda, the special provisions (if any), the tender notice and the description of project, work or supply for the tender, and the specifications (if any).
- In lieu of requiring a contract for work, the issue of a purchase order by the city gives rise to a contract between the city and the successful bidder in accordance with the terms and conditions set out in these instructions: the description of project, work or supply, the specifications, any applicable addenda and any other related documents.
- the price of all options and alternatives shall be separately stated. Where options or alternatives are required in the tender notice, an addendum or in the special provisions, the city shall not be obliged to purchase those options or alternatives when accepting a bid, but may at its discretion elect to purchase all, some or none of the options or alternatives offered. The successful bidder shall be obliged to adhere to the total contract price quoted in its bid.
- If it is intended to have the terms and conditions of the tender or RFP to continue as part of the final contractual relationship, it is necessary to make clear that the execution of a formal contract does not cause all pre-existing rights to “merge” with that formal contract.
For this reason, many standard form terms and conditions contain provisions along the following lines:
- Except where otherwise expressly agreed, these instructions shall not merge upon the execution of the contract for work, but the provisions of the instructions shall be deemed to remain in effect throughout that contract.
- These instructions shall define and limit the scope of any contractual or other legal rights in favour of any bidder or subcontractor flowing from the request for tender or the submission or acceptance of any bid.
- Absent such provision, an argument could be made that any requirement set out in the terms and conditions (e.g., the length of any warranty) would cease to apply unless that provision was carried forward into the formal contract.
The terms and conditions of the tender or RFP should also clarify the general priority of different contract documents, in view of the possibility that an unexpected conflict may be discovered among them.
A municipality takes on a considerable risk if a formal contract departs from the requirements of the tender or RFP. The bid price in such a competitive process is tied to a defined set of pre-disclosed obligations that are to be assumed by the supplier.
If these do not flow through unaltered into the final contract, then in effect the municipality may end up paying for contractual rights and entitlements that it does not receive.
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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