Every week someone will ask me the rules that govern the cancellation of request for proposals (RFP) and tenders by municipal governments.
The second and more difficult question contractors ask me 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 the bids have been submitted and opened. If an acceptable bid has already been received, then in almost all cases, it will appear that the lowest is being shopped to the contractor with which the municipality is negotiating.
If, however, all bids submitted in response to a tender do not meet the terms and conditions of the tender, or satisfy the plans or specifications forming the substratum of the tender, then the contracting authority may abandon its original contract specifications and negotiate a contract with one of the bidders for the performance of the work concerned without going through the tendering process again. The distinction is a fine one, and considerable caution should be exercised by any purchasing authority which effectively decides to do an end run around the previous tender process.
There is no question that a general privilege clause providing that the “lowest or any tender will not necessarily be accepted” permits the contracting authority to cancel the tender without liability to those bidders that have submitted bids in response. The cancellation must, however, be genuine. It cannot be used as a ruse to award the contract to some supplier that has not submitted a bid.
In Dunphy’s Transportation LTD v. Avalon West School Board, work was put out for tender, but the tender was cancelled for budgetary reasons, but later the same work was re-tendered. After bids in the second tender were received, the authority cancelled the tender and then proceeded to award a similar contract to a bidder from a previous tender. This award was made, without notice, to the bidders in the more recent tender. It was because the low bidder in the first tender (Manning’s Transportation) was threatening litigation, on the basis that it had been denied the contract in a competition that it had won. When the plaintiff, Dunphy’s, realized what had happened, it sued the defendant authority on the basis that there was breach of tender rights. Adams J. stated in his ruling:
“The purported cancellation of the September tender call for Route 800 in order to allow the defendant’s action amounted to pure manipulation of the tendering process for an ulterior motive (an attempt to avoid a threatened claim by Manning’s Transportation). In the circumstances of this case, I find that the purported cancellation of the September tender call for Route 800 was a nullity.”
There are numerous other cases along these lines.
Reserved privileges in construction documents can be the other major issue for contractors. In addition to reserving general rights to reject “the lowest bid” or “all bids” most municipalities also reserve a number of specific rights to reject bids in identified circumstances. Very often, these rights will reflect prior litigation in which the municipality has engaged, or contracts that did not work out especially well from the municipality’s perspective. Therefore, the nature of the rights reserved tends to vary widely from one municipality to another.
The other fact to take into consideration is that some municipalities have adopted a policy of rejecting all bids received from suppliers who have recent history of litigation.
Stephen Bauld, Canada’s leading expert on government procurement, is president and CEO of Purchasing Consultants International Inc. He is also the co-author of the Municipal Procurement Handbook, published by LexisNexis Canada. He can be reached at stephenbauld@bell.blackberry.net
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