Rarely does a day go by when I do not get a call involving a tender. Contractors make every effort to follow the terms set out in the tenders they bid on, yet for some reason the rules are not always consistent from one municipality to another.
Despite the requirement for binding offers by each bidder, it is a general principle of the common law of contract that there can be no legally binding contract to enter into if the terms and conditions have not been settled.
Therefore, until recently, Canadian case law took the view that the publication of a request for tender was a mere invitation to treat.
Under the no contract to contract rule, courts held that whether or not the terms of a request for tender contained an express right to reject tenders that were submitted in response to the request, bids might be withdrawn prior to formal acceptance even if this compromised the entire tender process. While a contracting authority requires the delivery of a bid bond or a deposit as a condition of including a particular bidder’s tender in the competition, this was not seen to provide sufficient consideration for such a deposit.
Thus, in effect, the bond was unenforceable, at least where notice of withdrawal of the offer was received by the contracting authority before it purported to accept it.
On the other hand, the award of the contract to the lowest bidder was entirely discretionary and a refusal to do so could not be reviewed by the courts.
The authority might refuse to award any contract at all, or might award the contract to a higher bidder. From a practical perspective, considerable difficulties arise under the traditional approach to the tendering process.
In the view of many, this limits the cost savings that might be expected to result from it.
It is a fundamental requirement for the maximization of the economic efficiencies that may be gained through voluntary transactions, that it must take place within a competitive market. One of the requirements of such a market is the availability of perfect information.
While perfection is an unattainable ideal, the more uncertainty that exists within the market, the greater the deviation from that standard and thus the more the market is distorted. It follows that the efficiency of a market will be enhanced where uncertainty is reduced.
For both buyers and sellers, the uncertainties of contract tendering have cost implications.
If confidence cannot be placed by a contracting authority that tender bids will be honoured, it may avoid using a tender process and thereby limit its range of potential suppliers.
If bidders have no confidence that their bids will be given fair consideration and will not be shopped to other suppliers, then they may be reluctant to participate in a tender.
From the perspective of the contracting authority, there are administrative costs associated with the use of tendering.
From the perspective of the bidder, there are costs associated with the preparation and submission of a bid, which may not be justified if the bidder cannot have confidence that its bid is likely to be accepted should it be the low bidder.
In either case, these uncertainties will deter the use of tenders and more generally the competitive contract award system.
Therefore, it is advantageous to both purchasing authorities and potential bidders to introduce an element of certainty into the tendering process: to give a low bidder reasonable assurance that its bid will be accepted, with the exception of some reasonable justification for not doing so, and to give purchasing authorities reasonable assurance that bidders will stand by their bids.
The enhancement of such certainty is the basic objective which underlies the modern judicial approach to the use of the tendering process.
Stephen Bauld is a government procurement expert and can be reached at firstname.lastname@example.org. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.