The Request for Proposal has become a popular procurement

October 9, 2009
Construction contracts
RFP model offers flexibility, but carries risk
DAN O’REILLY
correspondent
The Request for Proposal has become a popular procurement model because it offers a greater degree of flexibility compared to the tender process, a legal expert warned participants at the Canadian Institute’s second annual Managing Risk at the Pre-Tender Stage conference. With that flexibility comes risk, however, and whatever procurement process owners choose they have to know the differences between RFPs and tenders and realize they have legal obligations under both, warned Glenn Ackerley, partner with WeirFoulds LLP Without legal analysis, clear specific language and attention to detail those distinctions can often become blurred, with the result that projects can be delayed or cancelled and owners hit with costly lawsuits from contractors who believe they have been treated unfairly, he said.

Glenn Ackerley
“The courts may view a poorly worded RFP as tender, potentially exposing the owner to strict legal obligations and damages,” said Ackerley, one of several guest speakers at the conference. His presentation was somewhat of a primer for the audience, some of whom were government, municipal and non-profit agency employees with limited experience and exposure to the procurement system. Others were lawyers who don’t specialize in construction. A tender is appropriate when competitive pricing is required, a large degree of certainty is possible, the design is complete, a budget/estimate has been established and objective assessment of bids are possible, said the lawyer, providing an overview of the Contract A and Contract B system. Under that process each side has certain responsibilities. Bidders have to hold their prices for a set time period and then take on the project if they win the award. Just some of the legal obligations of owners include providing the same information to all bidders and rejecting non-compliant bids, said Ackerley. “The owner has a duty to treat bidders fairly.” While the fairness principle still applies, RFPs give owners the ability to search for innovative creative submissions for projects that haven’t fully been scoped out. As opposed to tenders where the determining “objective” criteria is price, RFPs involve subjective evaluation by the owner on elements such as the proponent’s proposed design, financial terms, and even the project partners, the audience was told. “How do you tell the difference between an RFP and a tender?” asked Ackerley, pointing out that it’s not always easy, especially with the increasing number of “hybrids” now in the market. These are procurement documents which contain wording and conditions from both. As an example of the problems that can arise from a hybrid, he referred to the Tercon Contractors versus British Columbia case. This ongoing legal dispute is over a highway project in northern British Columbia which began with a RFP. The successful bidder had joined forces in a joint venture with an outside contractor after pre-qualification but before submission of a proposal. Tercon, the runner-up bidder, sued for breach of Contract A, with the trial court ultimately deciding the process should be considered as a tender and ruling that the province had committed a “fundamental breach” by accepting an ineligible proponent’s bid. An exclusion clause that said that no proponent participating in the RFP would have a claim was deemed not be clear enough to cover circumstances and Tercon was awarded $3.3 million in damages. However, that ruling was overturned by the B.C. Court of Appeal, which ruled the clause was clear and unambiguous. In turn, Tercon appealed to the Supreme Court which heard the case in March of this year. While the court so far hasn’t made a decision, the original trial judge set a list of factors an owner should consider when trying to decide if they are issuing an RFP or a tender, Ackerley pointed out. Some of those factors include the wording of the procurement documents; the irrevocability of a bid, the formality of the process; where responses were invited or “solicited,” plus the anonymity of bids, the deadline for submissions and for performance of the work.