Tenders and requests for proposals

By Tyler Galbraith, Jenkins Marzban Logan LLP

While many tenders and requests for proposals proceed in generally the same manner and have generally similar outcomes, the choice of procurement process matters. Notably, the legal obligations owed between the parties differ markedly depending on whether the process is a tender or a request for proposals. Accordingly, the procurement model chosen can have significant (and potentially unintended) consequences depending on which process is used and how clearly the procurement documents are drafted.

The rationale for the tender process is to replace negotiation with competition. In a tender process, the parties intend to create contractual relations through the submission of a compliant bid. However, a request for proposals process is a non-binding invitation to enter into negotiations and is based on the presumption that submitted proposals will be used for further negotiation potentially leading to a contract.

The offer to negotiate which forms the basis of a request for proposals is generally not considered to give rise to contractual relations meaning Contract A can only be formed in a tender process. Whether Contract A is formed depends of the precise language and intention of the procurement documents. The label or name placed on the process will not be determinative. The court will look only to the substance of the transaction in the context of the procurement documents in order to determine whether the parties intended to enter into contractual relations.

The courts have held that the integrity of the tender process should be protected where under the law of contract it is possible to do so.

Factors the court will consider in determining whether the process was a tender or request for proposals include the irrevocability of the bid, the formality of the process, the scope of any permitted negotiation, whether there was a deadline for submissions and for performance of the work, whether there was a requirement for a security deposit, whether evaluation criteria were specified, whether there was a right to reject proposals, whether there was a commitment to build, whether compliance with specifications was a condition of the tender, whether there was a duty to award Contract B (the construction contract) and whether Contract B had specific conditions not open to negotiation.

Why is this important? The courts have held that the integrity of the tender process should be protected where under the law of contract it is possible to do so. This means that where Contract A arises, and subject to the express terms of the procurement documents, the owner will be obligated to accept only a compliant bid and to treat each compliant bidder fairly and equally in the process, the bid will be irrevocable for a set period of time and the owner and successful bidder will be obligated to enter into the construction contract. However, these obligations will not arise in a request for proposals process as there is no contract to ground enforceable obligations between the parties.

Accordingly, an owner procuring work should decide in advance the type of procurement process best suited for its project and ensure that the procurement documents are drafted in a clear and unambiguous way consistent with that decision. A bidder should review the procurement documents in detail to ensure that it understands what contractual commitments, if any, it is making by submitting a bid. Where the procurement documents are uncertain, a bidder should seek clarification from the owner regarding the intention of the procurement documents. Simply put, the parties do not want to leave the determination of the process to the court and be surprised by the obligations (or lack of obligations) owed.