Canada: Recent Trial Decision Discusses Calls For Bids vs RFPs

Last Updated: November 21 2017
Article by Jonathan Martin

On September 18, 2017, the Court of Queen's Bench for Saskatchewan handed down its decision in Saskatoon Surgicentre Inc. v. Saskatoon Regional Health Authority. 1 The Saskatoon Regional Health Authority (SRHA) had issued a request for proposal (RFP) as part of a new initiative, with the goal of obtaining third party delivery of outpatient surgery for insured surgical services. When a competing bidder was selected, Saskatoon Surgicentre Inc. (SSI) sued for damages alleging SRHA breached its duty of fairness in the selection process. The issue at trial was whether the RFP gave rise to a Contract A analysis and, if so, whether SRHA's duty of fairness had been breached.

Since the 1981 decision of the Supreme Court of Canada in R. (Ont.) v. Ron Engineering, 2 Canada's common law of procurement has been subject to a unique regime where a call for bids will typically give rise to contractual relations between the owner (or contractor seeking subcontracts) and all bidders. Owners have a contractual obligation of fairness (the content of which falls outside the scope of this article), while all bidders are firmly held to their bids even if they contain latent errors. This is called "Contract A". However, not all advertised solicitations of interest engage the Contract A analysis. For the purposes of this article, a "true RFP" refers to what is essentially an invitation to negotiate, which does not attract the Contract A analysis, while a "call for bids", does. In Tercon Contractors Ltd. v. British Columbia (Transportation and Highways) 3 the Supreme Court of Canada confirmed that the title "RFP" on tender documents is not conclusive of the matter.

The few appellate cases that exist on the issue, as well as the academic literature since the landmark decision in Ron Engineering, have identified several "badges" of a call for bids giving rise to Contract A rights and obligations. These, according to Paul Sandori and William M. Pigott include the requirement of an irrevocable offer, bid security, and a form of contract which the successful proponent would have to sign if selected. 4 On the other hand, the absence of these badges (such as obvious informal calls to negotiate, RFPs with no well-defined end-project, or provisions expressly stating that an RFP does not give rise to Contract A obligations for either party) would likely negate Contract A rights and obligations.

The RFP in Saskatoon Surgicentre was of a complexity and precision which, at first glance, would lead most to conclude that it would give rise to Contract A rights and obligations. The RFP included: (1) an attached draft contract which, though open to modifications and alternative proposals, was nevertheless quite thorough and complete; (2) an abundance of discretionary and reserve powers for SRHA; (3) a well described scope of services; (4) fixed evaluation criteria; (5) a requirement that all conflicts had to be disclosed and other required information be provided; and (6) a requirement that bidders had to comply with all relevant legislation and licensing at the time they made their bid.

On the other hand, the RFP included several provisions which were taken to suggest something less than a call for bids was intended. These included: (1) a suggested start date; (2) a 120 day period during which the proposals "should" be held firm; (3) an invitation to submit alternative proposals; (4) the reservation by the SRHA to engage in "competitive negotiations"; (5) the right of SRHA to "negotiate any aspect of any proposal... at any time after the date and time for the submission of proposals"; (6) the right of SRHA to modify or vary any aspect of the RFP at any time before or after the submission of proposals; (7) the right of SRHA to accept any irregular or alternative proposal in whole or in part; (8) the right of SRHA to reject any or all proposals, including the lowest cost proposal; and (9) a provision stating that "[t]his RFP is not intended to, and shall not, create any binding obligation on the SRHA."

Discussion

In concluding that the RFP was, in fact, a true RFP, not giving rise to a Contract A analysis, the Court started with the strongest reason for this conclusion: that the proposals were not irrevocable, but rather "should be held firm for 120 days from the RFP close date". The absence of an irrevocable bid meant there could be no Contract A. After all, what would be the consideration for SRHA in Contract A if bidders could withdraw or change their bids at will? This was the reasoning of the Court:

If the express words of an RFP authored by an owner do not clearly require a bid to be irrevocable, I suspect that a court would be hesitant to imply a term of irrevocability in the owner's favour. Accordingly, in choosing the equivocal statement that proposals "should be held firm," SRHA must have realized that by stepping out of Contract A it was gaining flexibility but forfeiting rights as well.

The Court went on to explain why the negotiation rights reserved by the SRHA suggested a true RFP was intended and not a call for bids. Many commentators, including Paul Sandori and William M. Pigott,5 who were cited in Saskatoon Surgicentre, considered the issue to have been settled in Double N Earthmovers Ltd. v. Edmonton (City) 6 when the Supreme Court of Canada found that a clause permitting the City of Edmonton to negotiate with the lowest bidder did not preclude Contract A from being formed. The reasoning behind this is that so long as the contract being tendered is sufficiently defined to be capable of enforcement, Contract A should still come into existence even if the owner reserves the right to negotiate changes with the winning bidder.

In this case, the ability of SRHA to negotiate was not limited to the lowest bidder, but rather specifically limited to the time period "after the date and time for submission of proposals." It could be argued, however, that the only question which mattered was whether and to what extent further negotiation was required to arrive at a clearly defined contract capable of performance. If there is a clearly defined project which the owner could oblige a bidding contractor to carry out, then this factor alone should not negate the existence of Contract A. The potential for a binding obligation to perform should arguably go hand in hand with a duty of fairness. After all, this is the basic premise of the Contract A jurisprudence developed by the Supreme Court of Canada since Ron Engineering.

The approach in Wind Power Inc. v. Saskatchewan Power Corp. 7 is also instructive. There the Saskatchewan Court of Appeal had very little difficulty deciding that an RFP containing clauses which gave SaskPower the right to: (1) request supplementary information and clarification; (2) reject any or all proposals; and (3) modify the RFP by issuing amendments and/or addenda, or (4) defer the Demonstration Project at any time and at its own discretion, nevertheless gave rise to a Contract A analysis. Likewise, in Kinetic Construction Ltd. v. Comox-Strathcona (Regional District), 8 the British Columbia Court of Appeal found that Contract A arose despite a clause which permitted the owner to select a non-conforming bid.

However, this case was somewhat complicated by the fact that certain aspects of the contract attached to the RFP, particularly volume and pricing, did require some negotiation before they could be performed:

Proponents should base pricing on this table; however, actual volumes and procedures mix will be subject to negotiation with the successful Proponent prior to a contract being awarded. Any subsequent changes to contracted procedure volumes and types of procedures will be mutually agreed upon between the SRHA and the successful Proponent.

The Court did not discuss whether the negotiation contemplated could create an enforceable duty to bargain in good faith, particularly in a tendering relationship where courts have already recognized such a duty.9 The law in Canada is that promises to bargain in good faith can be enforced in certain relationships if the parameters of the negotiations can be objectively defined. 10 That test would appear to have been satisfied here. It could therefore be argued, based on the outcome in Double N, that if price was the only outstanding issue to be negotiated, this should not prevent Contract A from arising since courts could force Saskatoon Surgicentre to negotiate volume and pricing in good faith with SRHA if it was selected.

Another issue of interest is the Court's failure to address the "no binding obligation" clause. The Court appears to have implicitly decided that this provision was not sufficiently strong to negate a Contract A from arising. In Tercon Contractors Ltd. v. British Columbia (Ministry of Transportation and Highways) 11 the Supreme Court of British Columbia held at paragraph 92 that a provision in an RFP excluding the owner from "any claim for any compensation of any kind whatsoever as a result of participating in this RFP" was not sufficiently precise to negate a Contract A analysis. The provision in this case also suffered from ambiguity. To avoid any uncertainty, an RFP intended to be a true RFP should plainly state that no Contract A is intended by the RFP.

The take-away is that Saskatoon Surgicentre, though correctly decided, appears to reintroduce a debate that many thought had been settled by the Supreme Court of Canada in Double N. Those participating in a RFP process should be aware that a RFP which does not include a period of irrevocability for bids or other "badges" will likely be accepted by the courts as a "true RFP", even if it otherwise looks and feels like a call for bids. Provisions reserving broad rights to negotiate and accept alternative proposals should be approached with caution.

On the more practical side, although we maintain that Contract A can certainly include negotiation as a term, the drawback is that the very certainty an owner might seek by using Contract A can be lost because the negotiations fail. Owners should only include such clauses if they are prepared to live with that risk.

Footnotes

1 2017 SKQB 280 [Saskatoon Surgicentre].

2 [1981] 1 S.C.R. 111 [Ron Engineering].

3 2010 SCC 4, [2010] 1 S.C.R. 69.

4 Paul Sandori and William M. Pigott, Bidding and Tendering: What is the Law?, 5th ed (Markham, ON: LexisNexis, 2015) at 296.

5 Ibid, at 297.

6[2007] 1 S.C.R. 116, 2007 SCC 3 [Double N].

7 2002 SKCA 61 (CanLII).

8 2004 BCCA 485 (CanLII).

9 See for example Empress Towers Ltd. v. Bank of Nova Scotia, [1991] 1 WWR 537 (BC CA); leave to appeal refused (1991), 79 DLR (4th) vii (SCC).

10 Bhasin v Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494.

11 Tercon Contractors Ltd. v. British Columbia (Ministry of Transportation and Highways), 2006 BCSC 499 (CanLII) at para 92.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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