With significant new funding available for various municipal and provincial infrastructure projects, many procurement processes will start over the next several months.

Construction projects start with procuring design and construction services, often with differing procurement processes. Without careful attention to how a procurement process is set up, project owners may end up in a process that is not suited to achieving project goals. A mismanaged procurement process can result in significant project delays, the selection of suboptimal contractors/design professionals, and potential legal liability for project owners.

Project owners can procure services by tendering or through a Request for Proposals (RFP). The two processes have important differences which can result in one being better suited for a project than the other.

Another important consideration for both tender and RFP process beyond the scope of this blog is compliance with trade agreements, such as the Canadian Free Trade Agreement and the New West Partnership Trade Agreement. For public sector procurement, tender and RFP processes are subject to those agreements and must comply with them.

The Tender Process

Tenders are more rigid than RFPs. The tender is an "offer" which the bidders accept in submitting a bid, resulting in a bid contract. The bid contract requires that the project owner and the successful bidder must enter a contract to perform the project.

In a tender process, the project owner must follow several requirements that are implied into the bid contract, unless the requirements are removed by the bid invitation (which must be done carefully and typically with legal advice).

The following is a non-exhaustive list of some of the requirements of the project owner in a tender:

  • Project owners can only evaluate and award the performance contract to a bid that complies with bid invitation/tender document.
  • Project owners must treat all bidders fairly and equally and must evaluate all bidders using the same criteria.
  • Project owners may not evaluate bids using any undisclosed evaluation criteria or preferences.
  • Project owners must not allow bidders to alter bids after the closing date for receiving bids.
  • Performance contracts cannot include different terms from those contained in the bid invitation/tender document.
  • The procuring organization must fully disclose to bidders all known and relevant information pertaining to the work/services to be provided.

Tender processes are "subject to the law of competitive bidding," which is a strict process where the tender governs the entirety of the process. Failure to follow the tender process, such as accepting a non-compliant bid, can expose the project owner to a claim for loss of profits by a unsuccessful bidder. Practically, this has the effect of a project owner paying the profit margins of both the contractor doing the work and a contractor who never had to do any work on the project.

The RFP Process

In contrast to a tender process, an RFP process does not include the concept of a "bid contract." The only contract created is contract to complete the work.

The project owner can evaluate and negotiate with project proponents and can identify alternative solutions. In a properly structured RFP process, project owners have more flexibility in addressing non-compliant proposals, because the scope, schedule, price and contract terms are more flexible than in a tender process.

One downside of the RFP process is that proponents can revise or withdraw proposals at any time without consequence.

Properly structured RFPs are not subject to the laws of competitive bidding and therefore do not generally give rise to a claim of lost profits by dissatisfied bidders. If an RFP process is improperly designed and a court later concludes it was actually a tender process, the project owner can be subject to a claim of lost profits by an unsuccessful proponent. An RFP process has to be carefully drafted and developed to ensure that the "Request for Proposals" is not later considered by a court to be a tender.

While not subject to the law of competitive bidding, an RFP process, like a tender process, is subject to applicable trade agreements.

Selecting the Right Process

Each process has advantages and disadvantages that may weigh in favour of one option over the other. Below is a non-exhaustive list of advantages and disadvantages between tenders and RFPs:

TENDER ADVANTAGES

RFP ADVANTAGES
  • Effective for comparing bids for a fixed scope of work.
  • Allows the procuring organization to consider and evaluate all bids, with greater flexibility in addressing non-compliant bids.
  • Provides direct competition on pricing.
  • Can explore lower cost alternatives such as adjusting the scope or amending terms of the contract to perform the work.
  • Eliminates need for any negotiation to finalize the contract to perform the work.
  • Allows the procuring organization to negotiate pricing, scope of work and contract terms, if desired.

TENDER DISADVANTAGES

RFP DISADVANTAGES
  • The project owner cannot explore lower cost alternatives available by either adjusting scope or amending the Performance Contract.
  • May require negotiation to finalize Performance Contract.
  • Once the tender has closed, the process is not very flexible. Project owners must disqualify non-compliant tenders.
  • Proponents can withdraw proposals at any time. There is no period of bid irrevocability and no bid security.

Courts have been clear that the substance of the procurement document, not the form, determines whether it is treated as a tender or RFP. Simply calling something a tender or an RFP does not guarantee that courts will recognize it as one.

Given that each project has unique requirements and considerations, project owners should seek legal advice when drafting procurement documents to ensure they select the appropriate procurement process. Legal review can also help ensure trade agreements are complied with and contract documents are properly drafted with the necessary conditions suited to the project delivery model, whether it is based on a lump sum, cost-plus (time and material), unit rates or some blended compensation model.

Originally Published 14 April 2021

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.