Companies looking to stretch their purchasing dollars are increasingly using competitive procurement strategies to get the most value for their money. Requests for Information, Requests for Qualifications, Requests for Expressions of Interest and the popular Requests for Proposals ("RFPs") are all techniques used in many industries today to narrow the field of potential vendors and obtain the best possible price for goods and services.
Competitive bidding rules are well known in the construction industry, where calls for tenders, submissions of bids and fairness rules governing the process are routine. Purchasers in other industries often incorporate many of the features of a call for tenders into their procurement documentation, such as RFPs, for the protection of the purchaser. However, when incorporating those protections into an RFP document, it may never occur to the company issuing the RFP that the RFP could in reality be considered as a disguised call for tenders and that Canada’s laws of competitive bidding might govern the RFP process to impose such restrictions as: the duty of fairness, the requirement to accept only compliant bids, and the obligation to not evaluate on undisclosed criteria, among other things.
How can purchasers assess whether their RFP is really a call for tenders?
In a recent case, Tercon Contractors Ltd. v. British Columbia (Transportation and Highways) 2006 BCSC 499, ("Tercon") Madam Justice Dillon set out a number of factors to consider in determining whether a procurement solicitation (in that case, an RFP) was, in essence, a call for tenders. While Tercon was eventually appealed to the Supreme Court of Canada on another issue,1 the Supreme Court endorsed the trial judge’s analysis of these factors. Based on the "Tercon factors," buyers issuing RFPs who wish to best position an RFP as a "true RFP" should consider the following ten factors that point towards the procurement falling into the traditional tendering model:
- Must the proposals be irrevocable? If so, then the RFP is more likely to be seen as a call for tenders.
- Is there a requirement for a security deposit? Although this is not a determinative factor, many tendering cases have involved litigation over the return of a deposit.
- Is the selection process formal, with strict deadlines such as an official closing time? A more formal process is indicative of a tendering process.
- Has there been a solicitation of firm tenders from selected parties or is it a general call for expressions of interest?
- Was compliance with a set of specifications a requirement of the proposal as in the case of a tender, or are proponents permitted to submit a proposal that is of its own design? For tender calls, which often have involved procurement of commodity items, compliance with set specifications is typical.
- Are set evaluation criteria specified? If a strict set of criteria are to be used to judge all proposals, then the process may seem more like a tender call.
- Is there a "privilege clause" that entitles the RFP issuer the right to reject proposals? Such a clause might be one of the signs of a tender call.
- Does the document contain an express statement that it is a tender call and/or does it refer to bids or bidders?
- Is there a firm commitment to proceed with the project with the successful proponent or is there a statement that there is no obligation to enter into a contract? The former case is a hallmark of a tender call.
- Is the contract open to negotiation or is the successful proponent required to enter into a standard form agreement without negotiation? The latter is characteristic of the tendering process.
No one factor will be conclusive of whether the RFP will be ultimately characterized as a disguised tender call. However, if most of these factors (particularly the irrevocability of proposal requirement), are present in the RFP document, it will more likely be classified as a call for bids.
Falling into the common RFP-writing trap of using bid/tender concepts poses the very real risk of subjecting the procurement to the rules of competitive bidding, which may restrict the process and generate unintended results. Maintaining an more open-ended procurement process will result in greater flexibility in decision making and negotiation options. When drafting an RFP, avoid the use of boilerplate bidding documentation as the starting template and bear in mind the "Tercon factors" that provide a roadmap to creating a truly negotiated procurement process instead of a competitive bidding situation.