RFP or Invitation to Compete, What s the Difference?

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1 Invitation to Compete, What s the Difference? By: Bill Preston Lawyers will answer that an Invitation to Bid is the Judges disciplined, fair and equal competitive procurement process, while a Request for Proposals (RFP) is a self-interested negotiation process where both the procurer and the provider can, short of deceit, do and say as they please. So, for authors of procurement documents the choice becomes, what s your poison? Choose an Invitation to Bid by preparing a prescriptive design spec in the absence of the wisdoms of a quality constructor and hope that the owner can force the low priced bidder to complete quality on time, or choose an RFP and negotiate both a 3P design for the owner s requirements while hoping that the price is near market values. Obviously, all procurers would prefer the best of each without the risks a 3P design constructed as quick and inexpensive as a constructor will low ball. To achieve this ideal, for the past 15 years or so spec writers have tried to write hybrid procurement terms which seek to minimize the Courts opportunity to intervene, but yet compel the provider of construction services to price compete toward the lowest possible to get the award. And, as you might expect, the parties frequently end up spending time, money and reputation before a Judge fighting the issue: Are their hybrid terms an RFP and thus the Court cannot second guess decisions, or are they a competitive bid where the Court will impose its rules? To give you a feel of when the Judges will jump in, I ll review two cases, one from Nova Scotia and the other from BC. Cambridge Plumbing v. Strata Plan is a 2009 decision of the BC Trial Court. This action arose out of a competitive bid process for the procurement of construction services to replace the domestic hot and cold water system in a Vancouver 158 unit, Invitation to Compete What's the Difference (S ).docx - 10:01 AM / April 24, 2014

2 Page 2 11 story condo building. The owner s executive committee engaged a consultant to both detail a prescriptive design and tender the work as follows: Bids irrevocable for 90 days, 10% bid bond subject to forfeiture if contractor refuses to sign or doesn t provide contract security, Lowest bid will be accepted if it does not exceed available funding, and Submit a Consent of Surety letter for both a performance and a L&M bond. But, neither the owners nor their consultant had determined before the bid closing a construction costs budget cap nor a process for cancellation of the competitive bid process. What happened? After three years in court and considerable, costs the owners procured, by negotiation, the requisite construction services to replace the domestic hot and cold water system in the condo building. Here are the facts: 1. The bid closing attracted three bidders, including Cambridge who was lowest at $1.85M. 2. None of the bidders were perfectly compliant because each screwed up their Consent of Surety letter (two were open only for 60 days, not 90, and the third consented only to provision of a performance bond, not also a L&M bond). 3. BC Strata legislation requires that, before awarding the construction contract, the condo executive committee had to receive a 75% approval vote of the owners. 4. The executive committee received their consultant s recommendation to award to Cambridge, but some of the executive were concerned that the price was too

3 Page 3 high and thus asked the engineer whether they could negotiate with Cambridge. 5. The Consultant opined to the executive that it was too late to negotiate with Cambridge before making the award and to cancel the bid process would weaken the Association s bargaining position toward reducing Cambridge s bid price. 6. Yet, some executive members sent an to all of the owners recommending that the award to Cambridge should be voted down because the total cost was beyond budget. 7. At the owners meeting, some expressed a preference to rely upon the consultant s recommendation; some feared that if the bid process was cancelled the eventual project costs would be higher; while, some argued that Cambridge s price could be reduced by negotiating with the three bidders. 8. The meeting failed to get the requisite 75% vote support and Cambridge was promptly notified by that the competitive bid process was cancelled because there was no funding approval. 9. After this rejection of Cambridge, the president of the executive, who throughout had been a proponent of negotiation, entered into negotiations with both Cambridge and the second lowest bidder to eventually obtain a cost saving of $180, by contracting with the second lowest bidder, not Cambridge. Cambridge sued alleging that the condo owners had breached the competitive bid contract in two respects:

4 Page 4 Orchestrating a negative owners vote to achieve what they wanted, a chance to negotiate unfairly and unequally; and, Circumventing the competitive bid process by bid shopping Cambridge s bid price. In response, the owners defended by arguing both: Cambridge s bid was not compliant and thus had to be rejected because it had messed-up its Consent of Surety letter; and, Also, the competitive bid process was legally cancelled when Cambridge learned that a 75% vote had not been obtained and thus the needed funding was not available. The trial Judge concluded that Cambridge s bid was substantially compliant and thus Cambridge was entitled to the benefit of the judicial requirements of fair and equal without negotiations; while, the owners refusal of the requisite funding and their report to Cambridge legally cancelled the competitive bid process and thereafter permitted the owners to negotiate Cambridge s price as some owners wished. Here is how the Judge came to this result. 10. The law must first look at the whole of the Bid Documents. 11. If there is some ambiguity, then the Judge may consider the objective (not including what the author of the bid terms subjectively intended) circumstances of the procurement process seeking to determine which of the various interpretations clearly makes the most sense.

5 Page Here, the Bid Documents did not spec the requisite duration of the Consent of Surety but the irrevocability period permitting the condo owners to accept a bid was 90 days. 13. Here, given the Bid Bond secured against the condo owners risk that an awarded contractor might refuse to provide the requisite bonding, the Consent of Surety wasn t needed for this purpose. 14. Thus, the only apparent functional purpose of requiring a Consent of Surety was to permit the owners to know whether the bidder had a quality surety available and this functional purpose is substantially satisfied by the Consent of Surety letter which Cambridge did submit. 15. Further, a Surety expert testified that in BC, at the time of the award, Consents of Surety were as a matter of practice frequently accepted without any reference to duration because of the security provided by the bid bond. 16. Thus, while the Bid Bond is crucial to the integrity of the bid contract, the Court determined that the Consent of Surety was not. 17. Finally, given all parties to all competitive bid processes must reasonably expect that a prerequiste for all awards is receiving funding, it is an implied term that in this case, even where the owners had not published a budget cap, nonetheless the bid process may be cancelled if funding becomes unavailable. 18. Here, Cambridge has failed to establish that it is obvious that the owners collectively orchestrated a process to circumvent or abuse the fair and equal principles of the competitive bid process.

6 Page And, the law clearly permits, where the bid documents do not spec a method for cancelling the bid process, then an to Cambridge suffices if it clearly has announced that the requisite funding is not available. 20. Once this cancellation has been so communicated, the condo owners were legally entitled to procure the requisite construction services from whomever and however they wish, including bid shopping. The other case for your consideration is Guysborough v. Resource Recovery Fund Board, a 2011 decision of the Nova Scotia trial Court. Briefly, the RRFB a provincial government entity, was seeking a contractor to process and recycle scrap tires throughout Nova Scotia. In doing so, it chose an RFP and short listed the proponents to two, the district municipality of Guysborough and a private business, Halifax C & D Recycling. Eventually C & D was awarded the project and the Municipality sued, arguing: The procurement process was a Competitive Bid process and the RRFB has not treated the Municipality fairly and equally ; or, If the process was a negotiation, the RRFB had treated the Municipality negligently. RRFB promptly went to Court chambers arguing that there was absolutely no merit to the Municipality s arguments and requested that the case be summarily dismissed before the parties incurred the costs and delay of a trial. The chambers Judge thus dealt with the two issues: Was this RFP really a Competitive Bid process? And, if a negotiation, must the RRFB still carefully and fairly deal with all proponents?

7 Page 7 The Judge firstly acknowledged that use of the label RFP is not always determinative of the issue whether it is a competitive bid or a negotiation process because the construction services market has been very casual and flexible in using labels. But, after going through all the terms of the RFP he concluded, without a trial, that it was a negotiation process and that the RRFB had no duty to treat the unsuccessful Municipality fairly, carefully, or equally. He adopted similar earlier decisions from BC, Manitoba, and the Supreme Court of Canada: without being deceitful, the RRFB was entitled to negotiate with an attitude of self-interest. How did the Judge come to his conclusion? 21. He first listed the 10 legal considerations when reviewing all the terms of the procurement documents to determine whether its negotiation or competition: Could a proponent withdraw from the process after the closing and before award? Is there a strict formality for the form and content of the proposal? Was the proponent required to secure its submission by a bond or a cheque? Did the procurer agree to use a scoring system for its evaluations? Was there a usual privilege clause spec ing the limit of the procurer s right to reject a proposal? Is there any commitment by the procurer to award the project? Is there a strict prescriptive description of scope of work and/or schedule of performance? Is there a clear statement warning that it was not a tender call process?

8 Page 8 Were there words such as may, prefer or negotiate, rather than must or shall? 22. In this RFP, most of the terms were compliant with the 10 legal considerations, but the following few encouraged the Municipality to argue that it was an Invitation to Competitively Bid: Proposal requirements must be substantially adhered to in order for the proposal to receive RRFB s consideration. The evaluation team may seek clarifications of a proposal but such will not offer a proponent an opportunity to improve its competitive position. 23. In spite of these terms, the Judge concluded that the parties did not create a competitive bid because the whole of the RFP language makes it clear: No form of construction contract is attached. Elements of negotiation of price and scope of work were required Established time lines and proposal deposit requirements are common to RFPs seeking to negotiate. 24. Finally, an offer to negotiate is generally not considered to give rise to the legal rules of fair and equal. 25. The concept of a duty to take care for the other side during negotiations is repugnant to the adversarial positions involved in negotiations. 26. Thus, the Municipality s action is summarily dismissed without going through the costs and delay of pre-trail discoveries and a trial.

9 Page 9 Conclusion If owners wish great flexibility to procure the scope, schedule and price they think best for them, then their procurement terms should be written with the 10 emboldened legal considerations clearly in mind.