July 27, 2011

Conditional bid ruled legally invalid

Legal | Paul Emanuelli

When a bidder strays from the tender call rules of engagement and inserts qualifications, reservations or conditions into its bid, the courts may take this to be a counter-offer that renders the tender non-compliant and incapable of acceptance.

For example, in its decision in Halifax Shipyard Ltd. v. Canada (Minister of Public Works and Government Services), the Federal Court of Canada held that a bidder’s attempts to “clarify” its tender submission constituted a counter-offer, rendered its tender non-compliant and entitled the government to reject the tender.

As the court noted, by inserting a number of reservations and conditions in its tender, the bidder failed to accept the terms and conditions of the tender call:

the applicant’s proposal qualified its acceptance of certain terms and conditions incorporated by reference in the RFP. In Volume 2 of its proposal, entitled “Pricing and Contractual Consideration,” the applicant confirmed its acceptance of most, but not all, of the terms and conditions specified in the RFP. Article 2.6 of its proposal stated:

Article 22 - Indemnity Against Third Party Claims. A mutually acceptable limitation of liability clause to be negotiated.

Article 26 - Default by the Contractor A mutually acceptable limitation of liability clause to be negotiated at sub-article 3 to limit liability to a reasonable amount consistent to the nature of the work.

The bidder’s proposal had the lowest price. Based on the mistaken assumption that the proposal was compliant, the bidder was ranked first overall.

The government sent the bidder a letter confirming that it would not entertain any negotiations.

The bidder responded by characterizing its negotiation request as a “clarification” aimed at achieving “greater certainty.”

The bidder stated that it accepted the relevant terms, but then attached additional legal terms and conditions that included a limitation of liability provision. The proposal was rejected as non-compliant and another bidder was awarded the contract.

After unsuccessfully protesting to the Minister, the bidder brought an application to quash the contract awarded to the competing bidder. The court dismissed this application and held that the government was within its rights to reject the bidder when the bidder attempted to negotiate around the contract liability clauses contained in the tender call. As the court explained:

<0x2026>the language used in clause 6.1 of the RFP makes it clear that the unlimited liability clauses in question “shall” form part of the contract. Contrary to the applicant’s contention, there is nothing in the RFP which would suggest that those terms and conditions were optional or open to negotiation.

Furthermore, HSL cannot reasonably argue that it was misled or did not fully understand the respondent’s position. The letter of June 8, 1995 is unequivocal; the respondent had no intention of negotiating, at that time, terms and conditions of liability.

The applicant also argues that Article 2.6 of its proposal was not a rejection of Articles 22 and 26 of General Conditions 9601, but was rather, a suggested alternative means of securing the interest of the Crown in indemnity and default through the purchase of insurance by the bidder. I am satisfied however, that the HSL proposal made the liability clauses subject to negotiation and that the applicant’s response to the department’s subsequent inquiries constituted a qualification on its bid.

The qualification contained in the bidder’s proposal therefore proved fatal to its tender and to its bid protest.

As this case illustrates, when bidders attempt to negotiate around the contract terms contained in the tender call, they can be negotiating themselves right out of the competition.

Paul Emanuelli’s procurement law practice focuses on all aspects of the tendering cycle, including bid dispute resolution. This article is extracted from his Government Procurement textbook published by LexisNexis Butterworths. Paul can be reached at paul.emanuelli@procurementoffice.ca

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