This article first appeared in Build Manitoba, a publication of the Winnipeg Construction Association.
With the summer construction season just around the corner, project procurements are now in full swing. It’s important for all construction industry participants – owners, contractors and subcontractors – to remember crucial requirements for a successful procurement.
Below are some key considerations, particularly for responding to a competitive procurement:
One – Is the procurement process binding or non-binding?
Procurement processes can be binding or non-binding. In a binding process (often called a “formal tender” or a “Contract A/Contract B scenario”), the owner is bound to select the bid that scores highest against the evaluation criteria. Such bids are often assessed on the lowest price. The alternative is a non-binding process often called a Request for Proposal (RFP). A non-binding process usually has a wider range of considerations and may involve negotiations with a preferred proponent before the parties execute a binding contract.
Binding processes are generally most effective when the scope is well-defined, the pool of bidders have comparable qualifications and price is intended to be the main determining factor. Non-binding processes are well-suited to projects with less defined design or flexible scopes. Or alternatively, when factors other than price are also key considerations for owners.
It’s important to note that the terminology used to refer to a procurement such as a “tender” or “RFP” does not determine if the process is binding or non-binding. Whether the process is binding or not can be assessed by looking at the procurement documents and the parties’ intentions. Considerations include whether bids are irrevocable, require bid security and the wording of any privilege clauses providing discretion to the owner.
If the process is a binding one, the owner’s options to select a non-compliant or deficient bid, or to request clarification or revisions may be limited. Therefore, it’s important for contractors to fill out the bid form completely and exactly in accordance with the instructions provided. Ultimately, the law of tendering seeks to create obligations that lead to a fair process for all participants. This leads to our next key point:
Two – Has the bid form been completed correctly?
It may seem simple, but the number of bid forms that are not prepared correctly is significant. The ambiguity created by an improperly completed form can be avoided by reviewing the instructions to bidders, as well as double and triple-checking the form.
Options to rectify a non-compliant bid in a binding process are quite limited. The owner can be faced with the difficult decision of disqualifying a non-compliant, preferable bid versus the risk of other compliant bidders launching legal proceedings in the event of an award to a non-compliant bidder.
To avoid potential disqualification, a bid form should be reviewed closely for requirements and then completed precisely in the requested form. Where the requirements of the procurement document and/or the bid form conflict or are unclear, bidders should raise questions to the owner that can be reviewed and potentially addressed by addenda. This should be done as early as possible to avoid late requests and late-issued addenda. This leads to the next point:
Three – Have all questions and addenda been addressed?
Most procurement processes provide an opportunity to ask the procuring entity questions and clarifications. These questions are often the subject of formal responses by issuing an addenda to revise the procurement terms or requirements.
Significant changes, both technical and contractual, may be issued by addenda. Owners often require bidders to acknowledge receipt of all addenda (and list them) in their bid form/proposal.
To prepare a competitive and accurate response to a procurement, bidders must carefully review and consider all addenda and challenge how any previous assumptions may be changed by these addenda.
Missed details contained in addenda can lead to a bid being deemed non-compliant or disqualified or make the bid uncompetitive or unprofitable. Any attempt by a contractor to later claim cost or time for changes based on missed addenda is usually unsuccessful.
Four – Has the form of proposed contract been considered?
Many procurement processes reference the form of contract the owner proposes to use. It may include the draft contract – particularly if an owner’s template is used or if there are significant supplementary conditions to standard industry templates.
It’s essential for bidders to read and fully understand the contract pre-bid because the commercial terms may impact the bid. It is the legitimate expectation of the owner that a contractor’s bid is based on the form of contract referenced in the procurement.
Issues with the proposed contract should be raised prior to submitting a bid, particularly in a binding procurement process. Including words to the effect that the “contract will be negotiated” when there is no opportunity for post-bid contract negotiation in the procurement process, can leave an owner with little choice but to reject the bid as non-compliant.
Similarly, even in a non-binding process, attempting to substitute significantly different commercial terms for a contract (particularly post-bid) can lead to delays in approving the contract or the decision to consider alternative proponents.
Conclusion
Competitive procurement processes offer contractors significant opportunities to win new work and solidify their schedules for weeks, months and sometimes years in advance. However, the risk of not paying careful attention to the procurement requirements, documents and bid forms, can lead to wasted time and costs spent on non-compliant or ineffective proposals. There is also the potential for incorrectly pricing a job based on the failure to review all procurement documents.
Lawyers on our procurement team assist clients with all stages of procurement including preparation of documents, advice in responding to procurements and preparation of contracts for execution.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.