MMCD Webinar Series presents: Good Tendering Practices After Tercon - - PowerPoint PPT Presentation

1

Good Tendering Practices After Tercon MMCD Webinar Series presents:

Follow MMCD for the latest industry news and updates Website: mmcd.net

2

Good Tendering Practices After Tercon

MMCD Webinar March 23, 2011 - Vancouver

Presented by: Karen Martin, Partner Tel: 604-691-6455 Email: karen.martin@fmc-law.com John S. Haythorne, P.Eng., Partner Tel: 604-691-6456 Email: john.haythorne@fmc-law.com Follow MMCD for the latest industry news and updates

3

The Challenge

• Tender/RFP law is constantly developing which creates

uncertainty

• Legal rules are strict
• The risks:

– High risk of claims/litigation – Damage awards can be large – Failure to reap the benefits of a good competition for the project

4

Sources of Tender Law

• Common law
• Legislation – government procurement
• Treaties – AIT, TILMA, NWPTA
• Bylaws, policies, manuals, etc.

5

Basic Principles of Tender Law

• Contract = offer + acceptance on the same terms
• Contract terms can be express or implied

Ron Engineering:

• Tender documents = Offer

Bids = Acceptance  Contract A’s (bid contracts)

• Award to one bidder creates Contract B for the work (i.e. the

construction contract)

6

Basic Principles of Tender Law

• Contract A may arise with each bidder when a compliant bid is

submitted – i.e. if acceptance is on the terms of the offer in the tender documents

• Main terms of Contract A are in the tender documents
• Once the bids are in, you are in a contract!
• Breach of Contract A results in an award of damages = lost

profits on the job ($$$)

7

Duty of Fairness

Which is not a component of the duty of fairness?

• Treat all bids evenly consistently and apply assumptions

equally

• Disclose all operative terms and evaluation criteria – have no

hidden preferences

• No bid shopping
• Give every bidder an equal chance of winning

8

RFPS

• TENDER – seeks an irrevocable price (with bid security) for a

detailed scope of work + a settled form of contract

• RFP – an invitation to submit proposals with differing scopes

and negotiations to follow

• What’s the difference? True RFPs have an undefined scope of

work and contemplate negotiation

• BUT – the same basic duties apply
• Follow the rules in the RFP; don’t negotiate with a non-

compliant proponent, etc.

9

Tercon – Some Facts

• Design-Build RFEI to get a shortlist of 3 proponents
• RFEI required details of the team
• 6 responses – Brentwood was ranked 5th
• Before finalizing the shortlist, BC decides to re-load
• Change to alliance model – RFP issued to 6 original proponents

– only they can submit a proposal

• RFP – Formal process: security, irrevocability, Contract B
• Change in team requires written notice. BC can formally

approve a change

10

Tercon – Some Facts

• Brentwood notifies BC of its JV with Emil Anderson. BC calls to

say you must submit the proposal in Brentwood’s name. No formal written response

• Brentwood calls Emil Anderson a “major member” of team and

“major subcontractor” in its proposal

• Brentwood – $24 million and supportive of alliance model;

Tercon – $26 million and skeptical of alliance model

• Brentwood wanted the Contract B to be with the JV, but BC

said no, it must be with Brentwood

• Tercon sues BC for awarding to an ineligible entity

11

Tercon Exclusion Clause

• Except as expressly and specifically permitted in these

Instructions to Proponents, no Proponent shall have any claim for compensation of any kind whatsoever, as a result of participating in this RFP, and by submitting a Proposal each Proponent shall be deemed to have agreed that it has no claim

12

Tercon - The Issues for the SCC, 2010

1. Did a Contract A arise under this RFP? 2. Should Brentwood have been allowed to participate in the RFP? 3. If not, was Tercon’s claim barred by the exclusion clause?

13

Tercon - The Scorecard

BCSC – 1 judge for Tercon BCCA – 3 judges for BC SCC – 5 judges for Tercon – 4 judges for BC Total – 6 judges for Tercon – 7 judges for BC BUT Tercon wins

14

Tercon v. BC, BCSC, 2006

• A Contract A was created by the RFP based on an intention to

enter into contractual relations

• A contract was actually awarded to an entity that was in fact a

JV who had not pre-qualified and therefore was ineligible

• BC was involved in a cover up and its conduct was egregious in

not following its own process

• Where the owner acts so unfairly, it can not rely on an

exclusion clause – it’s fundamental breach, or “participating” in the clause is unclear and so not enforceable, or it’s not fair

• Damages = $3.3 million

15

Tercon, BCCA, 2007

• Only issue was application of exclusion clause
• Language of the clause is so clear and unambiguous that it is

inescapable that it was intended to cover all breaches including fundamental breaches

• “Participating” clearly means involvement in the process
• Tercon is sophisticated. Industry can refuse to bid

16

SCC - Did a Contract A Arise?

• TJ rightly conducted a detailed analysis of the parties’ dealings

and reviewed in detail the RFP provisions. Contract A arose: – a specifically defined project – a closed and specific list of eligible proponents – proposals were evaluated against specific criteria – a constrained negotiation, not about fundamental details – an intent to create contractual relations; although not a “classic” Contract A

17

SCC - Eligibility of Brentwood

• Ministerial approval limited participation in the RFP to bidders

who participated in the RFEI

• RFP said only the 6 proponents selected in RFEI were eligible

and had a mechanism to determine a team’s qualification to bid if there was a material change to a proponent

18

SCC - Eligibility of Brentwood

• Brentwood’s bid was in fact on behalf of a JV with EAC; BC

knew this; and this was a material consideration

• Allowing a JV to bid gave B a competitive advantage over other

bidders and BC took steps to obfuscate reality

• BC breached the express eligibility terms of the RFP and the

implied duty to act fairly to all bidders

19

SCC - The Exclusion Clause

The Majority

• Special commercial context of tendering – courts must protect

the integrity and business efficacy of the process – especially in public procurement

• Only compliant bids can be considered
• It makes no sense that BC could avoid liability for ignoring the

express term regarding eligibility on which the entire RFP was premised, so clear language would be necessary to do this

20

SCC - The Exclusion Clause

The Majority

• Rejects the argument that Tercon is sophisticated and agreed

to the clause – this ignores the meaning of the clause and the fact that BC can draft clear and comprehensive clauses when it wants to

• Clause has a meaning – but when a defect in BC’s adherence to

the process is such that BC is acting completely outside the process, the clause doesn’t operate

21

SCC - The Exclusion Clause

The Majority

• BC did not specifically reserve right to accept bid from an

ineligible bidder or to unilaterally change the rules of eligibility

• Intention not to gut the eligibility requirements or render

meaningless the Minister’s approval – to the competitive disadvantage of other bidders and disguising the true state of affairs

• BC’s conduct strikes at the heart of the integrity and business

efficacy of the tendering process

22

SCC - Exclusion Clause

The Minority

• Court has no discretion to refuse to enforce a valid exclusion

clause unless there is a paramount consideration of public policy sufficient to override the public interest in freedom of contract

• A fair and transparent bidding process is based on the

presumed (implied) intent of parties. Rarely will the court relieve a party from the bargain it made

23

SCC - The Exclusion Clause

The Minority

• To conclude that by BC’s conduct the process ceased to be the

RFP process contemplated is “a strained and artificial interpretation”

• Clause not unconscionable

– No unequal bargaining power – No policy reasons – other remedies for Contract A were available: specific performance or injunction – Ministry’s conduct wasn’t so bad as to justify judicial interference

24

Tercon Lessons for Good Practice

• Pay attention to statutory project approvals
• Don’t use out of date procurement documents – you are

drafting a contract and can be held liable

• Don’t draft an unnecessarily complex process – technical

requirements for convenience can cause legal problems

• Follow the process strictly – including in RFPs
• Get early legal advice if compliance/process issues arise
• Be cautious with changes to bidder teams
• Exclusion clauses may work, but litigation results are uncertain

25

MMCD Instructions to Bidders

• 3. MUST be in sealed, marked envelope and received by closing
• Time. Late tenders will be returned unopened
• 5. MUST be on the Form and signed, with Bid Security

MUST include Appendices

26

MMCD Instructions to Bidders

5.4 Tenders with qualifications or omissions making comparison difficult MAY be rejected 6. Alternative bid MUST be in addition to base bid and

• wner may only accept alternative of the bidder with

the best base bid 12. Amendments after closing must not be considered

27

MMCD Instructions to Bidders

15. Owner may reject any or all tenders Owner may waive any defect or deficiency which does not materially affect the tender or price relative to others Rules for discrepancies in Schedule of Qs & Ps

28

Tips for Better Tender

29

Tip #1: - The Tender Documents Are All Important

• Tender documents are strictly enforced
• Tender documents = “last chance” - commit the owner for the

entire project through the tender (duration of Contract A) and the construction contract (Contract B)

• Specify whether and extent of permissible pre-award

negotiations

30

Tip #2 - Tender Documents Set Out The Rules Of The Game, So Include Common Sense

• If you don’t make room for common sense, there may be no

room

• Give owner discretion to waive minor defects or irregularities
• Discretion to waive does not mean owner has obligation to

waive

• Do not prescribe procedures that are unnecessary!

31

Tip #3 - Think Ahead Proactively – Address Likely Problems

• Review proposed project and identify potential trouble spots
• E.g. Specify that all questions must be addressed to one

identified person – Not an office or firm

– One representative avoids risk that two answers will be given to the same question

• E.g. Follow policy of stating any issue only once in the tender

documents – Lawyers’ rule of interpretation - if you say it twice you will say it

differently – When you are finished - read it through

32

Tip #4 - Full Disclosure

• One bidder can’t keep its question confidential
• Tell everything to all bidders

– Keep track of questions and confirm in written addenda – Specify that no oral advice may be relied on

• Pre-tender meetings

– Mandatory site inspections or just deemed visit? – Treat circulated minutes of meeting seriously

33

Tip # 5 - Make It Easy For Bidders

• Don’t make unnecessary information mandatory
• Set up tender form so that it is difficult to miss essential

information

• Eg - Don’t require numbers in both words and figures

34

Conclusion

Remember:

• There are multiple Contract A’s:
• Follow the rules
• Treat all bidders consistently
• Post closing discussions are risky

Good Tendering Practices After Tercon

MMCD Webinar March 23, 2011 - Vancouver

Presented by: Karen Martin, Partner Tel: 604-691-6455 Email: karen.martin@fmc-law.com John S. Haythorne, P.Eng., Partner Tel: 604-691-6456 Email: john.haythorne@fmc-law.com Follow MMCD for the latest industry news and updates