Municipal Procurement – Request for Proposal or Tender?
Municipalities can procure design and construction services in a number of ways. This article focuses on two of the most common – Requests for Proposals (“RFPs”) and tenders. It explains the differences between RFPs and tenders and when a municipality may want to consider using one process rather than the other.
The differences between RFPs and tenders are important. In a tender process, there are certain legal obligations that do not arise in an RFP process.
General Principles of a Tender Process
In a tender situation, two contracts are created, typically referred to as Contract A and Contract B. Contract A is the contract between each bidder and the tender authority. It comes into existence with each compliant bid that is submitted. The terms are based on the tender call and each bid submission. Contact A includes an implied duty on the municipality to treat all bidders fairly in evaluating the bids and awarding the project. Contract B is the construction contract between the municipality and the successful bidder. The terms of Contract B are set out in the tender.
General Principles of an RFP Process
RFPs are non-binding invitations for proposals from interested parties. The purpose of an RFP is to obtain offers. The offers are evaluated, following which there may be negotiations and possibly a contract. RFPs typically set out general information about the project, including design considerations and budget but lack the detail that would be in a call for tenders.
Unlike tenders, offers submitted through an RFP process do not create contractual relations. As a result, there is no implied duty to treat all proponents fairly, although the municipality must comply with any obligations set out in the RFP.
Deciding what process to use
While most municipal projects can be awarded through either an RFP or tender process, the particular circumstances may favour one or the other.
An RFP process may be the best approach where:
- design and construction details are unknown or known only generally;
- the municipality requires input into design options including new or alternative approaches;
- there may be uncertainty as to whether the project will proceed; and,
- if the project proceeds there is a need for further negotiation to reach a contract.
While an RFP process may lead to further negotiation and an eventual contract, the information obtained from the process may also be used to issue a call for tenders.
A tender call may be preferable where:
- design and construction details are known;
- price is a significant consideration;
- the municipality intends to proceed with the project; and,
- the terms of the contract to carry out the project are known.
Properly drafted tender documents should result in a competitive bidding process that allows municipalities to obtain the best price and often a better price than would be obtained through an RFP.
Ensuring fairness – Privilege Clause
A key aspect of a tender is the privilege clause. A simple privilege clause may state, “the lowest or any bid will not necessarily be accepted”.
The privilege clause determines the extent of the municipality’s duty to treat all bidders fairly. For example, while the simple clause above may allow a municipality to reject the low bid if it decides not to proceed with the project, it does not authorize accepting non-compliant bids, awarding a contract based on undisclosed terms and conditions or awarding anything other than the contract as stipulated in the tender documents. Privilege clauses are frequently drafted to give the municipality wider discretion in selecting bids. Clear language expanding this discretion is required.
Privilege clauses are strictly construed. Privileges should be clearly and expressly stated so that bidders are aware of them. When drafting privilege clauses, consideration should be given to the consequences of inserting overly restrictive privileges in favour of the tendering authority. Such language may impair the ultimate goal of obtaining competitive bids for the work.
If a document is labelled an RFP but is not properly drafted, a court may find that it is a tender. This may result in unintended and costly consequences to the municipality with respect to its legal obligations including the duty to treat all bidders fairly. In determining whether a document is an RFP or a tender the crucial consideration is the content of the document. Simply calling a document an RFP or tender does not determine the issue.
A well-drafted RFP states that it is an invitation for proposals and not a tender call; that its purpose is to initiate negotiations which, if satisfactory, will lead to a contract; that the tendering authority reserves the right to cancel the RFP process and to reject any or all proposals; and that proponents are undertaking all expenses associated with the RFP at their own risk.
In determining whether to proceed by RFP or tender, careful thought should be given to the particular project at issue. If proceeding by RFP, care should be taken to draft a document that is, in substance, an RFP. If a tender is being prepared, municipalities should include an appropriate privilege clause. Legal advice should be obtained where needed.