Ten Plus Pointers for Drafting Procurement Documents

Transcription

1 TENDERING LAW 2014 UPDATE PAPER 2.2 Ten Plus Pointers for Drafting Procurement Documents These materials were prepared by David W. Little of Fasken Martineau DuMoulin LLP, Vancouver, BC, for the Continuing Legal Education Society of British Columbia, October David W. Little

2 2.2.1 TEN PLUS POINTERS FOR DRAFTING PROCUREMENT DOCUMENTS I. Introduction... 1 II. Part I Ten Priority Pointers... 2 A. Privilege Clause and Expanded Rights... 2 B. Limitation of Liability... 2 C. Conflict of Interest Legal Counsel... 3 D. Bid Security... 3 E. Confidential Information... 4 F. Owner s Site Data... 5 G. Investigations... 5 H. Evaluation... 5 I. What to Ask For in a Tender/Proposal?... 6 J. Time Pressure... 7 III. Part II Other Pointers... 8 A. Short-listing... 8 B. Clarification v. New Information... 8 C. Use of References... 8 D. Jurisdiction and Forum for Contract A Claims... 8 E. Simplify Time/Date Amendments... 8 F. Electronic Delivery... 8 G. RFP/Bidding/Participation Agreement... 9 H. Failure of Formal Procurement... 9 I. One-to-one Meetings/Communications with a Single Bidder... 9 J. Drafting Non-mandatory v. Mandatory... 9 I. Introduction In Canada, tendering law is a Contract A/Contract B analysis. The framework was first established in R. (Ont.) v. Ron Engineering and Construction (Eastern) Ltd., [1981] 1 S.C.R. 111, where the Supreme Court of Canada determined that there are two separate contracts that arise during the tendering process. Contract A, the procurement contract, comes into existence when a tender is submitted in response to the request for tender. The submission implies the acceptance of a contract, the terms of which are established by the procurement documents. The procurement documents are prepared by the owner, and therefore the terms of Contract A are within the owner s control.

3 2.2.2 Contract B, the construction contract, comes into existence when the owner accepts the bid made by the successful bidder. There may be variations on the Contract B terms depending on the flexibility provided by the procurement to allow proponent-provided solutions or negotiations. What is the purpose of the procurement documents? Mainly to provide for a competition among bidders for the benefit of the owner. The procurement documents set out the rules of the game. While there are implied duties that are specific to the law of tendering, the solicitor may take some comfort that general principles of contract law provide the framework for the analysis and drafting of the Contract A and the Contract B. Part I of this paper sets out a priority list of 10 issues that arise in drafting procurement documents. Other considerations may apply based on the unique aspects of each procurement process. Part II of this paper lists some of them. II. Part I Ten Priority Pointers A. Privilege Clause and Expanded Rights The privilege clause, and the owner s rights when selecting the winning bid, are addressed by other papers and presentations, but are so important that they are listed as the first item in this paper. The basic privilege clause provides that the lowest or any tender will not necessarily be accepted. The basic privilege clause is suitable for simple tenders, as long as the owner is willing to accept the responsibilities of the implied obligations and the risk of breaching those obligations. Evaluation rights are limited. Most often, questions of compliance/non-compliance determine the outcome of a tender. This simple privilege clause is not suitable for owners who wish to depart from the simple process and evaluation. Many tenders, and definitely requests for proposals, expand the privilege clause and the rights of the owner. B. Limitation of Liability Procurement documents may contain a limitation of liability clause, purporting to protect the owner from liability that may arise from breach of Contract A and its implied obligations. See Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, for a case where such a clause did not protect the owner. The limitation of liability clause is important and should be drafted with care. Some of the considerations include: (a) the scope of events of liability that can be limited (i.e., which duties can the owner breach); (b) the extent of damages that are excluded; and (c) whether there is a specified limit of liability (e.g., reimbursement of costs or whether there is an attempt to exclude all liability). While it is advisable that owners spend time with their counsel developing an approach to limit their liability, it is equally or even more advisable to spend time on other rules of the game, so that the owner can follow the rules. More time spent drafting clear rules that the owner will follow decreases the need to try to rely on the limit of liability clause.

4 C. Conflict of Interest Legal Counsel Tendering presents a challenge to counsel for the owner. At the time the procurement documents are developed, the owner is the only party involved. There is no adverse party identified, only potential bidders. It is at the time of the bid that it is clear who the first level adverse party will be (i.e., the contractor). Subcontractors may or may not be known. Note that in a process with short-listing, the identity of adverse parties may be known at the time of short-listing. For counsel to the owner, conflicts may arise if counsel has an existing client relationship with some of the bidders, but the usefulness of conflict checks is still limited in cases where the parties are not known in advance. If there is a true legal conflict, the lawyer will not be able to represent both the owner and the bidder on the same procurement. There is no simple solution, but there is a preventative measure available. The lawyer may request owner-clients to include a clause in the procurement documents, such as the following: By submitting a Proposal, the Proponent expressly consents to [lawyer] continuing to represent the Owner for all matters in relation to this RFP and the Project, including any matter that is adverse to the Proponent, despite any information of the Proponent and any solicitor-client relationship that the Proponent may have had, or may have, with [lawyer] in relation to matters other than this RFP and the Project. This Section is not intended to waive any of the Proponent s rights of confidentiality or solicitor-client privilege. Counsel may also face a challenge when acting for two bidders, even though only one will be the winner. Rule of the Code of Professional Conduct for BC addresses the issue of concurrent representation with protection of confidential client information: Where there is no dispute among the clients about the matter that is the subject of the proposed representation, two or more lawyers in a law firm may act for current clients with competing interests and may treat information received from each client as confidential and not disclose it to the other clients, provided that: (a) disclosure of the risks of the lawyers so acting has been made to each client; (b) each client consents after having received independent legal advice, including on the risks of concurrent representation; (c) the clients each determine that it is in their best interests that the lawyers so act; (d) each client is represented by a different lawyer in the firm; (e) appropriate screening mechanisms are in place to protect confidential information; and (f) all lawyers in the law firm withdraw from the representation of all clients in respect of the matter if a dispute that cannot be resolved develops among the clients. D. Bid Security Bid security is at the root of the development of tendering law, and remains an important concept. An owner seeks competitive bids that are open for acceptance by the owner for a specified period of time. The owner does not expect to turn to the successful bidder and award the contract only to

5 2.2.4 find that the bidder has revoked the offer or is seeking to negotiate new terms. The other bids may be higher or unsuitable, or the other bidders may seek to revoke their bids. The owner s solution is to obtain bid security. One form of bid security is cash, but cash deposits are expensive and risky for bidders. A more common form is the bid bond, which allows the owner to award a contract based on the bid and requires such bidder to enter into the contract unless it is prepared to forfeit the bond. Security is complicated enough in a pure tendering situation. It is more complicated in other situations, such as the following: Short-listing. If the owner short-lists proponents (e.g., 3 or 4), the owner is narrowing the competitive field. Any proponent who drops out will reduce the level of competition. Should there be security for a proponent to agree to provide a proposal? Proposal Security. If a proponent makes a proposal in a situation where negotiations are expected between the owner and the successful bidder prior to entering into the construction contract, a bid bond will not typically be suitable. A letter of credit would be more suitable. What, then, would be the conditions in which the security will be forfeited? Should the proponents have an obligation to negotiate? What terms should apply to such negotiations? Good faith? Reasonableness? All forms of security have costs associated with them, either in the form of out-of-pocket expenses or opportunity costs (e.g., bonding capacity is limited and bidders may be prevented from entering into further bids simultaneously). The risk and reward of winning the competition must be significant enough to merit the bidding costs imposed by bid security, since security requirements that are too onerous will narrow the field of potential bidders. E. Confidential Information An owner may have confidential information that the owner wishes to protect. For example, the information about a project may be competitively sensitive (e.g., the owner may wish not to disclose certain details to its competitors), or it may be the subject of security (e.g., critical infrastructure). On the other hand, an owner needs to provide sufficient information to proponents so they may submit competitive bids. In order to protect confidential information, an owner may require the bidders to enter into a confidentiality agreement before they are allowed to participate in the tender. A confidentiality agreement is, however, simply a contract, so the promises are only as strong as the covenants of the proponent signing the confidentiality agreement. If a tender is open to anyone who wishes to bid, there is no assurance that parties will adhere to confidentiality obligations. A higher degree of protection is obtained where the owner decides to short-list proponents, so that only trusted proponents who can credibly make confidentiality commitments will be in a position to receive confidential information and, therefore participate in the procurement. Bidders may also have concerns with regards to their confidential information, particularly those bidders that are privately held. In a procurement where an owner relies on a bid bond/performance bond, the owner will tend to rely on the sureties to assess the credit-worthiness of the bidders. In

6 2.2.5 other situations, the owners are taking the risk of the bidders credit-worthiness and may seek to obtain financial information. Owners should be sensitive to the confidentiality concerns and may consider requesting such financial information in a separate package, for distribution to only a limited number of personnel and consultants, bound by confidentiality. F. Owner s Site Data Owners will seek to allocate responsibility and risk on the bidders and the ultimate winner of the competition. Bidders, understandably, want to have access to as much information in the possession of the owner as possible. Some of this information may include reports of consultants. The intended risk allocation will drive the commitments by the owner and agreed extent of reliance by the contractor on the owner s information. This may range from no reliance, to an intermediate step of reliance on some information (e.g., testing or bore hole data to avoid re-testing), to full reliance. Note that an owner who is in possession of relevant information should be cautious about disclosure and reliance but should also be cautious about risks of not disclosing it. The owner will not wish to mislead bidders or create an unfair advantage to one of the proponents (e.g., an incumbent). Full disclosure may assist to neutralize unfairness. G. Investigations If an owner wishes to transfer responsibility and risk to a proponent, such as the risk associated with site conditions, the owner should expect that bidders will seek to investigate the site. The investigations may be conducted by separate bidders, without sharing information with each other, or by the owner for subsequent disclosure to all bidders. The owner should select the most convenient approach, based on a cost-benefit analysis. An owner should act prudently before permitting bidders to conduct investigations on site, considering the risks associated with site visits. At a minimum, the party entering onto the site should carry appropriate insurance and comply with the owner s policies, if any, for the site. H. Evaluation The procedures for the evaluation of a pure tender are not usually set out with much detail, and the owner will rely on the privilege clause in order to select a bidder. Evaluations of proposals can be complex, especially when the evaluation combines technical and pricing evaluations. Some examples: Low Price Competition. This evaluation is based on selecting the lowest price, after assessing compliance with a defined standard. These standards may include compliance with, substantially satisfies or substantially meets the procurement documentation. Best value. Although the owner may wish to obtain the best value, this is an imprecise measure. For example, a high price (even one higher than the owner s budget) may be the best value in the long term, but it would not necessarily be acceptable to the owner.

7 2.2.6 Criteria and Weighting. It is simple to draft a certain % weighting to different categories, but a % weighting may be difficult to apply to price. Higher-level criteria, without detailed sub-criteria, tend to give the owner certain discretion in the proposal evaluation procedures. However, such criteria may make it more difficult for proponents to understand how to win. Pass/Fail v. Scoring. Some elements of a proposal may be minimal requirements, but will not distinguish one proponent from another. Consider using pass/fail criteria for those elements. Pricing Pro-rated based on How Far the Highest Proposal is above the Lowest. This is a mathematical approach, but all scenarios should be considered to see whether this is suitable. For example, should there be a baseline level of minimum quality that should be met as a compliance test? Provide the Most within a Budget. This takes price out of the evaluation. There are unlimited variations and combinations, and many consultants and advisors who will have strong competing opinions. Be aware that in all circumstances the tendering rules should be expected to apply. I. What to Ask For in a Tender/Proposal? A typical tender will request information about the bidder such as the bidder s name, jurisdiction of formation, price and rates in order to assess the bid and complete the contract (e.g., subcontractors and equipment list). There is a tendency for owners to ask for too much information. If the owner requests information, it should be for a purpose, and presumably should form part of the evaluation. Otherwise, why ask for it? Asking for too much information can be particularly problematic in a compliance-based evaluation, because any information, whether provided, concealed or provided in the wrong or inconsistent format, can arguably be part of the question of whether a bid is compliant. In a request for proposals procurement, the owner may be seeking the solution or may be attempting to promote innovation. Proposal requirements that are too specific, especially if mandatory, will restrict the types of solutions, or may create a risk of non-compliance. In addition, requesting too much information, or too much detailed information, will impose costs on bidders. There is another problem. In an effort to persuade an owner, proponents may include irrelevant or marginally relevant information, or may provide too much information. This may be addressed with a page limit requirement. As a framework for analysis, the owner should consider the following questions: What is necessary for evaluation? E.g., pricing and meeting specified criteria. What is necessary for due diligence? E.g., pass/fail elements. What is required for completing the contract? What is the owner prepared to review and evaluate? Assume that if the information is provided, the owner should review it. What will stifle innovation?

8 2.2.7 What will create a risk of non-compliance? What are the costs on the proponents? If costs are too high, proponents may not participate. J. Time Pressure One of the consistent experiences of formal procurement is time pressure. There is usually a desire to start a procurement as soon as possible to keep the bidding period short, to evaluate quickly, and to award a contract immediately. It can be unsatisfying to be confined to the rules of a competitive process, as it is tempting to owners to start negotiations with potential contractors right away. Some owner-clients are bound by procurement rules, policies or legislation. Others seek the benefits of replacing negotiation with competition. Bidders want to get on with the negotiations, win the contract and start the work. How does the time pressure show itself, and what are some warning signs? Late consultation of counsel. Owners may consult after the procurement documents are prepared and have already been issued, or there is no time for meaningful review to incorporate meaningful comments. Bidders may consult after bids have been submitted, at which time it is too late. Procurement front end, and form of contract and specifications are generic and not customized for the project. Once issued, the owner will need to follow them. Consultants did not have adequate time to provide a complete specification. Errors and inconsistencies are apparent. Procurement front-end terms (e.g., proposal submission requirements and evaluation criteria) are set out in the wrong place (e.g., specifications). Contract terms are set out in the wrong place (e.g., in procurement front end). Numerous Addenda to modify documents. Even worse, there is an intention to issue numerous Addenda. Questions and answer protocol (for proponents to ask questions) is used to amend the procurement documents. While not strictly a problem, the format of a question and answer, as compared with a more formal Addendum, tends to encourage answers that do not make specific amendments. This can complicate the negotiation of contract negotiation, contract completion and award, particularly by adding time to properly preparing final documents. Evaluation short-cuts. Compiled Contract Documents v. Conformed Contract Documents The simplest and quickest way to put together a contract is to include the procurement documents, the Addenda, the questions and answers and the proposal. That is not generally advisable, because the pre-contract documents should not be relevant to the contract and there is a risk of ambiguity, particularly where the proposal includes additional or contradictory information or qualifications. A conformed contract is preferable, to reflect the final contract terms, including any modifications to specifications and any attachments to be extracted from the proposal.

9 2.2.8 Awarding a Contract with Post-contract Changes. It is tempting to put off the hard negotiation to a post-award change, but that carries risk for both parties. Note that there may be legal reasons to do so, if the basis for award must be strictly on the basis of the tender as submitted. Limited Notice to Proceed/Early Works. The schedule for completing the work may require an early commencement. This can occur even with the best planning, if the evaluation or negotiation took longer than expected, there are documents that require significant time to conform, or there are remaining conditions to be satisfied. There are various tools available such as an early works agreement, or a limited notice to proceed that set out the responsibilities, risks, and terms under which the early work proceeds (including as to insurance and indemnification). A. Short-listing III. Part II Other Pointers A short-listing creates issues, such as changes in team members, teams dropping out, teams merging at a corporate level, and changes in the individuals available. A short-list may also imply the ability of teams to perform the relevant work. B. Clarification v. New Information There is a question about what is the proper subject of clarification v. providing/obtaining new information and potentially permitting rectification of non-compliant bids and proposals. C. Use of References The practice on references may be inconsistent. Some procurements may require reference checks on all bidders, while others may only require due diligence from the winner. Problems arise with the availability and reliability of the references and their willingness to provide information. D. Jurisdiction and Forum for Contract A Claims In a multi-jurisdictional contract situation, consider defining the law applicable to Contract A, and the forum for the resolution of disputes arising out of Contract A. E. Simplify Time/Date Amendments Set out times/dates in one place in the procurement documents, so that a change only requires amendments to one section. F. Electronic Delivery The details of electronic delivery of bids should be considered, particularly in relation to documents such as bid bonds or letters of credit that should be received in hard copy, as there is only one original.

10 2.2.9 G. RFP/Bidding/Participation Agreement If the owner wishes to be sure of the terms of Contract A, the owner may set them out in a formal agreement. There are different approaches to drafting: one may set out the terms extensively or incorporate by reference the RFP terms of the request for proposal. Note that there are implications for the ease of amendments and the necessity to seek agreement of all proponents. H. Failure of Formal Procurement Generally, procurement documents assume success, and may include simple provisions in the event of cancellation or failure of the procurement to obtain compliant bids and reach a contract. Some documents will set out the rules more extensively. Be aware of the legal implications of setting out extensive rules, particularly since the procurement documents are not normally intended to be binding in the event of failure of the procurement. I. One-to-one Meetings/Communications with a Single Bidder It is unusual in procurement to have one-to-one meetings between owners and bidders or to communicate with one bidder, as this creates risks and the appearance of unfair competition. In some sectors, however, this practice is routine, but there should be extensive provisions and procedures for meetings, confidential communications, and fairness advisors. J. Drafting Non-mandatory v. Mandatory Be clear about the intent of non-mandatory (should/may) v. mandatory (shall/must/will) clauses, to avoid inadvertently creating compliance/non-compliance questions or extra procurement rules to be followed by the owner and uncertainty for the bidders.