by Lise Patry, B.A.Sc., LLB, ICD.D, Patry Law
Owners seeking shelter from the legal risks associated with Contract A are increasingly including a clause reading: “this RFx is non-binding and therefore does not create Contract A” into documents that otherwise have the elements of a binding RFx. Is this a good idea? It certainly seems to be. At common law, no freestanding duty of fairness is owed to bidders in a non-binding RFx process. Seems like a no brainer – if you want to avoid Contract A, just make the RFx non-binding!
How to design a non-binding RFx
Although this strategy makes sense in many cases, keep in mind that whether an RFx is binding or non-binding is matter of substance and not form. Courts will look at a variety of factors to determine whether the parties intended to enter into a binding contract – Contract A – by the submission of a proposal. A statement that “no Contract A is created,” while important, is just one of the many factors courts examine.
The most comprehensive summary of factors courts consider when determining whether the parties intended the process to be binding is from the trial level decision Tercon Contractors v. BC 2006 BCSC 499, and presented as the following list in Topsail Shipping Company Limited v. Marine Atlantic 2013 NLTD 163 (upheld on appeal):
- The irrevocability of bids or proposals submitted;
- The formality of the process;
- Whether bids or proposals are solicited from selected parties;
- Whether the identity of bidders or proponents is confidential;
- Whether there is a deadline for the submission of bids or proposals;
- Whether a security deposit is required;
- Whether bid or proposal selection or evaluation criteria are specified;
- Whether there is a right to reject proposals;
- Whether there was a statement that this was not a tender call;
- Whether the work or service for which proposals are submitted will definitely proceed;
- Whether compliance with specifications was a condition of bids or proposals;
- Whether there is a duty to award contract ‘B’;
- Whether contract ‘B’ had specific conditions not open to negotiation.
Generally, the more formality there is in the process, the more it points to an intention to conduct a binding RFx. As we saw in the case of Topsail, even if many of the above criteria point to a non-binding process, courts will often strain to conclude a process was legally binding in order to hold an owner accountable for unfair conduct. Therefore, to successfully avoid Contract A, owners are advised to design a process that is clearly non-binding having regard to all of the above factors.
Can a “this RFx is Non-Binding” statement, on its own, effectively negate Contract A?
When determining whether an RFx is binding, courts will strive to respect the parties’ intention and will look at the express and implied terms of the RFx in the context of the above list of factors. The insertion of a “this is a non-binding RFx and no Contract A is created” clause, as highlighted above, will help support an argument that the RFx was intended to be non-binding, but is not in itself determinative. As we have seen with privilege and disclaimer clauses, even in the face of clear RFx provisions protecting the owner, courts may refuse to enforce the clauses when to do so would compromise the integrity of the tendering process. Since a non-binding RFx provision is really just another type of disclaimer clause, judges will likely subject them to the same judicial scrutiny and uncertainty, particularly if it’s the only factor pointing to a non-binding process.
Owners seeking to protect themselves by using a ‘non-binding RFx’ clause in an otherwise binding RFx should therefore not derive too much comfort from the protection it can offer as courts may, under certain circumstances, refuse to enforce it.
A good idea but not a perfect solution
Given the above, is it a good idea to include a “this RFx is non-binding” in your standard RFx document to avoid Contract A duties? In our view, yes. Like liability disclaimers and privilege clauses, these provisions could provide strategic leverage in negotiations with disgruntled bidders and may be legally enforceable under certain circumstances. In deciding to use these clauses, however, owners should be aware that, while they may be a good idea, if put to the test in court they may not act as a perfect solution to the Contract A problem.
Rather than simply inserting a ‘non-binding’ clause in your standard RFx template, a more effective approach is to work with your legal and other advisors to create a template that is specifically and thoroughly designed to be non-binding with regard to all of the above factors. You can then decide when and how that instrument is to be used, keeping in mind that in some cases Contract A might be the most efficient way to proceed.
Lise Patry, an instructor with NECI, is a lawyer and former business executive with a strong background in technology and more than 20 years of business and legal experience in the public and private sectors. As principal of Patry Law, in addition to general law, she offers virtual counsel services and specialized expertise in contracts, licensing, government procurement and corporate governance. She can be reached in Ottawa at (613) 730-5959 or firstname.lastname@example.org. This article originally appeared as a series of blog posts in September 2016 at PatryLaw.ca. It has been adapted and is used by permission.
Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case. For any particular legal problem, seek advice directly from your lawyer or in-house counsel. All dates, contact information and website addresses were current at the time of original publication.