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Procurement Perspectives: Interpreting open-ended privilege clauses

0 150 Government

by Stephen Bauld

Clauses reserving privileges and other rights to the contracting authority are interpreted not in isolation, but rather by reference to the tender documents as a whole.
Procurement Perspectives: Interpreting open-ended privilege clauses

Where the totality of the documentation creates one impression as to the manner in which the contract competition will be run and decided, an ambiguous or open-ended reserved privilege clause or right will not be interpreted so as to negate that impression.

A contracting authority cannot rely on a privilege clause when it has not expressed all the operative terms of the invitation to tender.

A general privilege to reject bids will not be interpreted to allow bid shopping; to permit the contracting authority to allow one supplier to amend its bid after the close of the tender in a manner that is unfair to other bidders; to introduce new criteria for evaluating bids; to introduce new mandatory specifications that a product must satisfy for selection; or to depart in any other similar substantial way from the tender documentation.

In George Wimpey Canada Ltd. vs. Regional Municipality of Hamilton-Wentworth, a general reserved privilege to reject the low or any tender did not relieve the contracting authority from the implied obligation of fairness to all bidders.

However, that obligation meant only that everyone was "bidding on the same basis with no hidden preferences."

Thus, a contracting authority may rely upon commercially relevant considerations even if not disclosed expressly in the tender conditions (for example, timelines of delivery or trade reputation of the bidder).

They could invoke the privilege clause so as to reject a particular bid, provided that decision is not motivated by an undisclosed intent to prefer a particular supply, type of supplier ( "small" suppliers over "large"), source of supply (a local supplier over distant suppliers), or preference for a particular type of material to be supplied.

A contracting authority that rejects a low bid in reliance upon a privilege clause is not required to give its precise reasons for doing so. However, where it fails to disclose its reason it runs the risk that a court will draw an adverse inference from its silence.

Despite the limits that apply with respect to general reserved privileges, in order to bring the law of tender into conformity with the general law of contract, fair effect still must be given to even the most general reservation of a privilege.

Normally, any exercise of a discretion reserved to the contracting authority under a privilege clause or analogous provision must be exercised in a manner consistent with the requirements of the tender process, as defined by the terms and conditions of the instructions to bidders and other relevant tender documents. If that requirement is satisfied, then the decision for rejecting the bid is not open to challenge.

In relation to the "prudent purchaser," there may be reasons for wishing to reject a low bid. In some cases these reasons may relate to concerns of assumptions underlying low bid or to financial suitability of the bidder who submitted it. Such concerns raise obvious questions as to whether the work can be properly performed at the low bid price. There may be a history of bad dealings between the contracting authority and the bidder. There may be questions about its financial stability, or its ability to perform in accordance with the bid.

In other cases, the reason for rejecting a low bid may relate to the manner in which the tender process has been conducted. In my view, all of these types of concern are implicit in the general privilege clause, at least where there is a clear factual basis for taking such concerns into account when selecting the winning bidder.

I hope to continue this discussion in upcoming articles, as privilege clauses are often an issue to bidders.

Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.

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