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A guide to government privilege clauses

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by Journal Of Commerce last update:Nov 20, 2014

The fact that municipalities reserve privileges of various kinds when issuing tender documents has been discussed at every conference I have attended in the last six months. Such rights are of two kinds.
Stephen Bauld
Stephen Bauld

The first is a general reservation of rights in relation, of which the following form is typical:

“The city may reject any bid, the lowest bid or all bids, or may cancel the tender notice and require the submissions of new bids for any reason within its absolute discretion.”

Also, within the scope of a general privilege clause, is a right reserved in favor of the municipality “to act in its own best interest” when selecting a bidder.

Such provisions are general in nature, because they give little guide to anyone as to the kind of circumstances in which they are intended to apply.

The second class of reserved rights are more specific in nature. Several of these have already been considered, such as a right to wave minor non-compliance in a bid, the right to clarify any bid, and so on.

Some rights of this kind are very specific — such as a right to reject bids, where a bidder has previously violated the city’s fair wage policy.

The circumstances, in which such a discretion can be applied, provide a clear indication to a bidder as to whether its bid is at risk of rejection.

In contrast, with a general reservation of right, any bid could conceivably be thrown out on the basis of the reserved privilege.

It is a general principle of contract law that unilateral rights are given a narrow interpretation.

In addition, under the common law of contract, there is a general rule that any unilateral right reserved to one party or under a contract must be exercised in good faith.

General reserved privileges would clearly seem to fall within the scope of that rule.

The reservation of a general right in favor of the contracting authority to reject any tender, and more specifically not to accept the lowest tender, is quite probably the privilege of general scope frequently encountered in Canadian tender practice.

The failure to include a privilege clause allowing the contracting authority the discretion to reject a low bid can significantly compromise the latitude allowed to that authority to act in its own best commercial interest.

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.

Where the totality of the documents 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 they do not make it completely clear to the bidders on all of 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.

It is interesting to note that a contracting authority, which 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.

These types of clauses often frustrate the contractors to the point of not bidding on government contracts.

Stephen Bauld, Canada’s leading expert on government procurement, is president and CEO of Purchasing Consultants International Inc. He is also the co-author of the Municipal Procurement Handbook, published by LexisNexis Canada. He can be reached at stephenbauld@bell.blackberry.net.

last update:Nov 20, 2014

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