Does a Privilege Clause in an Rfp Eliminate the Duty to Act in Good Faith?

Concept

The intersection of a privilege clause within a Request for Proposals (RFP) and the legal duty to act in good faith represents a foundational tension in procurement architecture. Many procurement principals and bidders view these two elements as operating in opposition. A privilege clause, often articulated as “the lowest or any tender will not necessarily be accepted,” appears to grant the issuing entity absolute discretion.

Concurrently, a body of law, particularly within Commonwealth jurisdictions, imposes an implicit duty of fairness and good faith on the parties throughout the procurement process. Understanding how these components coexist requires viewing the procurement process not as a simple transaction, but as a structured, two-stage system governed by a distinct preliminary contract.

The Contract a and Contract B Framework

The dominant legal structure for analyzing this relationship is the “Contract A / Contract B” framework. This model provides a logical system for defining the rights and obligations of all participants before the final work contract is ever signed. The submission of a compliant bid in response to an RFP creates “Contract A.” This is a preliminary process contract between the issuer and each compliant bidder. Its terms are the rules set out in the RFP documents themselves.

The primary purpose of Contract A is to govern the conduct of the bidding competition, ensuring a structured and equitable process for all involved parties. The ultimate agreement for the provision of goods or services with the chosen bidder is “Contract B.”

The creation of Contract A is the critical event that activates the duty of good faith. By establishing a formal bidding protocol and inviting submissions, the issuer implicitly promises to conduct the evaluation according to the established rules. Bidders, in turn, invest significant resources in preparing their submissions based on this understanding.

Contract A, therefore, exists to protect this investment and the integrity of the competitive process itself. It establishes that the RFP is a formal legal process with binding procedural obligations.

The submission of a compliant bid initiates a preliminary contract, known as Contract A, which establishes the rules and fairness obligations governing the procurement process itself.

The Implied Duty of Good Faith and Fairness

Within the architecture of Contract A, the duty of good faith is an implied term. This means that even if not explicitly written into the RFP documents, courts will recognize its existence as essential to the functioning of the tendering system. This duty requires the party issuing the RFP to treat all compliant bidders fairly, honestly, and equitably.

It is a commitment to procedural integrity. Actions that would breach this duty include favoring one bidder over another, changing evaluation criteria after bids have been submitted, or engaging in conduct that undermines the legitimacy of the process outlined in the RFP.

This duty of fairness is not abstract; it has specific, enforceable components. A central element is the obligation to evaluate bids based only on the criteria disclosed in the RFP. Introducing secret preferences or undisclosed benchmarks during the evaluation process constitutes a fundamental breach of this duty.

Similarly, the issuer is obligated to reject any bid that is materially non-compliant with the mandatory requirements of the RFP. To waive a mandatory requirement for one bidder would give that bidder an unfair advantage and compromise the entire competitive foundation of the process.

Reconciling Discretion with Duty

The privilege clause exists as an express term within Contract A. Its function is to modify, not eliminate, the implied duty of good faith. The clause provides the issuer with the discretion to deviate from a simple low-bid-wins model. It carves out a specific power for the issuer, allowing them to consider factors beyond price, such as superior quality, experience, or innovation, in selecting the winning bid. It confirms that the issuer is not obligated to award Contract B to any bidder at all.

However, this discretion is not absolute. The power granted by the privilege clause must be exercised in accordance with the overarching duty of fairness that also governs Contract A. An issuer can use the privilege clause to select a higher-priced bid, but only if the decision is based on the evaluation criteria specified in the RFP. For instance, if the RFP states that technical merit is weighted at 60% and price at 40%, the issuer can legitimately use the privilege clause to accept a more expensive bid that has a demonstrably superior technical score. The decision remains fair because it adheres to the disclosed rules of the competition.

In contrast, using the privilege clause to award the contract based on an undisclosed criterion, such as a prior relationship with a bidder, would be a breach of the duty of good faith. The privilege clause, therefore, does not provide a license to act arbitrarily; it provides the flexibility to make a reasoned choice among compliant bids based on the established framework.

Strategy

A sophisticated understanding of the interplay between privilege clauses and the duty of good faith allows both RFP issuers and bidders to develop robust strategic frameworks. For the issuer, the goal is to design a procurement system that maximizes strategic flexibility while minimizing legal risk. For the bidder, the objective is to assess the integrity of the procurement system and position their submission for the highest probability of fair evaluation. The strategies for each party are symbiotic, revolving around the clarity and application of the evaluation criteria.

Issuer Strategy a Framework for Defensible Discretion

The primary strategic objective for an RFP issuer is to build a procurement process that is both flexible and defensible. This involves carefully architecting the RFP documents to retain maximum legitimate discretion. The foundation of this strategy is the development of clear, comprehensive, and multi-faceted evaluation criteria. Vague or purely subjective criteria invite legal challenges, as they make it difficult to demonstrate that the exercise of discretion was fair and rational.

• Multi-Attribute Criteria By moving beyond a price-only evaluation, issuers can build a framework that justifies the use of a privilege clause. Criteria should be broken down into specific, measurable categories such as technical capability, project methodology, team experience, and post-project support. Each category should have a clear weighting, signaling its importance to bidders and forming the basis of a defensible evaluation.
• Defining Compliance The RFP must clearly distinguish between mandatory requirements and desirable features. Mandatory requirements (e.g. specific licenses, bonding capacity) are pass/fail gates. A bid failing to meet a mandatory requirement is non-compliant and must be rejected. This strict enforcement protects the integrity of the process and provides a clear defense against claims from non-compliant bidders.
• Reservation of Rights The privilege clause is the core tool for reserving discretion. Modern procurement documents often contain a suite of such clauses, reserving the right to waive minor informalities, to cancel the RFP, or to negotiate with the top-ranked proponent. Each clause should be included for a specific strategic purpose, not as boilerplate. Issuers should consider which privileges are necessary for the specific procurement, as an excessive number of clauses may deter high-quality bidders who perceive the process as too uncertain.

Bidder Strategy Assessing Process Integrity

For bidders, the strategy involves a rigorous analysis of the RFP to gauge the fairness of the competitive environment. The presence of a privilege clause is standard; the critical task is to evaluate the system of rules that will govern its use. A sophisticated bidder treats the RFP as the constitutional document of Contract A and assesses the likelihood of a transparent and equitable process.

A primary element of this assessment is the quality of the evaluation criteria. Well-defined, weighted, and objective criteria signal a professional and fair process. Conversely, RFPs with vague or subjective criteria present a higher risk, as the issuer has created a system where their discretion is difficult to challenge. In such cases, a bidder must strategically decide if the potential reward justifies the risk of an arbitrary evaluation.

Upon submitting a compliant bid, the bidder’s strategy shifts to enforcement. This means holding the issuer to the terms of Contract A. If a bidder suspects a breach of the duty of fairness ▴ for example, if a contract is awarded to a non-compliant competitor or the evaluation seems inconsistent with the stated criteria ▴ they have a right to seek recourse. The typical remedy for a breach of Contract A is damages, often calculated to cover the costs of preparing the bid or, in some cases, the lost profits that would have been earned from Contract B.

Execution

The execution of a fair and defensible procurement process hinges on operational discipline. The legal principles governing Contract A must be translated into a clear, documented, and consistently applied internal procedure. This operational playbook ensures that the evaluation committee’s actions are aligned with the duty of good faith and that any exercise of discretion under a privilege clause is procedurally sound and fully defensible.

The Operational Playbook an Evaluation Protocol

A structured evaluation protocol is the primary mechanism for executing the duties of Contract A. This protocol should be finalized before the RFP is issued and followed without deviation.

1. Establish the Evaluation Committee The committee should be composed of individuals with the relevant technical, financial, and operational expertise. All members must be briefed on their obligations under the duty of fairness and the rules of the RFP.
2. Finalize the Evaluation Matrix The detailed scoring matrix, based on the weighted criteria in the RFP, must be finalized before any bids are opened. This prevents any appearance of criteria being manipulated after seeing the submissions.
3. Formal Bid Receipt and Opening A formal process should log the receipt of all bids. Bids received after the deadline are non-compliant and must be rejected without being opened.
4. Initial Compliance Review The first step of evaluation is a pass/fail check against all mandatory requirements listed in the RFP. This is a non-discretionary step. Any bid that fails to meet a mandatory requirement is deemed non-compliant and is removed from further consideration. The rationale for this decision must be documented.
5. Independent Scoring Each member of the evaluation committee should independently score the compliant bids using the pre-defined evaluation matrix. This prevents groupthink and ensures a more objective initial assessment.
6. Committee Consensus and Documentation The committee then meets to discuss their individual scores and arrive at a consensus ranking. All discussions, scoring rationales, and the final decision must be meticulously documented. This documentation is the primary evidence that the process was fair and the decision was rational.
7. Exercising Discretion If the committee recommends awarding the contract to a bidder other than the lowest-priced one, the privilege clause is invoked. The written recommendation must explicitly tie this decision back to the weighted evaluation criteria, demonstrating how the chosen bid provides better overall value according to the RFP’s own rules.
8. Notification and Debriefing All unsuccessful bidders should be notified. Offering debriefings is a best practice that promotes transparency and can reduce the likelihood of legal challenges. Debriefings should focus on the strengths and weaknesses of that bidder’s own proposal, not on a direct comparison with the winning bid.

A disciplined evaluation protocol, with meticulous documentation at every stage, is the most effective way to ensure that the exercise of discretion is legally defensible.

Quantitative Modeling a Bid Evaluation Scenario

This table illustrates how a defensible decision can be made using a privilege clause in conjunction with a weighted scoring system. It provides a quantitative basis for the evaluation committee’s recommendation.

In this scenario, Bidder A submitted the lowest price. A simple procurement model might have required awarding them the contract. However, because the RFP was architected with weighted criteria, the evaluation committee can create a defensible rationale.

The documentation would show that Bidder B’s superior technical solution and team experience, which were weighted as highly important in the RFP, resulted in a higher overall score. The decision to award Contract B to Bidder B, while invoking the privilege clause to bypass the lowest price, is a fair and proper execution of the duties under Contract A.

Predictive Scenario Analysis a Case Study in Bad Faith

Consider a municipality issuing an RFP for waste management services. The RFP includes a standard privilege clause and evaluation criteria based 50% on price, 30% on environmental compliance technology, and 20% on operational experience. Two compliant bids are received ▴ one from “EcoHaul,” a national company with advanced sorting technology but a higher price, and one from “Local Waste,” a smaller company with a significantly lower price but older technology.

During the evaluation, one member of the committee, who has an undisclosed personal relationship with the owner of Local Waste, argues forcefully that “supporting local business” should be a primary consideration. This was never mentioned in the RFP. swayed by this argument, the committee sets aside the formal scoring matrix and awards the contract to Local Waste, citing the privilege clause as justification for their decision. They produce a cursory report stating that Local Waste offered the “best value.”

EcoHaul, upon learning of the award, suspects a breach. They file a claim for breach of Contract A. In court, their legal team would likely demonstrate that the municipality breached its duty of good faith in several ways. The introduction of an undisclosed evaluation criterion (“supporting local business”) is a clear violation of the duty to be fair and transparent. The committee’s failure to follow its own weighted scoring system shows that the decision was not based on the established rules.

The privilege clause cannot protect the municipality in this instance. It cannot be used as a shield for a decision made in bad faith or based on arbitrary, undisclosed factors. The likely outcome would be a judgment in favor of EcoHaul, with the municipality being ordered to pay damages equivalent to EcoHaul’s bid preparation costs or, potentially, their lost profits from the contract. This scenario underscores that the execution of the evaluation process is paramount; the privilege clause is a tool for exercising legitimate discretion, not for overriding the fundamental duty of fairness.

Reflection

A System of Procedural Integrity

Viewing procurement through a systemic lens reveals that the duty of good faith and the privilege clause are not adversarial forces. They are integrated components of a single control system designed to balance two essential institutional needs ▴ the need for discretion to make intelligent business decisions and the need for a fair, transparent process that encourages robust competition. The health of this entire system depends on the integrity of its underlying rules and the discipline with which they are executed.

Consider the procurement framework within your own organization. Does it operate as a cohesive system? Are the rules of evaluation defined with sufficient precision to make the exercise of discretion defensible? Is the documentation trail robust enough to demonstrate procedural fairness in the face of a challenge?

The strength of a procurement architecture lies not in the breadth of its privilege clauses, but in the clarity of its rules and the consistency of their application. A well-designed system transforms the duty of good faith from a legal constraint into a strategic asset, fostering trust among bidders and ensuring that every procurement decision advances the organization’s long-term interests.