What Are the Primary Grounds for a Lawsuit after an Rfp Is Cancelled?

Concept

The cancellation of a Request for Proposal (RFP) can be a frustrating and costly experience for bidders who have invested significant time and resources in preparing a response. While the issuing entity generally has the right to cancel an RFP, this right is not absolute. The legal grounds for a lawsuit after an RFP is cancelled often hinge on the specific language of the RFP document and the conduct of the issuing entity throughout the procurement process.

A core concept in this area is the idea of “Contract A/Contract B,” which originated in Canadian law but has influenced procurement practices elsewhere. This framework suggests that the issuance of an RFP constitutes an offer to enter into “Contract A,” a contract that governs the bidding process itself. When a bidder submits a proposal, they accept the terms of Contract A. Contract B is the subsequent contract for the actual goods or services, which is awarded to the winning bidder. A lawsuit following an RFP cancellation often alleges a breach of Contract A.

The Implied Duty of Fairness

Even in the absence of a formal Contract A/Contract B framework, courts in many jurisdictions have found that the issuing entity has an implied duty of fairness and good faith in its dealings with bidders. This means that the entity must treat all bidders equally and honestly, and must not act in an arbitrary or capricious manner. A cancellation of an RFP that is found to be a sham or a pretext for awarding the contract to a favored bidder could be seen as a breach of this duty.

The obligations of the City were terminated when the RFP process was properly terminated.

The case of Innovations for Audio Video Inc. v. Vancouver (City) illustrates that an entity can successfully defend an RFP cancellation if it has a valid reason, such as a lack of funding, and if this possibility was disclosed in the RFP documents. However, the fact that the case went to trial and was appealed demonstrates that even a “proper” cancellation can expose an entity to legal challenges.

When Does a Cancellation Become Actionable?

A key question in determining the viability of a lawsuit is whether the cancellation was for a legitimate reason or was a pretext for some other motive. For example, if an agency cancels an RFP citing “changed requirements,” but then issues a new solicitation that is substantially similar, a disappointed bidder may have grounds to argue that the cancellation was not made in good faith. Similarly, if an agency cancels an RFP after bids have been opened and prices revealed, it may be subject to a higher level of scrutiny.

The legal theories that can be used to challenge an RFP cancellation include:

• Breach of an implied contract ▴ This argument is based on the idea that the RFP and the bidder’s response create a contract governing the bidding process, which the issuing entity has breached.
• Promissory estoppel ▴ This legal doctrine can apply if a bidder can show that they reasonably relied on a promise made by the issuing entity (e.g. a promise to award the contract to the lowest bidder) and that they suffered damages as a result of that reliance.
• Misrepresentation ▴ If the issuing entity made false or misleading statements in the RFP or during the procurement process, a bidder may be able to sue for misrepresentation.
• Violation of procurement statutes or regulations ▴ In the case of government procurements, there are often specific laws and regulations that govern the RFP process. A cancellation that violates these rules may be grounds for a lawsuit.

Strategy

For a bidder contemplating a lawsuit after an RFP cancellation, a successful strategy requires a careful analysis of the facts and a clear understanding of the applicable legal principles. The central challenge is to overcome the significant discretion that issuing entities typically have in canceling solicitations. This requires a focused approach that seeks to demonstrate that the entity’s actions were not merely an exercise of its discretion, but a breach of a legal duty owed to the bidders.

Building a Case for Breach of Contract

The most direct line of attack is often to argue that the RFP cancellation constituted a breach of contract. This strategy involves establishing the existence of a “bidding contract” (Contract A) and then proving that the issuing entity violated its terms. The key elements of this strategy are:

1. Establishing the Existence of Contract A ▴ The bidder must demonstrate that the RFP was not merely an invitation to negotiate, but a formal offer to enter into a bidding contract. This can be supported by evidence such as mandatory language in the RFP, the requirement of a bid deposit, and the detailed and specific nature of the submission requirements.
2. Identifying the Breach ▴ The bidder must pinpoint the specific provision of the RFP that was breached. This could be an explicit clause, such as a promise to award the contract to the lowest compliant bidder, or an implied term, such as the duty of fairness and good faith.
3. Proving Damages ▴ The bidder must be able to quantify the damages they have suffered as a result of the breach. This can include the costs of preparing the bid, lost profits, and other consequential damages.

The court ruled that the issuance of a tender or request for proposal was in itself a contract (contract A) that was accepted by the bidder once their proposal was submitted.

Leveraging the Doctrine of Promissory Estoppel

In situations where it is difficult to establish the existence of a formal bidding contract, the doctrine of promissory estoppel can be a powerful alternative. This strategy focuses on the idea of reliance and fairness. The bidder must prove the following:

• A Clear and Unambiguous Promise ▴ The issuing entity made a clear and unambiguous promise to the bidder. This could be a statement in the RFP, a verbal assurance from a representative of the entity, or a consistent pattern of conduct.
• Reasonable Reliance ▴ The bidder reasonably relied on this promise in preparing and submitting their bid.
• Detriment ▴ The bidder suffered a financial loss or other harm as a result of their reliance on the promise.
• Injustice ▴ It would be unjust to allow the issuing entity to go back on its promise.

This strategy can be particularly effective when the issuing entity has made representations that go beyond the strict terms of the RFP, or when the RFP itself is vague or ambiguous.

Challenging the Cancellation in Government Procurements

When the issuing entity is a government agency, there are often additional strategic considerations. Government procurements are typically subject to a complex web of statutes, regulations, and internal policies that are designed to ensure fairness and transparency. A bidder can challenge an RFP cancellation by arguing that the agency has violated these rules.

The Government Accountability Office (GAO) and the Court of Federal Claims (COFC) have developed a body of case law that provides guidance on when an agency’s cancellation of a solicitation is improper. While agencies are given “wide latitude,” a cancellation may be overturned if it lacks a “reasonable basis.” A bidder can argue that the agency’s stated reasons for the cancellation are a pretext for an improper motive, such as a desire to avoid awarding the contract to a particular bidder or to steer the contract to a favored contractor.

The following table outlines some of the key differences in strategic approaches depending on the nature of the issuing entity:

Execution

Successfully executing a lawsuit after an RFP cancellation requires a disciplined and methodical approach. From the moment a bidder suspects that an RFP may be cancelled improperly, it is essential to begin gathering evidence and building a case. This section provides a step-by-step guide to the execution of a legal challenge to an RFP cancellation.

Phase 1 ▴ Pre-Cancellation Diligence

Even before an RFP is officially cancelled, a bidder should be vigilant for any signs of impropriety. This includes:

• Unusual Communications ▴ Any unusual or inconsistent communications from the issuing entity should be documented.
• Rumors and Innuendo ▴ While not admissible as evidence in court, rumors of a rigged procurement process can be a valuable source of information that can lead to the discovery of admissible evidence.
• Changes in Requirements ▴ Any last-minute changes to the RFP requirements should be scrutinized to determine if they are designed to favor a particular bidder.

Phase 2 ▴ Immediate Post-Cancellation Actions

Once an RFP has been cancelled, time is of the essence. The bidder should immediately take the following steps:

1. Formal Request for Debriefing ▴ If the issuing entity is a government agency, the bidder should request a formal debriefing to learn the reasons for the cancellation.
2. Preservation of Documents ▴ The bidder should take steps to preserve all documents related to the procurement, including copies of the RFP, all correspondence with the issuing entity, and all internal documents related to the preparation of the bid.
3. Identification of Witnesses ▴ The bidder should identify all individuals who have knowledge of the procurement process, both within their own organization and at the issuing entity.

Phase 3 ▴ Legal Analysis and Case Development

With the initial evidence in hand, the bidder’s legal counsel can begin to develop a legal strategy. This will involve:

• Review of the RFP Document ▴ The RFP document should be carefully reviewed for any language that could support a breach of contract claim, such as a promise to award the contract to the lowest bidder or a clause that limits the entity’s right to cancel the RFP.
• Analysis of Applicable Law ▴ The legal team will research the relevant case law and statutes to determine the strength of the bidder’s legal position.
• Assessment of Damages ▴ The bidder will need to work with financial experts to calculate the damages they have suffered as a result of the cancellation. This can be a complex process, and it is important to have a well-documented and defensible damages model.

A plaintiff succeeds on the merits where the administrative record lacks evidence to support an agency’s determination.

The following table provides a checklist for the key evidentiary documents that a bidder should seek to obtain in a lawsuit challenging an RFP cancellation:

Phase 4 ▴ Litigation and Resolution

If a decision is made to proceed with a lawsuit, the bidder’s legal team will file a complaint in the appropriate court. The litigation process can be lengthy and expensive, but it may be the only way for a bidder to obtain a remedy for an improper RFP cancellation. The bidder should be prepared for the possibility of a negotiated settlement, as many of these cases are resolved out of court.

Reflection

The decision to challenge an RFP cancellation is a significant one, with legal and financial implications. A thorough understanding of the legal grounds for a lawsuit, combined with a well-executed strategy, can empower a bidder to protect its interests and hold issuing entities accountable for their actions. Ultimately, the pursuit of a legal remedy in these situations is not just about recovering damages; it is about promoting fairness and integrity in the procurement process.