What Is the “Contract A” and “Contract B” Scenario and How Does It Impact RFP Liability?

Concept

The procurement landscape is often perceived as a linear progression ▴ an organization issues a Request for Proposal (RFP), bidders respond, and a contract is awarded. This perception, however, overlooks a critical legal architecture that operates beneath the surface, a framework established by the Canadian judiciary that transforms the very act of bidding into a binding legal relationship. This system, known as the “Contract A” and “Contract B” model, fundamentally redefines the duties and liabilities of every participant in a formal competitive bidding process. Understanding this dual-contract structure is foundational for any entity, public or private, seeking to navigate the complexities of procurement with strategic precision and to manage the inherent risks involved.

The genesis of this framework is the landmark 1981 Supreme Court of Canada decision in R. v. Ron Engineering & Construction (Eastern) Ltd. Before this ruling, a bid was typically considered a mere offer that could be withdrawn at any time before acceptance. The court, however, introduced a two-contract analysis. The submission of a compliant bid in response to a tender call creates the first of these, “Contract A.” This is not the contract to perform the work; rather, it is a preliminary contract governing the bidding process itself.

Its terms are dictated by the rules, deadlines, and evaluation criteria laid out in the RFP or tender documents. The primary obligation for the bidder under Contract A is the irrevocability of their bid for a specified period, often secured by a bid deposit.

The submission of a compliant bid initiates a binding preliminary contract, known as Contract A, which governs the rules of the procurement process itself.

The Emergence of Two Distinct Legal Obligations

Upon the formation of Contract A with each compliant bidder, the procuring authority assumes a set of implied duties. The most significant of these is the duty of fairness and good faith toward all participants who have submitted a valid bid. This duty is not a vague ethical guideline; it is a legally enforceable obligation.

It mandates that the authority must evaluate all bids according to the disclosed criteria, reject any non-compliant submissions, and refrain from introducing hidden preferences or biases into the evaluation process. This initial contract effectively establishes a structured, transparent, and equitable competition.

“Contract B” is the more familiar of the two. It is the substantive performance contract for the goods or services being procured. This second contract is formed only when the procuring authority accepts a bid from a compliant tenderer, the successful proponent. The formation of Contract B executes the ultimate goal of the RFP process, binding the winning bidder to perform the work and the authority to pay for it according to the terms of the bid.

The entire Contract A/Contract B framework, therefore, creates a procedural pathway where the integrity of the competition is protected by one contract, leading to the eventual formation of the final performance agreement. This legal structure ensures that the process is predictable and that all parties have clearly defined rights and responsibilities from the moment a bid is submitted.

Strategy

Navigating the Contract A/Contract B environment requires a sophisticated strategic approach from both procuring entities and bidders. For the organization issuing an RFP, the primary goal is to maintain control over the process and mitigate liability while achieving the best possible outcome. For bidders, the objective is to compete on a level playing field where their proposal will be evaluated fairly. The strategic decisions made by each party are dictated by the potent rights and obligations that Contract A automatically imposes.

The Procurer’s Strategic Imperative Controlling Risk

An organization issuing a tender must operate with the awareness that the moment it releases an RFP with the hallmarks of a binding process, it is no longer merely soliciting offers; it is architecting a legally binding competition. The implied duties of Contract A become the strategic constraints within which the organization must operate. Failure to adhere to these duties constitutes a breach of Contract A, exposing the organization to significant legal and financial risk from unsuccessful bidders.

The core strategic considerations for a procuring authority revolve around fairness, transparency, and compliance. The duty to treat all compliant bidders fairly and equally is paramount. This means the authority must scrupulously follow its own evaluation criteria as published in the RFP documents. Any deviation, such as applying undisclosed preferences or changing the rules mid-process, can trigger a breach.

A key strategic decision, therefore, is the careful and precise drafting of the RFP itself. The document must clearly articulate all mandatory requirements, evaluation metrics, and their relative weightings to create a defensible evaluation framework.

Key Implied Duties of the Procuring Authority under Contract A

The following table outlines the principal duties a procuring authority must strategically manage upon the formation of Contract A.

The Bidder’s Position Leveraging Rights

For bidders, the existence of Contract A provides a powerful set of rights that level the playing field. The primary right is the assurance of a fair and transparent evaluation based on the stated rules. This allows businesses to invest the significant resources required to prepare a proposal with confidence that they will not be subject to arbitrary or biased decision-making.

A bidder’s strategy involves preparing a meticulously compliant proposal that addresses every mandatory requirement of the RFP. Any deviation risks disqualification, forfeiting all rights under Contract A.

For bidders, Contract A serves as a shield, ensuring their compliant proposal will be evaluated fairly based on the established rules of the competition.

The Non-Binding RFP a Strategic Alternative

The significant liabilities associated with Contract A have led to the strategic evolution of procurement documents. Many organizations now seek to avoid the Contract A/B framework altogether by issuing a Non-Binding Request for Proposals (NRFP). The goal of an NRFP is to solicit proposals as a precursor to negotiation, without creating the binding procedural obligations of Contract A. To achieve this, an NRFP must be carefully drafted to eliminate the hallmarks of a formal tender.

• Explicit Disclaimers ▴ The document should contain a clear statement that it is not a tender, that no Contract A will be formed upon submission of a proposal, and that the authority is not bound to award a contract or to adhere to any specific evaluation process.
• No Irrevocability ▴ Proposals should not be irrevocable. Bidders should be free to withdraw their submissions at any time before a final, negotiated contract is signed.
• No Bid Security ▴ The RFP should not require bid bonds or other forms of security, as these are strong indicators of a binding process.
• Emphasis on Negotiation ▴ The process should be framed as an invitation to discuss and negotiate, where the submitted proposal is a starting point rather than a final offer.

This strategy provides the procuring authority with maximum flexibility, freeing it from the strict duty of fairness and the risk of litigation for breach of Contract A. However, it also presents a different set of strategic trade-offs. Bidders may be less willing to invest in high-quality proposals if the process lacks clear rules and a commitment to fairness. Furthermore, the authority loses the ability to hold bidders to their prices, as proposals are not irrevocable. The choice between a binding RFP and a non-binding NRFP is a critical strategic decision based on an organization’s tolerance for risk versus its need for procedural certainty and price security.

Execution

The theoretical framework of Contract A and Contract B translates into tangible financial and legal consequences during the execution of a procurement process. Liability arises directly from a breach of the duties implied in Contract A, and understanding the precise mechanics of how a breach occurs is critical for any organization seeking to design a defensible procurement system. For procuring authorities, execution is about rigorous process control and risk management. For bidders, it is about understanding their recourse when a process has been executed improperly.

The Mechanics of a Breach and Its Consequences

A breach of Contract A occurs when a procuring authority fails to honor its implied duties of fairness and good faith to the compliant bidders. This is not limited to overt acts of bad faith; it can arise from procedural errors or a failure to adhere to the self-imposed rules of the RFP. For instance, if an authority accepts a bid that is delivered seconds after the deadline, it has breached its duty to the other bidders who met the deadline. Similarly, evaluating a bid based on a “hidden” criterion ▴ a preference that was not disclosed in the RFP documents ▴ is a classic example of a breach.

The most common and litigated breach involves the acceptance of a non-compliant bid. The law, as clarified in cases like M.J.B. Enterprises Ltd. v. Defence Construction (1951) Limited, obligates the owner to accept only compliant tenders. If an authority awards Contract B to a bidder whose submission failed to meet a mandatory requirement, it has violated the rights of all other compliant bidders.

The consequences of such a breach can be severe. A wronged bidder can sue for damages, which are often calculated as the profits they would have earned had they been awarded Contract B (expectation damages). This potential for substantial financial liability underscores the importance of flawless execution.

A breach of Contract A, such as accepting a non-compliant bid, can expose a procuring authority to litigation and liability for the lost profits of a wronged bidder.

A Framework for Executing a Defensible RFP Process

To mitigate the significant liability risks inherent in the Contract A/B framework, a procuring authority must execute its RFP process with discipline. This involves building a system of controls that ensures every stage of the process aligns with the principles of fairness and transparency.

Executing a Non-Binding Process

For organizations choosing to execute a non-binding NRFP, the critical action is to maintain consistency. The process must align with the “invitation to negotiate” framing from start to finish. Communications with proponents should consistently reinforce the non-binding nature of the process. The evaluation can be more flexible, but procedural fairness, while a lower standard than the contractual duty of fairness under Contract A, may still apply to public bodies.

The most important execution element is the inclusion of a well-drafted disclaimer clause, explicitly stating that no contract is formed by the submission of a proposal and that the authority retains sole discretion to negotiate with any party, reject all proposals, and terminate the process at any time. This clause is the central pillar in defending against claims that a binding Contract A was inadvertently created.

Reflection

Beyond Procedure a System of Integrity

The Contract A/Contract B framework is more than a set of procedural hurdles; it represents a systemic commitment to the integrity of competitive markets. Viewing this legal doctrine purely through the lens of risk mitigation, while necessary, is incomplete. The duties of fairness and good faith are not simply liabilities to be managed but are the very mechanisms that foster trust and encourage robust participation. An organization that builds its procurement system on a foundation of transparency and equity does not merely avoid litigation; it cultivates a reputation that attracts the highest quality of bidders and proposals.

The ultimate strategic advantage lies in architecting a procurement function that is not only legally defensible but is recognized as a system of integrity. This transforms the RFP process from a simple transactional mechanism into a strategic asset that drives value and reinforces an organization’s standing in the marketplace.