What Is the “Contract A/Contract B” Principle and How Does It Affect RFP Liability?

Concept

The “Contract A/Contract B” principle is a legal framework, originating from Canadian law, that fundamentally redefines the nature of a competitive bidding process. It establishes that a Request for Proposals (RFP) or an Invitation to Tender is not merely a request for offers; it is an offer in itself to enter into a preliminary process contract, designated as “Contract A.” This initial contract is automatically formed between the issuer of the RFP (the owner) and every bidder who submits a compliant proposal. Its terms are the rules of the procurement process as laid out in the RFP documents. The ultimate agreement to perform the specified work, awarded to the successful bidder, is “Contract B.”

This two-contract structure imposes significant legal obligations, particularly a duty of fairness and good faith on the owner, long before the final contract is signed. The moment a compliant bid is submitted, both parties are bound by Contract A. The bidder’s core obligation is the irrevocability of their bid for the specified period. The owner, in turn, is obligated to evaluate all compliant bids fairly and exclusively based on the criteria stipulated in the RFP. This system transforms the procurement process from an open-ended negotiation into a structured, legally enforceable protocol where procedural integrity is paramount.

The Foundational Shift in Procurement Dynamics

The genesis of this framework lies in the landmark 1981 Supreme Court of Canada case, R. v. Ron Engineering & Construction (Eastern) Ltd. Before this decision, a bid was generally considered an offer that could be withdrawn anytime before the owner accepted it. The Ron Engineering case inverted this logic.

The court established that the invitation to tender was an offer to all potential bidders to participate in a formal bidding process under specific rules. The submission of a bid constituted acceptance of this offer, creating the binding process contract, Contract A.

This judicial innovation was designed to protect the integrity of the bidding system. It ensures that owners receive firm, irrevocable bids they can rely on, preventing bidders from backing out if they discover they’ve made a mistake or have a change of heart. Simultaneously, it provides bidders with a powerful legal remedy if the owner conducts the process unfairly, for instance, by considering a late bid or using undisclosed evaluation criteria. The principle effectively creates a distinct, enforceable set of rights and obligations that govern the conduct of the competition itself, separate from the final performance contract.

The Contract A/Contract B framework converts a procurement solicitation into a binding process contract, imposing immediate legal duties of fairness and irrevocability on all participants.

The Operative Mechanics of Contract A

Understanding the formation of Contract A is critical to grasping its impact on liability. Several conditions must be met for this preliminary contract to come into existence:

• An Intent to Create a Binding Process ▴ The RFP or tender documents must signal an intention to create a formal, binding procurement process. Language indicating that bids are irrevocable, requiring bid security, and setting out clear, objective evaluation criteria are strong indicators of this intent.
• Submission of a Compliant Bid ▴ The bidder must submit a proposal that conforms to all the material requirements set out in the RFP. A non-compliant bid does not constitute acceptance of the Contract A offer and, therefore, does not create a process contract with that bidder. This places a heavy burden on bidders to ensure meticulous adherence to submission rules.
• No Subsequent Negotiations ▴ The framework is most clearly applicable where the owner intends to accept a bid without further negotiation. If the RFP is structured as a starting point for extensive discussions, it is less likely that a court will find that Contract A was formed.

Once Contract A is formed, its terms are implicitly and explicitly defined by the RFP documents. The explicit terms are the deadlines, submission requirements, and evaluation criteria. The most significant implied term, established through subsequent case law, is the owner’s duty of fairness and good faith to all compliant bidders. This duty is the primary source of RFP liability for owners.

Strategy

Strategically managing the Contract A/Contract B environment is a matter of risk allocation and procedural discipline. For the entity issuing an RFP, the primary goal is to acquire the best value while minimizing legal exposure. For bidders, the objective is to win the contract while ensuring their rights within the process are protected. The two-contract paradigm creates a delicate balance where procedural missteps by either party can lead to significant financial and reputational damage.

The Owner’s Duty of Fairness a Core Liability

The most critical strategic consideration for an owner is the implied duty of fairness and good faith owed to all compliant bidders under Contract A. This is not a vague ethical guideline; it is a legally enforceable obligation that courts have interpreted rigorously. A breach of this duty can lead to lawsuits from unsuccessful bidders, with potential damages including the lost profits the bidder would have earned had they been awarded Contract B. Therefore, a core strategic pillar is the design of a procurement process that is demonstrably fair and transparent.

Common actions that can breach this duty include:

• Bid Shopping ▴ Disclosing a bidder’s price to a competitor to solicit a lower offer.
• Undisclosed Criteria ▴ Evaluating bids based on preferences or criteria not mentioned in the RFP documents.
• Accepting a Non-Compliant Bid ▴ Awarding Contract B to a bidder who failed to meet the material requirements of the RFP, thereby disadvantaging all bidders who submitted compliant proposals.
• Bias or Favoritism ▴ Conducting the evaluation in a manner that unfairly benefits one bidder over others.

Strategic Tools for Risk Mitigation

Owners are not without tools to manage their liability. The primary instrument is the careful drafting of the RFP itself, particularly through the use of specific clauses designed to reserve rights and manage expectations.

A “privilege clause” is a common feature, often stating that “the lowest or any tender will not necessarily be accepted.” While this clause provides the owner with discretion, it does not override the fundamental duty of fairness. An owner cannot use a privilege clause to act in bad faith. Its power is in allowing the owner to consider factors beyond the lowest price if those factors are part of the stated evaluation criteria, or to cancel the procurement altogether for legitimate business reasons.

A “discretion clause” grants the owner the right to waive minor informalities or irregularities in a bid. This provides flexibility, but its application is limited. An owner cannot use a discretion clause to accept a materially non-compliant bid, as this would be unfair to the other bidders who adhered to the rules. The strategic challenge is distinguishing between a minor, waivable defect and a material failure of compliance.

Careful drafting of RFP clauses is the primary strategic tool for owners to manage liability, but these clauses do not provide immunity from the overarching duty of fairness.

The following table outlines the strategic obligations and inherent risks for both parties within the Contract A framework.

Execution

Executing a procurement process within the Contract A/Contract B framework demands a level of operational precision akin to managing a complex financial protocol. The focus shifts from simply selecting a vendor to administering a quasi-judicial process where every action is scrutinized for compliance with the established rules. The liability is not in the outcome, but in the integrity of the process itself.

A Procedural Guide for RFP Development

The most effective way to manage liability is to embed fairness and transparency into the DNA of the RFP document. This requires a systematic approach to its construction, ensuring clarity and eliminating ambiguity that could later be exploited in a legal challenge.

1. Define the Scope with Precision ▴ Contract B, the performance contract, should be included in its entirety within the RFP package. This ensures that bidders are bidding on a known set of final terms, eliminating post-award negotiations that can expose the owner to claims of bid shopping.
2. Establish Clear and Objective Evaluation Criteria ▴ The RFP must explicitly state all criteria that will be used to evaluate proposals, including the weighting of each criterion. Vague statements like “best value” are insufficient without a detailed breakdown of how value will be measured.
3. Structure Compliance as a Checklist ▴ All mandatory requirements (e.g. specific forms, bid security, insurance certificates) should be presented as a clear, non-negotiable checklist. This creates a bright-line test for determining bid compliance, reducing the risk of incorrectly accepting a non-compliant bid.
4. Incorporate Well-Drafted Clauses ▴ While privilege and discretion clauses are standard, they must be drafted by legal counsel familiar with current procurement law. An overreaching clause may be struck down by a court, leaving the owner exposed.
5. Implement a Formal Communication Protocol ▴ All questions from bidders must be submitted in writing by a specific deadline, and all answers must be distributed to all bidders simultaneously. This prevents any single bidder from gaining an informational advantage.
6. Plan for Debriefings ▴ The process should include a commitment to offer debriefing sessions to unsuccessful bidders. Providing a clear explanation of how a bid was evaluated against the stated criteria is a powerful tool for demonstrating fairness and deterring litigation.

A Quantitative View of Evaluation and Liability

Consider a scenario where an owner issues an RFP for a project. The evaluation criteria are stated as 60% for price and 40% for technical score (based on a 100-point scale). The following table illustrates how procedural errors during evaluation can create liability, even when the final choice seems intuitive.

This quantitative analysis demonstrates that the owner’s discretion is heavily constrained by the rules they themselves established. The liability arises not from making a “bad” business choice, but from failing to follow the execution protocol defined in the RFP. The winning bid is determined by the formula, and any deviation from that outcome based on unstated factors creates a cause of action for the rightfully successful bidder.

In a binding procurement, the evaluation is a mathematical exercise governed by the RFP’s formula; any deviation based on subjective, undisclosed preferences constitutes a breach.

Reflection

The Contract A/Contract B principle elevates the mechanics of procurement from a simple commercial transaction to a system demanding profound operational integrity. It forces organizations to recognize that the process of selection is as meaningful and legally significant as the final performance of the work. Viewing the RFP not as a document but as the constitution for a temporary, competitive ecosystem provides a powerful mental model for managing its inherent risks.

Ultimately, the framework is a testament to the idea that a fair market depends on transparent and enforceable rules of engagement. The liabilities it creates are not traps for the unwary but are consequences for those who deviate from the very system they designed. Mastering this principle is about more than legal compliance; it is about building a procurement function that is robust, defensible, and capable of generating trust, which itself is a strategic asset of immeasurable value.