What Is the Legal Precedent for a Court Finding an Unintentional Contract from an Rfp?

Concept

The issuance of a Request for Proposal (RFP) is a standard procurement practice, yet it is a process fraught with legal subtleties that can lead to the unintentional formation of a binding contract. A court may find that an RFP, contrary to the issuer’s intent, has created a contractual relationship with one or more of the bidders. This situation typically arises from two primary legal doctrines ▴ the Canadian “Contract A/Contract B” framework and the United States’ concept of an “implied-in-fact” contract.

The Contract A/Contract B Framework

The “Contract A/Contract B” legal framework originated in Canada with the Supreme Court’s decision in R. v. Ron Engineering & Construction (Eastern) Ltd. (1981).

This precedent established that the RFP process itself can create a preliminary contract, known as “Contract A.” This contract’s purpose is to govern the bidding process. The subsequent contract for the actual work is “Contract B.”

The formation of Contract A occurs when a bidder submits a compliant bid in response to the RFP. The terms of Contract A are dictated by the RFP document itself. This preliminary contract imposes obligations on both the issuer and the bidder.

The bidder, for instance, is typically bound to the terms of their bid for a specified period. The issuer, in turn, is obligated to conduct a fair and transparent evaluation process, adhering to the criteria laid out in the RFP.

A court may determine that an RFP has created a binding preliminary contract governing the bidding process, even if no formal agreement was signed.

A breach of Contract A can occur if the issuer deviates from the stated evaluation criteria, shows favoritism to one bidder, or accepts a non-compliant bid. In such cases, a slighted bidder may have grounds to sue for damages, which could include the costs of preparing the bid or even lost profits that would have been earned under Contract B.

Implied-in-Fact Contracts in the United States

In the United States, a similar outcome can result from the doctrine of an “implied-in-fact” contract. This type of contract is not explicitly written or spoken but is inferred from the actions, conduct, and circumstances of the parties involved. For an implied-in-fact contract to exist, there must be a mutual intention to contract and a “meeting of the minds.”

In the context of an RFP, an implied-in-fact contract can arise if the issuer’s conduct leads bidders to reasonably believe that the issuer is making a binding offer to conduct the procurement process in a certain way. This can happen if the RFP contains specific, promissory language about how bids will be evaluated and how the contract will be awarded. If a bidder then expends significant resources to prepare a bid in reliance on these promises, a court may find that an implied-in-fact contract was formed.

The U.S. Court of Federal Claims has jurisdiction over claims that the government has breached an implied-in-fact contract to fairly and honestly consider a bidder’s proposal. This provides a legal avenue for bidders who believe they have been treated unfairly in a federal procurement process.

Strategy

Understanding the legal precedents for unintentional contracts arising from RFPs is the first step. The next is to develop strategies to mitigate the risks for issuers and to understand the opportunities for bidders. The strategic approach to RFPs must be informed by the legal realities of the “Contract A/Contract B” framework and the doctrine of implied-in-fact contracts.

Strategies for RFP Issuers

For organizations issuing RFPs, the primary goal is to maintain control over the procurement process and avoid unintended legal obligations. This can be achieved through careful drafting of the RFP and a disciplined process.

• Explicit Disclaimers ▴ The RFP should include clear and unambiguous language stating that it is not an offer and does not create a binding contract (neither a “Contract A” nor an implied-in-fact contract). It should also state that the issuer is not obligated to accept any bid and may cancel the RFP at any time.
• Reservation of Rights ▴ The RFP should reserve the issuer’s right to waive irregularities in bids, to negotiate with one or more bidders, and to accept a bid that is not the lowest-priced.
• Avoiding Promissory Language ▴ The RFP should be worded as a request for information and proposals, not as a set of binding promises. Avoid words like “will” and “must” when describing the issuer’s evaluation process. Instead, use more flexible terms like “may” and “intends to.”

The following table outlines some key differences between a traditional, binding RFP and a non-binding RFP designed to avoid creating a contract:

Strategies for Bidders

For bidders, the legal precedents surrounding RFPs create both risks and opportunities. The primary risk is investing significant resources in a bid for a process that is ultimately unfair. The opportunity lies in the ability to hold issuers accountable for their promises.

Bidders should scrutinize RFPs for promissory language and be prepared to challenge unfair procurement processes.

Bidders should carefully review the RFP for any language that could be construed as creating a binding contract. If the RFP contains specific promises about how bids will be evaluated, bidders should document their compliance with all requirements and be prepared to challenge any deviations from the stated process. If a bidder believes that an issuer has breached a “Contract A” or an implied-in-fact contract, they may have legal recourse to recover their bidding costs or even lost profits.

Execution

The execution of an RFP process, from drafting to evaluation, is critical in determining whether a court will find that an unintentional contract has been formed. Both issuers and bidders must be meticulous in their approach.

Drafting an RFP to Avoid a Contract

The following are practical steps for drafting an RFP that minimizes the risk of creating an unintentional contract:

1. Include a Clear Disclaimer ▴ The RFP should begin with a clear and prominent disclaimer that states the document is not an offer and does not create a binding contract.
2. Use Non-Promissory Language ▴ Review every sentence of the RFP to eliminate any language that could be interpreted as a promise.
3. Retain Discretion ▴ The RFP should explicitly state that the issuer retains full discretion over the procurement process.
4. Define the Process as a Negotiation ▴ Frame the RFP as the first step in a negotiation process, not as a formal, binding competition.

RFP Evaluation and Award

Even a well-drafted RFP can lead to an unintentional contract if the issuer’s conduct during the evaluation and award process is inconsistent with the non-binding nature of the RFP. To avoid this, issuers should:

• Follow the Stated Process ▴ While the RFP should be drafted to provide flexibility, the issuer should still follow its own stated process as closely as possible.
• Document Everything ▴ Maintain a detailed record of all communications with bidders, all evaluation scores, and the rationale for the final decision.
• Be Transparent ▴ To the extent possible, be transparent with bidders about the process and the final decision.

The following table provides a checklist for issuers to follow when executing an RFP process:

For Bidders Responding to an RFP

Bidders should also have a clear execution strategy when responding to RFPs. This includes:

• Thoroughly Review the RFP ▴ Pay close attention to any disclaimers, reservation of rights clauses, and other language that may indicate the RFP is non-binding.
• Ask Questions ▴ If any part of the RFP is unclear, submit questions to the issuer in writing.
• Document All Interactions ▴ Keep a record of all communications with the issuer.
• Consider the Risks ▴ If the RFP appears to be non-binding, the bidder should carefully consider the risks of investing significant resources in a proposal.

A well-executed RFP process, from drafting to award, is the best defense against a claim of an unintentional contract.

By understanding the legal precedents and adopting a disciplined approach to the RFP process, both issuers and bidders can navigate this complex area of procurement law and achieve their respective goals.

Reflection

The legal frameworks governing RFPs reveal a fundamental tension in procurement ▴ the desire for a fair, competitive process versus the need for flexibility and discretion. The “Contract A/Contract B” and “implied-in-fact” contract doctrines are judicial attempts to balance these competing interests. For any organization, the key takeaway is that the RFP process is not merely an administrative task; it is a legally significant event that must be managed with care and precision.

A poorly executed RFP can lead to costly litigation and damage an organization’s reputation. A well-executed RFP, on the other hand, can be a powerful tool for achieving strategic procurement goals.