What Remedies Are Available to a Bidder If an Issuer Breaches the Duty of Fairness in a Binding Rfp Process?

Concept

The submission of a compliant bid in response to a binding Request for Proposals (RFP) initiates a distinct legal relationship, separate from the ultimate construction or service contract. This preliminary contract, often referred to as “Contract A,” imposes a non-delegable duty of fairness and good faith upon the issuer. This obligation is a cornerstone of procurement law, ensuring that all proponents are treated equally and that the evaluation process is conducted according to the precise terms laid out in the RFP documents. A breach of this duty fundamentally undermines the integrity of the competitive bidding process, creating grounds for legal recourse.

The Genesis of Contract A

The legal framework for the duty of fairness originates from the establishment of “Contract A.” This implied contract comes into existence the moment a bidder submits a bid that conforms to the RFP’s requirements. The terms and conditions of Contract A are the rules of the bidding process itself as stipulated in the RFP documents. The primary obligation of the issuer under Contract A is to conduct a fair and transparent evaluation of all compliant bids. The separate, final agreement for the work itself is known as “Contract B.” An issuer’s failure to adhere to the evaluation criteria, the acceptance of a non-compliant bid, or undisclosed bias in the selection process all constitute a breach of Contract A.

Defining a Breach of Fairness

A breach of the duty of fairness can manifest in several ways. The most common form is the acceptance of a materially non-compliant bid. A defect in a bid is considered “material” if it fails to address an essential requirement of the tender documents, and there is a substantial likelihood that this omission would have been significant in the issuer’s deliberations. Other examples of breaches include:

• Undisclosed Criteria ▴ Evaluating bids based on criteria not specified in the RFP documents.
• Bias ▴ Showing preference for one bidder over another, for reasons outside the stated evaluation criteria.
• Failure to Investigate ▴ Ignoring ambiguities or potential issues in a bid that could affect its compliance.
• Improper Discretion ▴ Using a “discretion clause” to waive a material defect in a bid, which is generally not permissible. These clauses only allow for the waiver of minor, immaterial defects.

A breach of the duty of fairness occurs when an issuer deviates from the established rules of the RFP, creating an uneven playing field for bidders.

It is important to note that the existence of Contract A is determined by the intention of the parties, as reflected in the language of the RFP. If an RFP explicitly states that it does not intend to create contractual relations, a bidder’s recourse may be limited to administrative law remedies, such as a judicial review of the procurement process, rather than a breach of contract claim for damages.

Strategy

Upon suspecting a breach of the duty of fairness, a bidder must engage in a strategic analysis of the available remedial pathways. The primary objective is to select a course of action that aligns with the bidder’s commercial goals, financial capacity, and tolerance for risk. The two main avenues for recourse are seeking monetary damages for breach of contract or pursuing an equitable remedy, such as an injunction to halt the procurement process. Each path has distinct procedural requirements, potential outcomes, and strategic implications.

Damages as a Primary Remedy

The most common remedy sought for a breach of Contract A is an award of damages. The legal principle behind damages is to place the wronged party in the financial position they would have occupied had the breach not occurred. There are two principal types of damages a bidder can pursue:

• Expectation Damages ▴ This represents the profit the bidder would have earned if they had been awarded Contract B. To succeed in a claim for expectation damages, the bidder must prove, on a balance of probabilities, that their bid would have been selected had the issuer acted fairly. This can be a challenging evidentiary burden, requiring a detailed reconstruction of the proper evaluation process.
• Reliance Damages ▴ This covers the costs the bidder incurred in preparing and submitting their bid. This remedy is typically sought when proving lost profits is too speculative or difficult. It is a less lucrative but often more attainable form of compensation.

The Impact of Limitation of Liability Clauses

Issuers frequently include limitation of liability clauses in RFP documents to mitigate their exposure to damages. These clauses may attempt to cap damages at the cost of bid preparation or exclude liability for unfairness altogether. Courts will generally enforce these clauses unless they are found to be unconscionable or if there is an overriding public policy reason not to do so. A bidder must carefully review the RFP for such clauses and assess their enforceability, as they can significantly impact the viability of a claim for damages.

The choice between pursuing expectation or reliance damages is a critical strategic decision, balancing the potential reward against the evidentiary burden.

Equitable Remedies a Strategic Alternative

In certain circumstances, a bidder may seek an equitable remedy, such as an injunction, to prevent the issuer from awarding the contract to another party. This is a proactive strategy aimed at preserving the bidder’s opportunity to win the contract, rather than seeking compensation after the fact. An injunction is a discretionary remedy, and a court will only grant it if the bidder can demonstrate that damages would be an inadequate remedy and that the balance of convenience favors halting the procurement process. This is a high bar to meet, and the bidder will typically be required to provide an undertaking as to damages, meaning they will be liable for any losses incurred by the issuer if the injunction is later found to have been wrongly granted.

The following table compares the strategic considerations of pursuing damages versus an injunction:

Execution

Successfully executing a claim for breach of the duty of fairness requires a disciplined, evidence-based approach. The process moves from internal assessment and evidence preservation to formal legal action, and every step must be meticulously documented. A bidder’s ability to present a clear, coherent, and well-supported case is paramount to achieving a favorable outcome, whether through a negotiated settlement, alternative dispute resolution, or a court judgment.

Phase One Initial Assessment and Evidence Preservation

The moment a bidder suspects a breach, the immediate priority is to preserve all relevant documentation and communications. This includes the complete RFP package, all addenda, the submitted bid, and any correspondence with the issuer. The next step is to conduct a thorough internal review to formulate a preliminary theory of the breach. Key questions to address include:

• Compliance ▴ Was our bid fully compliant with all mandatory requirements of the RFP?
• The Breach ▴ What specific action or inaction by the issuer constituted the breach? (e.g. accepting a non-compliant bid, using undisclosed criteria).
• Evidence ▴ What evidence do we have to support the alleged breach? This may require seeking a debriefing from the issuer to obtain information about the evaluation process.
• Causation ▴ Can we demonstrate a causal link between the breach and the failure to win the contract?

Calculating Potential Damages

A critical part of the initial assessment is to quantify the potential damages. This analysis will inform the strategic decision-making process and any subsequent settlement negotiations. The calculation of expectation damages requires a detailed breakdown of the projected profitability of the contract.

The following table provides a simplified model for calculating expectation damages:

Phase Two Formalizing the Claim and Dispute Resolution

Once the initial assessment is complete and a viable claim has been identified, the bidder must decide on the appropriate forum for resolving the dispute. While litigation is always an option, alternative dispute resolution (ADR) mechanisms such as mediation or arbitration can offer a more cost-effective and timely resolution. The choice of forum may be dictated by the terms of the RFP, which may contain a mandatory ADR clause.

The process of formalizing the claim typically involves the following steps:

1. Legal Counsel ▴ Engaging experienced legal counsel with expertise in procurement law.
2. Demand Letter ▴ Sending a formal demand letter to the issuer outlining the basis for the claim and the remedy sought. This can often lead to a negotiated settlement.
3. Commencing Proceedings ▴ If a settlement is not reached, legal proceedings are commenced by filing a statement of claim (in litigation) or a notice of arbitration.
4. Discovery ▴ This is the pre-trial phase where both parties exchange relevant documents and conduct examinations under oath. This is often where the critical evidence supporting the claim is obtained.
5. Resolution ▴ The claim is ultimately resolved through a negotiated settlement, a mediation or arbitration award, or a court judgment after a trial.

A meticulously documented and quantified claim is the foundation of a successful recovery strategy.

The entire process demands a significant investment of time and resources. A bidder must be prepared for a lengthy and potentially adversarial process, and the decision to proceed should be based on a clear-eyed assessment of the strength of the claim, the potential recovery, and the organization’s capacity to see the process through to its conclusion.

Reflection

Calibrating the Response System

Understanding the available remedies for a breach of fairness is a component of a larger risk management system. The legal frameworks governing procurement are designed to ensure predictability and integrity in commercial dealings. An organization’s ability to navigate these frameworks effectively depends on its internal systems for bid preparation, documentation, and strategic decision-making.

The knowledge of potential recourse is valuable, yet its true power is realized when integrated into a proactive strategy that prioritizes compliance, clear communication, and a disciplined approach to managing commercial relationships. The ultimate goal is a procurement apparatus that is resilient, responsive, and capable of protecting the organization’s interests in a complex and competitive marketplace.