Public tenders: getting the best price within a sufficient evaluation period
The projected start date is often a determining factor in a bidder’s estimate of the contract price.
It is often advantageous for a bidder to plan for the work to be completed during the mild season, or for the buildings to be shut, in order to minimize the cost of enclosures, snow removal, heating and the loss of productivity associated with performing certain kinds of work in winter, not to mention the suspension of work during statutory holidays.
According to principles well established by the courts in such decisions as Construction BSL Inc. v. Ste-Agathe-de-Lotbinière (Municipalité de), EYB 2009-153544 (C.A.), a bidder cannot presume that the desired contract will be awarded before the bid cut-off date, except in special circumstances, namely when information to the contrary is received from the awarding authority or one of its representatives.
Barring such an exception, bidders must set up their standard timetable without presuming that the contract will be awarded early. This may lead to a higher bid price, either directly or indirectly, through an increase in the reserve for risks and the contingencies inherent in estimating.
In such circumstances, how can the awarding authority obtain the best price without shortening the evaluation period?
1. Consensual extension of the acceptance period
When the evaluation period has been limited in order to obtain the best price but later proves insufficient, the traditional solution in the construction industry is a consensual extension of the bid acceptance period. However, two fundamental problems substantially limit the application of this solution:
- it requires the consent of the bidder;
- in principle, it precludes the negotiation of an indexed bid price.
2. Request for credit when a contract is awarded early
If the evaluation period was overestimated and thus prevented the best price from being obtained, the client may, after awarding the contract ahead of schedule, be tempted to invoke the adjustment clause that refers to unforeseen circumstances likely to cause a reduction in the project timeframe or price.
Even if such clauses are generally invoked by contractors when circumstances call for a longer schedule or higher price, these clauses sometimes confer a corresponding right on the client.
In our view, there are several obstacles to such an application, including the fact that (a) the generating event is purely potestative and (b) it predates the signing of the contract.
In any event, a dispute would be reasonably foreseeable and the specific aim here is to avoid this outcome.
A third solution to consider is effective contract management.
3. Inclusion of clauses that predefine parties’ adjustment rights
The client can choose to add clauses to the tender documents, using specific wording set out by the undersigned to allow the bidder to include or not include a credit if the contract is awarded early or several credits based on a multi-tiered system.
In the event of an (invariably consensual) extension of the bid validity period, the client could also predefine an indexation procedure that would take into account a reasonable increase in costs resulting from the contract being awarded late. This procedure could be structured in such a way as to avoid compromising the equality between bidders.
This type of clause, which is expected to be used in the near future, will finally enable parties to manage their risks better, while at the same time ensuring the sound use of public resources and, we hope, limiting the number of bid recalls.