Should you add a non-binding RFx clause in your RFx template?
Owners who want to avoid the legal risks associated with Contract A are increasingly including a non-binding RFx clause in their document that says something along the lines of, “this RFx is non-binding and therefore does not create contract A obligations.”
Is this all it takes to eliminate the pitfalls associated with Contract A? Maybe, maybe not.
How to Design a Non-Binding RFx
Whether an RFx is binding or non-binding is matter of substance and not form. This means adding a non-binding RFx clause doesn’t automatically eliminate Contract A.
Courts will look at a variety of factors to determine whether the parties intended to enter into a binding RFx process, what is often referred to as “Contract A”, by a bidder’s submission of a compliant proposal. As covered below, a statement that “no Contract A is created” is important, but it’s just one of the many factors that will be examined.
The most comprehensive summary of factors courts will consider when determining whether the parties intended the process to be binding is from the trial-level decision Tercon Contractors v. BC 2006 BCSC 499, and presented as the following list in Topsail Shipping Company Limited v. Marine Atlantic 2013 NLTD 163 (upheld on appeal).
- The irrevocability of bids or proposals submitted;
- The formality of the process;
- Whether bids or proposals are solicited from selected parties;
- Whether the identity of bidders or proponents is confidential;
- Whether there is a deadline for the submission of bids or proposals;
- Whether a security deposit is required;
- Whether bid or proposal selection or evaluation criteria are specified;
- Whether there is a right to reject proposals;
- Whether there was a statement that this was not a tender call;
- Whether the work or service in which proposals are submitted is definitely going to proceed;
- Whether compliance with specifications was a condition of bids or proposals;
- Whether there is a duty to award contract ‘B’;
- Whether contract ‘B’ had specific conditions not open to negotiation.
Generally, the more formality there is in the process, the more it points to an intention to run a binding RFx. As we saw in the case of Topsail, even where many of the above criteria point to a non-binding process, in the face of unfairness, courts will often strain to conclude a process was legally binding in order to hold an owner accountable for its unfair conduct. Therefore, to successfully avoid Contract A, owners are advised to design a process that is clearly non-binding having regard to all of the above factors.
Can a non-binding RFx clause, on its own, effectively negate Contract A?
When determining whether an RFx is binding, courts will strive to respect intention of the parties and will look at the express and implied terms of the RFx in the context of the list of factors noted above. The insertion of a “this is a non-binding RFx and no Contract A is created” clause, as highlighted above, will help support an argument that the RFx was intended to be non-binding, but is not in itself determinative.
As we’ve seen with privilege and disclaimer clauses, even in the face of clear RFx provisions protecting the owner, courts may refuse to enforce the clauses when to do so would compromise the integrity of the tendering process. Since a non-binding RFx provision is really just another type of disclaimer clause, if put before a judge, it would likely be subject to the same judicial scrutiny and uncertainty, particularly if it’s the only factor pointing to a non-binding process.
Owners seeking to protect themselves by using a “non-binding RFx” clause in an otherwise binding RFx should therefore not derive too much comfort from the protection it will offer as courts may, under certain circumstances, refuse to enforce it.
The non-binding RFx clause – a Good Idea but not a Perfect Solution
Given the above, is it a good idea to include a non-binding clause in your standard RFx document to avoid Contract A duties?
In my view, yes. Like liability disclaimers and privilege clauses, these provisions could provide strategic leverage in negotiations with disgruntled bidders and may be legally enforceable under certain circumstances. In deciding to use these clauses, however, owners should be aware that, if put to the test in court, they may not act as a perfect solution to the Contract A problem.
Rather than simply inserting a non-binding clause in your standard RFx template, perhaps a more effective approach is to work with your legal team and other advisors to create a template that is specifically and thoroughly designed to be non-binding, having regard to all the factors listed above. Then decide when and how that instrument is to be used, keeping in mind that in some cases Contract A might be the most efficient way to proceed.