Procurement

Is there a duty of good faith bargaining in the context of an RFP?

Duty to Bargain in Good Faith: It is well established that there is NO duty to bargain in good faith unless: (a) a duty expressly arises through contract; or (b) in the commercial tendering process under which there is a requirement for fair dealing with respect to the consideration of all bids (termed Contract A/Contract B under which the tendering process is called “Contract A” and the actual agreement entered into between the successful bidder and the party seeking the bids is called “Contract B”). In Oz Optics Ltd. v. Timbercon, Inc. (2011, Ont CA), the judge concluded that there was no obligation on the part of defendant to treat the plaintiff fairly in the tendering of the bids because there was no actual contract governing their relationship (ie. the Contract A/Contract B model did not apply).

Background

In this case, the plaintiff (Oz) was a manufacturer of attenuators. Initially, Oz manufactured ten manual attenuators, which were delivered to and paid for by the defendant (Timbercon). After this delivery, Timbercon sent Oz a purchase order for 500 more manual attenuators with a consignment agreement. Oz did not sign the purchase order or the consignment agreement, but fulfilled the order by sending out the required number of attenuaters.  The plaintiff did not sign the purchase order or the consignment agreement, but nonetheless fulfilled the order requested by the defendant. Since the plaintiff did not expressly object to the consignment order and sent the product to the defendant, the judge found that he agreed to the terms of the order. Since it was found that the order was on consignment, the defendant was not required to pay for any products that were not purchased from him by his client.

Apart from the consignment issue, Timbercon also entered into discussions with the Oz to have automated attenuators incorporated into a product that was to be sold to Lockheed Martin. Although Timbercon told Oz on numerous occasions that Oz was the sole bidder to supply the attenuators, Timbercon was also in discussions with another attenuator manufacturer. Ultimately, Timbercon presented both attenuator options to Lockheed Martin, and Lockheed selected Oz’s competitor for the project. Oz alleges that Timbercon had misrepresented the lack of other bidders, and had breached a duty of good faith towards Oz.

This blog is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at your own risk. The law may have changed since the publication of this article. The writer is licensed to practise law in Ontario and not in any other jurisdiction.  This article is also published on ClauseHound.
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Integrity of the RFP process

Be careful when contacting your competitors in the context of preparing an RFP response.   “Bid-rigging”, or collusion by several competitors to artificially inflate the quote provided in response to an RFP, is a criminal offence.   Refer to the Competition Bureau Canada website for further information and a flash presentation related to this topic.

http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/h_02760.html

The effect to a consulting firm of a finding (or even allegation) of bid-rigging is that of severe damage to the goodwill of that firm to it’s current and future clients.

In a recently reported case TPG Technology Consulting Ltd. v Canada (2012, Ont CA), the appellant, an IT consulting firm, brought forward arguments on the damage to it’s goodwill that resulted from the allegation of bid-rigging.   The trial of this matter was ongoing at the time of this post and no findings have been determined as of yet.

This blog is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at your own risk. The law may have changed since the publication of this article. The writer is licensed to practise law in Ontario and not in any other jurisdiction.  This article is also published on ClauseHound.

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