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Drawing the line on compliance:
The risks of irregularity language in RFPs
Denis Chamberland
Right there in the middle of the request for proposals (RFP) document, standing on its own, was the clause that said "without liability, cost or penalty, [the client] may, in its sole discretion, waive irregularities in any respondent's proposal."
What does that clause actually mean, my client asked? Does it mean the buyer can accept any proposal it deems in the best interest of the buyer? That the buyer can only accept proposals that exhibit very minor deficiencies? Or it is simply holdover language from the old tender days, before the advent of such legal concepts as 'strict' and 'substantial' compliance? And finally, would it make any difference to the buyer if the RFP omitted such 'irregularity' language?
Waiving non-compliance
The irregularity language amounts to a permission the buyer explicitly grants itself, to waive compliance with the mandatory requirements of the RFP or tender document. In that sense, the language shares something in common with the so-called privilege clause. In the absence of a clear definition in the document of the scope of the waiver arising from the irregularity language, there's no way for bidders to know how the language will be interpreted by the buyer.
Where there is no definition, the language muddles rather than clarifies the powers of the buyer. What's worse, all too often, those who insert the irregularity language in their RFP or tender document fail to appreciate the current state of the law in the area. They risk misapplying the law by relying on language that has been superseded by modern principles.
A buyer may explicitly grant to itself a broad power to waive a non-compliant proposal so that it can rate it on merit in all respects. But even here, there can still be limits on the buyer's freedom to exercise its power.
In competitive bidding, the courts have consistently re-affirmed the sanctity of the tendering process. What that means is buyers can't completely oust procedural fairness.
The case law
Where the courts will draw the line in allowing buyers to waive non-compliance is difficult to predict. This is clear from the recent court decisions involving the privilege clause.
For example, in the 2003 British Columbia decision in Kinetic Construction Ltd. v. Regional District of Comox Strathcona (affirmed by the British Columbia Court of Appeal), Kinetic was the low bidder on a sewage treatment plant contract, but the contract was not awarded to Kinetic.
On the facts, the privilege clause expressly allowed the buyer to accept non-compliant tenders. The court found the language governed and the buyer could award to a non-compliant bidder over a compliant lower-priced bidder.
The Kinetic decision applies in British Columbia. Its reasoning and result have dramatic implications for the law of tendering, particularly as it affects the principle of fairness in the treatment of all bidders in the procurement process. It's entirely possible this decision will not be followed by courts in other provinces.
In practical terms, drafters of RFPs and tender documents should be aware of the risks involved in inserting language that reserves a right to waive non-compliance with prescribed mandatory requirements.
A way to mitigate the risks in this area—whether flowing from the language of irregularity or the privilege clause—is to reduce mandatory requirements to an absolute minimum and to waive only minor instances of non-compliance. This will go a long way to preserving the integrity of the tendering process that is so dear to the courts.
Denis Chamberland is a partner with the law firm Aird & Berlis LLP. He is a procurement specialist, and works on public-private partnerships, IT and outsourcing projects. He can be reached at (416) 865-3078 or dchamberland@airdberlis.com.
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