procurement zone

Post-Bid Negotiations: When Can A Municipality Do It?

Denis Chamberland

This much is clear about the Canadian laws on tendering: when the terms of the tender document come together with the terms of the successful bidder’s proposal, those are substantially the terms that will be included in the definitive agreement that will follow. A key question for municipalities is how much, if any, negotiating flexibility is there, to deviate from the terms of the tender documents. As municipal procurement officers know all too well, there can often be many very good reasons for going off in a new direction. But, having a good reason does not justify leaving the municipality exposed to multiple claims in damages, a realistic risk when straying too far away from the tender documents.

Trade Agreements
The starting point of any analysis in this area lies with the main trade agreements, which in many respects are mirrors of each other in the field of procurement. Article 1014 of the North America Free Trade Agreement (NAFTA) allows for negotiations, but only in limited circumstances: where the issuer has made clear its intention to negotiate early in the process, or when no one tender is “obviously the most advantageous” having regard to the evaluation criteria. In short, under NAFTA, not just any “good reason” warrants deviating substantively from the terms of the tender documents.

Then, there is the Agreement on Internal Trade (AIT), which applies to municipalities. Article 506 (6) of the AIT says that the tender documents must clearly identify the requirements of the procurement, the criteria that will be used in the evaluation of bids and the methods of weighing and evaluating the criteria. But, the AIT is otherwise silent on the status of post-bid negotiations. Can a municipality under the AIT then ever conduct post-bid negotiations?

At least two responses are possible. The first is that post-bid negotiations are not permitted under the AIT. The reasoning is simple: because permission is not expressly granted in the agreement, the activity is not allowed.

The second, less conservative, interpretation is that unless an activity is expressly barred in the AIT, it is allowed. That there is nothing in the AIT that explicitly prevents post-bid negotiations would mean that the practice is allowed, provided that the municipality’s tender documents show a clear intention to allow the practice. But, is any language showing a clear intention sufficient?

Tender Documents
NAFTA offers no guidance on the kind of language that would meet the threshold of showing a clear intention to conduct post-bid negotiations. That is not unreasonable, since the circumstances of each procurement process tend to vary significantly.

What matters – whether under NAFTA or the AIT – is that the reservation of rights be clearly worded. The language should also broadly define the circumstances of the post-bid negotiations. In this respect, it is important to note that any language showing a clear intention to negotiate cannot defeat the duty of fairness with which the municipality must comply at all times. The trade-off is clear: the more extensive the negotiations, the more stress it will put on the municipality’s duty to be fair. MW

From the April 2005 issue of Municipal World

Check out Denis's bio on the Municipal World website.