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The Legal Implications of Issuing an RFP

There is little that’s more frustrating than receiving a request for proposal (RFP) written by an individual who doesn’t know what he’s doing–especially when it’s a company you really want as a client. You know what I’m talking about–the RFP unexpectedly shows up in your inbox offering a moment of excitement, but your deflation follows as you start to read and realize this person doesn’t know what he wants in a creative firm, isn’t asking the right questions or is simply casting as wide a net as possible, creating untold hours of work for a multitude of firms, many of which should not even be under consideration.

In fairness to clients, the purchase of ideas and advice is a difficult endeavor, fraught with risk. There are two paths to mitigating this risk: one can be summarized as “do your homework” and the other as “spread the risk.” Too many clients choose to spread the risk by sending ill-considered RFPs to multiple firms.

When looked at holistically, the inefficiency of such a process is incredible. The collective thinking applied to the problem, whether you measure it in hours, dollars or brainpower, usually far exceeds what the problem merits (and pays), yet the distributed nature of the thinking means the client doesn’t really benefit from the over-investment. The average RFP process incites a whole bunch of people to throw a whole bunch of hours at guessing at a problem in hopes that they’ll ultimately be the ones hired to solve the problem.

The Legal Landscape has Changed

The better-organized clients are willing to do the advance work to make the RFP meaningful, but far too many neglect the required crafting and vetting and attempt to shift the workload to numerous firms by casting poorly-constructed RFPs out far and wide. Clients have gotten away with this for years, but in my home country of Canada, a combination of court decisions has shifted the liability of an ill-considered RFP back onto the client. While the implications of these rulings are still murky even in Canada and do not cross legal jurisdictions, one of the results has been that prominent lawyers and procurement professionals are agreeing that when it comes to the procurement of professional services, clients need to get smarter and simpler in their approach. Before we explore the most recent court decision regarding the issuance of RFPs in Canada it’s important to go back 30 years to another decision that set the stage.

R. V. Ron Engineering (1981)

While the details of this case were an engineering firm trying to get their tender deposit back after realizing they had made an error in calculating their bid, the ruling set into case law the idea of a contract A – contract B scenario. The court ruled that the issuance of a tender or request for proposal was in itself a contract (contract A) that was accepted by the bidder once their proposal was submitted. So, while Ron Engineering did not get their deposit returned, the bigger implication for everyone issuing and responding to RFPs in Canada was the ruling that once a response is submitted both parties are now legally bound by the terms of the RFP and must act in accordance with those terms and contract law.

The Ron Engineering ruling made clear the significant legal and monetary implications for the issuance of an ill-considered RFP (and, in this case, an ill-considered RFP response.) The implications however were easily dealt with through the addition of “exclusion of liability” clauses to clients’ RFPs. These clauses essentially say, fine – we’re in a contract, but we won’t be held liable for all sorts of things including the costs incurred in submitting your proposal or any mistakes we may have made in preparing the document. As a result, nothing really changed.

Tercon Contractors, Ltd. v. Province of British Columbia Ministry of Transportation and Highways (2010)

Fast forward twenty-nine years to 2010 and the case of Tercon v. BC Transportation and Highways. Tercon – another engineering firm – submitted a proposal in response to the defendant’s RFP, as did the five other firms that were invited to bid. This set up the contract A – contract B scenario established by the Ron Engineering case. But the defendant decided to award the contract to a joint venture comprised of one firm that, by the criteria described in the RFP, did qualify for the contract and one that did not. Tercon lost and then sued. After contrasting rulings in two lower courts, the Supreme Court of Canada ruled that the defendant was in breach of their bid contract (contract A) when they awarded contract B to a firm that did not qualify under contract A. The court thus ruled that such a breach disallowed the protection offered in the exclusion clause. Tercon was awarded not only the costs of submitting their proposal but also the profits they would have earned: $3.3 million.

What Does It All Mean?

There are lots of implications here and many murky areas that are still being debated in the legal and procurement professions, but in practical terms for Canadian entities that issue RFPs for professional services, clients will have to take one of two paths. The first is the addition of other clauses and language in their RFP as an attempt to re-entrench the limitations of their liability. The second path, however is the one that is being advocated by procurement legal specialists, and it is the opposite approach more in line with what I have been advocating: clients will have to simplify the procurement process.

Lisa Stiver practices procurement law at Thompson, Dorfman & Sweatman in Winnipeg, Manitoba. Her advice to her clients is to avoid the contract A – contract B scenario altogether. “The typical RFP is too rigid in its format and has too many terms and conditions, and most of the time, clients are not even sure what it is that they are protecting themselves from.”

She adds that buyers need to put more work into the front of the process, deciding what they want in a provider, what the deal-breakers are and what the criteria for deciding will be. “I get my clients to write this on one page,” Stiver says. One page. She then counsels her clients to put these points into a brief request for an expression of interest rather than a request for proposal.

Cal Harrison advises buyers and sellers of professional services on how to improve the procurement process and he puts the effect of these two cases into layman’s terms. “The RFP process as it is typically constructed now has all kinds of flaws that can be challenged by bidders. Both parties are better off if they have conversations that lead to contracts and not contracts that lead to contracts.”

Conversations that lead to contracts and not contracts that lead to contracts. Dead simple. All that’s required is for the client to do some advance thinking on what it is they’re looking for in a firm, what they will not accept in a firm, and then, thanks to the free search consultant called Google, find a handful of firms that appear to meet the criteria and invite them to have a conversation.

The test of a well-considered RFP, in my opinion, is whether the document can be used as a guide for the buyer rather than a to-do list for the seller. As Stiver points out, it’s a helpful exercise for the buyer to write out what he wants in a creative firm, which skills and experiences he values and even what he wants to pay for certain services. But rather than distributing the document to numerous firms to begin allocating a multitude of hours to answering the questions (in isolation) he should then select the firms that he thinks might be good fits to have conversations with, using the document as the guide for such conversations.

The measure of the fit between buyer and seller comes in these unscripted, unrehearsed conversations – not in the documents or the carefully rehearsed PowerPoint presentations. And crafting the short list of conversation-worthy firms is dead simple these days. Anyone selling ideas and advice is employing some level of content marketing, making Google more powerful than any search consultant.

The Tercon ruling leaves me wondering how many private companies in Canada have in-house legal counsel that are oblivious to the contract A scenarios and the legal exposure arising from them that their marketing and procurement people are exposing them to through the issuance of ill-considered RFPs. I’m waiting for the case law to be tested by a Canadian design firm or advertising agency and I don’t think I’ll have to wait long.

Both Harrison and Stiver have addressed audiences of buyers and sellers of professional services to warn them of the implications of the Tercon ruling and, according to Harrison, the procurement folks are shocked. “Their world has changed and nobody has told them. They know this is big, but most of them are not sure what to do about it.”

Harrison has been a voice for the elimination or at least drastic reduction of the use of the RFP in buying professional services for years. For the first time he is now optimistic that the RFP will be put in its place in Canada and a smarter, simpler procurement process will ultimately prevail.

What About the Rest of You?

Unfortunately for those outside of Canada, there are no practical legal ramifications that cross jurisdictions and I’m unaware of similar case law in other countries. I see the RFP process as so highly flawed that whatever rises from it’s ashes in Canada cannot help but serve as a model and an inspiration for businesses elsewhere in the world, but the real value in these court decisions is in highlighting the need for a simpler procurement process. Only time will tell if my optimism is misplaced. The only thing for certain is that the way creative services are bought and sold in Canada is finally about to change.

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