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Procurement, Proposals and other Possibilities
Condo Corporations Have Many Alternatives at Their Disposal for Procuring Contractor Services, Each With its Own Latent Legal Implications
By Alex Young | Other articles by Alex Young
In the Fall 2016 Condovoice article entitled "Remembering Tendering!", author Warren Ragoonanan provides an excellent summary of the law of tendering and how it applies to corporations who want to procure contractor services. The following are some of the salient points:
- Tendering, or procurement as it is also called, is a competitive bidding process which creates two contracts – Contract A and Contract B.
- Contract A is an agreement between the condo corporation and the contractor submitting a bid. The terms of Contract A are in the Instruction to Bidder found in the Invitation to Bid prepared by the condo corporation. The condo corporation promises to set up the bidding process and consider bids. In exchange, each contractor agrees to accept the tendering process terms and to submit a bid that conforms to the requirements in the Instructions to Bidders.
- Contract B is the actual contract between the condo corporation and the contractor selected at the end of the bidding process. Contract B contains the work specifications – the price, the payment terms, the work timeline and all other items normally found in a service contract.
- The law of tendering uses contractual liability to hold both condo corporations and contractors accountable to one another. The condo corporation has the onus of setting up a fair and equal tendering process, and the contractor has the onus of reviewing the tendering instructions and submitting compliant bids.
Request for Proposals
Although formal tendering is commonly used by condo corporations, it is not the only weapon in a condo corporation's arsenal. If a condo corporation wants submissions from contractors but does not wish to create Contract A, it can issue a Request for Proposals (an "RFP") (there are also hybrid procurement processes, but that is beyond the scope of this article). Unlike a call for tenders, an RFP does not create a contractual obligation between the condo corporation and contractors – it is simply an offer to negotiate. In an RFP, the condo corporation asks contractors for expressions of interest and sets out its intention to consider those expressions of interest and negotiate with one or more contractors.
Tendering vs. Request for Proposals
In deciding between a call for tenders and an RFP, a condo corporation must carefully consider its goals and constraints. For example, if a condo is strapped for time on a project, a binding tender with a fixed deadline for submissions may be a more favourable option. The tables on the following page list the pros and cons that will help a condo corporation make its decision.
If a condo corporation chooses to engage in an RFP, it must be careful that it does not inadvertently create a call for tenders. Calling a process an "RFP" does not necessarily make it so; the terms and conditions of the procurement documents provided to the contractors will be determinative. There are six factors that a court will use to determine whether an RFP will give rise to the contractual obligations of the tendering process:
- The formality of the RFP process;
- Whether there is a deadline for submissions;
- Whether bids/proposals are required to be irrevocable;
- Whether there is a duty on the owner to award the project contract;
- Whether the project contract has specific conditions not open to negotiation; and
- Whether there is a statement within the RFP indicating that the RFP was not a call for tenders.
Director as a Contractor
As a further alternative to a call for tenders or RFP (or as part thereof), the condo corporation can look to the services of a director who happens to be a professional contractor. While there is nothing inherently wrong with a condo corporation having a director render services to it, and, in fact, there may be a cost-saving incentive to do so, there is a unique set of legal requirements that must be followed beyond the typical legal obligations for procurement. Section 40 of the Condominium Act, 1998 ("Act") deals specifically with director conflicts of interest and disclosure requirements (an officer of the condo corporation is subject to the same criteria under s. 41). In short, a director who has, directly or indirectly, a material interest in a contract or transaction involving the condo corporation or being contemplated by the condo corporation must: 1) disclose to the corporation, in writing and promptly, the nature and extent of his or her interest and 2) not be present during the discussions at a meeting, and not vote or be counted towards the quorum on a vote, regarding the contract or transaction. Disclosure must then be made at the board meeting at which the proposed contract or transaction is first considered. The board should enter the director's written disclosure into the minutes of the meeting of the board at which the disclosure is made. A director who violates s. 40 of the Act may be held liable to the corporation or its owners for any profit or gain obtained from the contract or transaction.
Duty of Good Faith and Fairness
In a tender, the condo corporation owes a duty of good faith and fairness which requires the condo corporation to treat all bidders fairly and equally, without the application of hidden preferences, undisclosed non-customary bid evaluation criteria or conduct which gives a bidder an unfair competitive advantage (There is conflicting case law which debates whether this duty also applies to RFPs, but that is beyond the scope of this article). A condo corporation may be tempted to leverage an existing relationship, such as that with a director who is a professional contractor, to obtain a lower bid price from other contractors. However, the condo corporation should avoid any impropriety or perception thereof. For example, in the interest of transparency, the condo corporation may find it prudent to advise bidders that a director is submitting a bid. The director should not be privy to any of the submitted bids, so that the he or she is not unfairly advantaged in submitting his or her bid price or other bid criteria.
Consult your Lawyer
Condo corporations have many alternatives at their disposal for procuring contractor services. However, different options have different latent legal implications. As such, condo corporation boards should engage legal counsel early and often for assistance in drafting procurement documents and to ensure that the condo corporation and directors are abiding by their existing legal requirements and not creating new legal obligations unintentionally.
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