In a recent article titled “Understanding authority levels” that appeared in the Journal of Commerce (June 17, 2013 issue), Stephen Bauld (a procurement consultant and regular contributor) writes:

“Often I am asked about the rules around authority levels. Every corporation, whether political or commercial in nature, must identify those persons who have the authority to contract on its behalf and to specify the extent of the authority of each of those persons.”

The article goes on to address the application of this requirement to municipalities, and states:

“In this respect, municipalities are no different from any other corporation.”

All true. Everyone understands that authority levels are managed and prescribed within corporations, and that in dealing with corporations – be they public or private – approval of two or three signing officers, or of a senior management or executive committee, might be required.

In the world of competitive bidding and tendering, the procurement officer issuing an RFP or request for tenders might effectively be binding the corporation, despite such internal rules for contracting and authority levels. In applying the “contract A / contract B” principles, the courts don’t stop to ask if the procurement officer issuing an RFP or request for tenders had sufficient authority. Perhaps it is reasonable for proponents and bidders to assume that all required approvals were obtained, unless otherwise indicated.

How do you manage this in your organization? The reasoning in Budget Rent-A-Car of B.C. Ltd. v. Vancouver International Airport Authority, 2009 BCCA 22 offers guidance. In that case, the court referred to Ron Engineering and stated:

“[49] The gloss that Iacobucci J. put on the decision in Ron Engineering was explained in Martel Building Ltd. v. Canada, 2000 SCC 60, [2002] 2 S.C.R. 860:

80. In M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619, this Court confirmed that Contract A also imposes obligations on the owner. It further explained that Ron Engineering does not stand for the proposition that Contract A will always be formed, nor that the irrevocability of the tender will always be a term of such contract. Whether the tendering process creates a preliminary contract is dependent upon the terms and conditions of the tender call.

[Emphasis added]

[50] These comments lead to a consideration of the terms and conditions of the RFP.

[51] The parties rely on various provisions of the RFP to support their respective positions. In my view, the answer is in s. 13.1(a) which states:

This RFP does not constitute an offer. No agreement shall result upon submission of Proposals. [YVR] shall not be under obligation to enter into any agreement with anyone in connection with this RFP and responses received. [YVR] will not have any obligation to anyone in connection with this RFP unless [YVR] executes and delivers an agreement in writing approved by [YVR’s] senior management.

This section tracks the analysis in M.J.B. Enterprises. It is difficult to see how the draft-person could have made the intention of YVR more clear.”

Having drafted this wording for YVR, I was, of course, pleased with this analysis.

Another version of the language is:

“Before any contract or obligation relative to the subject matter herein becomes binding on {the Owner}, approval thereof by its authorized senior personnel, or such officer or officers of {the Owner} as {the Owner} may from time to time designate, must first be obtained.”

I suggest that provisions of this kind should be considered for RFPs and tenders, hand in hand with establishing internal rules for contracting and signing authorities.