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Rajah Lehal

Is there a duty of good faith bargaining in the context of an RFP?

October 27, 2016

Duty to Bargain in Good Faith:

It is well established that there is NO duty to bargain in good faith unless:

(a) a duty expressly arises through contract; or (b) in the commercial tendering process under which there is a requirement for fair dealing with respect to the consideration of all bids (termed Contract A/Contract B under which the tendering process is called Contract  and the actual agreement entered into between the successful bidder and the party seeking the bids is called Contract B)

. In Oz Optics Ltd. v. Timbercon, Inc. (2011, Ont CA), the judge concluded that there was no obligation on the part of defendant to treat the plaintiff fairly in the tendering of the bids because there was no actual contract governing their relationship (ie. the Contract A/Contract B model did not apply). Background In this case, the plaintiff (Oz) was a manufacturer of attenuators. Initially, Oz manufactured ten manual attenuators, which were delivered to and paid for by the defendant (Timbercon). After this delivery, Timbercon sent Oz a purchase order for 500 more manual attenuators with a consignment agreement. Oz did not sign the purchase order or the consignment agreement, but fulfilled the order by sending out the required number of attenuaters.

The plaintiff did not sign the purchase order or the consignment agreement, but nonetheless fulfilled the order requested by the defendant. Since the plaintiff did not expressly object to the consignment order and sent the product to the defendant, the judge found that he agreed to the terms of the order. Since it was found that the order was on consignment, the defendant was not required to pay for any products that were not purchased from him by his client. Apart from the consignment issue, Timbercon also entered into discussions with the Oz to have automated attenuators incorporated into a product that was to be sold to Lockheed Martin. Although Timbercon told Oz on numerous occasions that Oz was the sole bidder to supply the attenuators, Timbercon was also in discussions with another attenuator manufacturer.

Ultimately, Timbercon presented both attenuator options to Lockheed Martin, and Lockheed selected Oz’s competitor for the project. Oz alleges that Timbercon had misrepresented the lack of other bidders, and had breached a duty of good faith towards Oz.

Contract Negotiations
Case Law

Written by Rajah. Rajah Lehal is Founder and CEO of Clausehound.com. Rajah is a legal technologist and technology lawyer who is, together with the Clausehound team, capturing and sharing lawyer expertise, building deal negotiation libraries, teaching negotiation in classrooms, and automating negotiation with software.