part 2 and
part 3 of this procurement law basics series, we looked at the
conceptual basis for procurement law in Canada – the contract
A-contract B analysis and some of the terms that the courts have
implied into contract A. Most recently, we looked at the implied
term to act fairly and not to give any one bidder an unfair
advantage over the others.
This blog post looks at what happens if contract A does not come
into existence – is there still a duty of fairness?
In straightforward tender cases the courts have been clear in
holding that there is no free-standing duty of fairness outside
contract A. So, in Midwest Management v. BC Gas
Utility Ltd., all the tenders were non-compliant and therefore
no contract A came into existence with any bidder. The owner chose
to negotiate with only one bidder. The BC Court of Appeal held that
this decision could not be challenged by the other bidders. In
Hub Excavating v. Orca Estates, the owner issued
a tender knowing that its budget was probably too low for the job
and then withdrew the tender when the bids came in too high. The BC
Court of Appeal held that the owner did not owe bidders a duty of
fairness in deciding whether or not to continue the tender process
– that duty could only arise in the context of contract
The contract A-contract B analysis has also been applied to
requests for proposals. If an RFP gives rise to binding proposals
and there is no scope for subsequent negotiations, a contract A
will arise when compliant proposals are submitted and the duty of
fairness is implied into that contract. However, the term
"request for proposals" covers a wide range of documents
and in certain cases, for example where the procuring body intends
to negotiate the final form of contract with the preferred
proponent and reserves considerable discretion, the courts have
held that no contract A arises when the proposals are
However, in contrast to the pure tender cases, the courts have
held in certain circumstances that, despite there not being a
contract A when proposals are submitted, the procuring body may
still be subject to a duty of fairness in considering the
In Mellco Developments Ltd. v. Portage La Prairie
(City), the City was selling land for development purposes and
issued an RFP for this purpose. One bidder submitted a detailed
proposal which clearly complied with the terms of the RFP and
offered $316,000 for the property. The other proposal did not match
the RFP terms, but offered $425,000 for the property and had some
innovative ideas for the development. The City accepted the second
proposal and this decision was challenged. The Manitoba Court of
Appeal held that no contract A arose at the time of submission of
proposals. However, it went on to hold that even on a pure request
for proposals, the City had a duty to "conduct itself fairly
and in good faith".
Despite these clear statements in Mellco, other cases
continue to cast doubt on the concept of a free-standing duty of
fairness – see for example Guysborough
(Municipality) v. Resource Recovery Fund Board
Although the majority of the cases hold in favour of there not
being a duty of fairness in the procurement process outside of
contract A, owners should continue to take care if they want to act
in a way that would be contrary to the duty to act fairly. The
Mellco case shows that the courts may be willing to impose
a duty of fairness in any event.
The next blog will explore another avenue for imposing a duty of
fairness in public sector procurement – the possibility of a
judicial review action.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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