Canada: Entreprise P.S. Roy v. Magog: Safeguarding The Equality Of Access To Public Procurements

Introduction

On April 9, 2013, the Quebec Court of Appeal issued an important judgment in the field of public procurements in Entreprise P.S. Roy inc. v. Magog (Ville de). Specifically, the QCA held that a past non-compliance provision contained in a request for proposal was arbitrary and thus invalid, as it contravened the fundamental principle that bidders must enjoy equality of access to public procurements. Thus, the Entreprise P.S. Roy ruling ultimately provides aggrieved bidders in public procurements with strong authority to challenge frivolous and arbitrary RFP requirements that have the effect of excluding them from tendering a bid.

Background Facts

In August 2011, the municipality of Magog launched a RFP to obtain snow removal services for the next three winter seasons. One of the admissibility requirement contained in the RFP stipulated that bidders should not have had, in the last five years, a contract rescinded by a municipality for non-compliance with the contractual terms (the "Past Non-Compliance Requirement"). Under the provision, the rescission need not have been the result of a court judgment.

On August 23, 2011, Magog opened the two bids tendered. ABC Excavation was the lowest bidder with a price of 436,626.04$. The only other bid, from Entreprise P.S. Roy, was for 732,485.00$. Several days later, Entreprise P.S. Roy informed a Magog representative that in 2011, ABC Excavation had a contract rescinded by the municipality of St-Denis-de-Brompton. The past rescission was confirmed by St-Denis-de-Brompton.

Regardless, on September 19, 2011, Magog awarded the contract to ABC Excavation, as it received a legal opinion concluding that the Past Non-Compliance Requirement was invalid. Entreprise P.S. Roy challenged the awarding of the contract, arguing that the Past Non-Compliance Requirement was valid and that it was thus the lowest compliant bidder. On October 31, 2011, the Quebec Superior Court rejected the claim. Entreprise P.S. Roy subsequently appealed to the QCA.

Decision of the QCA

The QCA ultimately rejected the appeal and confirmed that the Past Non-Compliance Requirement contained in the RFP was invalid.

Justice Nicholas Kasirer stated that the power of public bodies to stipulate admissibility requirements in RFPs is not unlimited. RFPs must respect the fundamental principle of administrative law to the effect that all bidders have an equal right to contract with the government. It is this principle of equality that restrains public bodies from imposing requirements that have the effect of excluding potential bidders. To that end, courts will intervene if RFP requirements undermine this principle of bidders' equality of access by being arbitrary, frivolous or if their purpose or effect is to circumvent the law. In such a case, there would be an abuse of power by the public body.

In light of this fundamental equality principle, the QCA assessed whether the Past Non-Compliance Requirement was frivolous, arbitrary or had the effect of circumventing the law.

The QCA ruled that the Past Non-Compliance Requirement was not frivolous. Measuring the reliability of a bidder in light of its past record is rational and can help to evaluate if a bidder will be able to fulfill its future obligations. As such, the requirement was relevant.

However, under the arbitrary criterion, the QCA ruled that the Past Non-Compliance Requirement chosen to ensure the reliability of bidders was inadequate. In fact, the requirement had the effect of excluding potential bidders based on a unilateral decision by a third party public body without considering the circumstances of the rescission or allowing the bidder to be heard. Therefore, the impugned requirement did not satisfy the purpose of assessing the bidder's reliability as a future contracting party.

As such, the QCA held that the Past Non-Compliance Requirement breached the principle of bidders' equality of access to public procurements. Therefore, the QCA concluded that the impugned requirement was invalid and that Magog was entitled to reject it.

Having concluded that the Past Non-Compliance Requirement was invalid, the QCA was asked by ABC Excavation to cancel the RFP and to order a new bidding process.

The QCA stated that Magog made an error, albeit in good faith, to insert an invalid requirement in its RFP. The court recognized that such error could have unduly discouraged some potential bidders to enter the bidding fray in mistakenly thinking that they could not comply with the RFP because of the (invalid) Past Non-Compliance Requirement. As a result, although there was no breach of equality between Entreprise P.S. Roy and ABC Excavation, the QCA concluded that Magog's good faith error affected the integrity of the bidding process with respect to bidders potentially interested in participating in the bidding process.

Nevertheless and surprisingly, the QCA concluded that Magog's error did not justify an order for a new bidding process. In the court's view, since there was no evidence that Magog was acting in bad faith to manipulate the bidding process, Magog, as the guardian of the public interest, was better placed than the courts to assess whether it was in the public interest to launch a new bidding process.

The QCA reinforced its above conclusion by noting that no other bidder came forward to complain or request a new bidding process. Thus, according to the Court, the prejudice of the potential bidders was theoretical. Finally, the QCA indicated that Entreprise P.S. Roy could not use the name of potential bidders to plead for the cancellation of the bidding process and ask for a new one.

Conclusion

The Entreprise P.S. Roy case constitutes strong authority for the safeguard of the equality of access to public procurements and provides aggrieved bidders with a great tool to challenge frivolous and arbitrary RFP requirements.

However, the QCA's decision to deny a new bidding process despite its finding that the public authority's good faith error affected the integrity of the bidding process is surprising. It could unfortunately lead courts in the future to require bad faith on the part of public authorities before cancelling a bidding process and ordering a new one. In terms of remedies, the onerous burden of demonstrating bad faith would leave aggrieved bidders in most cases with only damages as a recourse.

It is our opinion that courts should not read the Entreprise P.S. Roy as establishing a principle that bad faith must be demonstrated in order to obtain the cancellation of a bidding process. On this point, the QCA mentioned that the particular context of the case and the very advanced state of execution of the contract militated against an order for a new bidding process, which is an indication by the court that it was not establishing such a principle.

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