Canada: Yukon Court Awards Damages Against The Government For Unfair Bid Evaluation

On November 16, 2017, the Supreme Court of Yukon issued its decision in Mega Reporting Inc. v. Government of Yukon, 2017 YKSC 69 ("Mega Reporting") awarding damages to an unsuccessful bidder in a government procurement situation on the basis of unfairness in the tender process.

The Government of Yukon (the "Government") had issued a "Request for Proposals" with respect to providing independent transcription services from court digital recordings.  The Government imposed a two-step tendering process: (1) evaluation of the bidder's experience and performance and (2) consideration of the bidder's sealed bid price only if a certain minimum score was awarded in the first step.  When a competing bidder was selected, Mega Reporting Inc. ("Mega") sued for damages alleging that the Government had breached its duty of fairness in the selection process.

Under Canadian law, a call for bids will typically give rise to contractual relations between the party seeking bids and the bidder (commonly referred to as "Contract A").1  Parties to a tender process may have reciprocal obligations arising, either expressly or impliedly, from Contract A.  One such implied contractual obligation is for the party seeking bids to treat all bidders fairly and equally.2

An evaluation committee established by the Government for this call for bids concluded that Mega did not attain the required minimum score and therefore proceeded to consider the other bid without opening Mega's sealed bid price.  The only contemporaneous records of the evaluation committee were some handwritten notes by one member of the committee, which did not reveal how or what score Mega received.  Mega's bid was ultimately lower than the competing bidder.

Mega challenged the fairness and transparency of the evaluation process on the basis that transparency requires the ability to show, via contemporaneous documents such as minutes or notes, that the process used and the decisions made were fair. The Government argued that it had met its obligation by creating and providing evaluation criteria to bidders and by applying such criteria to the evaluation process.  Given the lack of contemporaneous records, the Government requested that the Court infer such application on the basis of its evaluation committee member's handwritten notes, that member's oral evidence and a memo prepared several months after the fact.

The law is clear that proper record-keeping is integral to the fairness component of the competitive procurement system as it allows the party seeking bids to justify its decisions and the reviewing body to determine precisely what transpired.  That being said, record-keeping in itself does not insulate a party against claims arising from what can be deemed an arbitrary evaluation process.

It is of interest that, in addition to the common law standard of fairness requiring contemporaneous records to support its decision-making process, the Court held that the Government was subject to additional, related "statutory" duties.

The call for bids was governed by the Contracting and Procurement Regulation (the "Regulation") as well as the Contracting and Procurement Directive (the "Directive").  The Directive imposes a duty of fairness, openness, transparency, and accountability on the Government in the tendering process.  These terms are specifically defined in the Directive; for example, the Government is required under the "accountability" principle to be willing and able to account for the way contracting and procurement activities have been conducted.  Despite the fact that the Directive itself is not a regulation, the Court nonetheless treated such duties as statutory requirements for two reasons: the Government issued a letter for public distribution stating that these principles applied to government procurements and the call for bids itself stated that it was subject to both the Regulation and the Directive.

The Court held that the Government had failed to meet both the common law and additional statutory requirements of fairness, accountability, and transparency as follows:

  1. The lack of description in the call for bids of the process that would be used to evaluate whether bids met the Government's "basic criteria" in the first step evaluation stage;
  2. The inadequacy of the evidence regarding how Mega's bid was evaluated, combined with the fact that the Government had total and sole control over the creation of such evidence;
  3. The limited evidence available indicated that Mega's score had been reduced in the first step evaluation stage for failing to provide letters of reference even though no such letters were required by the call for bids; and
  4. The lack of contemporaneous records essentially rendered the Government unable to refute Mega's allegations or the above noted negatively drawn inference.

Having determined the issue of liability, the Court was then faced with the task of quantifying Mega's damages.  As may be expected, the Government argued that any damages should be discounted for the risk that Mega may not have been the successful bidder even if the bid process had been properly conducted.  This is a common and accepted defence.

Even in the quantification stage however, the Government's failure to maintain proper records of its bid process worked against it.  The Court held that the lack of evidence regarding the evaluation made it impossible to determine the likelihood that Mega would or would not have gotten the contract.  The Government's attempt to persuade the Court that Mega would not have been the successful bidder was strongly rebuked as an attempt to assume that fairness and transparency would have had no effect on the evaluation process.  The Government's alternate argument that Mega's damages be discounted by 50% was similarly rejected as the Court deemed it unjust to treat both parties equally when the failure to maintain records was solely due to the Government.  Damages were ultimately awarded to Mega, discounted for 25% to account for the possibility that its bid would not have been successful.

It is also worth noting that the Government unsuccessfully attempted to bar Mega's claim on the basis of a waiver provision in the call for bids.  The enforceability of exclusion of liability provisions in tender documents will depend on the three-pronged analysis established by Justice Binnie's dissent in Teracon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, which has been widely followed:

(a)  whether the waiver was intended to apply to these circumstances through an interpretation of the call for bids;

(b)  whether it was unconscionable at the time the contract was made; or

(c)  whether public policy reasons exist to refuse to enforce the waiver.

The Court in Mega Reporting decided not to enforce the waiver provision on the basis of the third prong alone.  In doing so, it made several comments that are of general application:

  1. The government's right to contract freely can be offset by public interest in ensuring a fair, accountable, open, and transparent bid process. This is particularly applicable in government procurements involving large amounts of public funds.
  2. The public has an overriding interest in ensuring that funds expended in government procurements are for the "competent provision of adequate goods and services at a reasonable price." As such, legislation relating to government procurements cannot, as a matter of public policy, be waived by private contract.  In other words, governments cannot, by way of tender documents, contract out of statutorily implied Contract A terms, which include the duties of fairness, accountability, openness, and transparency.
  3. The existence of a Bid Challenge Process in the tendering documents will not save an exclusion of liability clause if that Bid Challenge Process itself is not fair and cannot provide the same remedies as a court action.

Mega Reporting provides a helpful reminder for owners to keep contemporaneous records of their selection processes arising from a call for bids. They are strictly bound to abide by the evaluation criteria which they advertise in their call for bids and the onus is on them to show that they, in fact, have done this.  The courts will not presume in the owner's favour if they fail to keep such records.  In this case, the Court went so far as to presume against the Government, not only in terms of deciding whether the tender process was fair and transparent, but also in the calculation of damages.

Finally, this case adds to the growing body of cases that suggests governments generally cannot, for public policy reasons, contract out of their own legislation, regulations, or directives in their public calls for bids.  Some case law has come to the same conclusion in regards to private actors. Statutorily implied terms in calls for tenders may be binding regardless of attempts to contract out if the court concludes that they fall within the category of enactments which may not be waived or varied by private contract.  This will generally be the case for provisions which have a strong public policy objective.

Footnotes

1 M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619; for further discussion on the types of calls for bids that will attract a Contract A analysis and those that will not, see "Recent Trial Decision Discusses Calls for Bids vs RFPs" in our November 2017 issue.

2 Martel Building Ltd. v. Canada, [2000] 2 S.C.R. 860.

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