Canada: E-Procurement

Governments have spent billions on information technology (IT) projects over the years. Yet, unfortunately, the public sector generally (with some notable exceptions) has not yet achieved the same positive results from this IT investment that have occurred in the private sector. One important exception is e-procurement, where IT enablement of the purchasing function has brought some very real tangible benefits, at least to jurisdictions that have implemented sophisticated, online tendering and bidding systems.

More than Paper on Steroids

Consider, the e-procurement Internet site of the British Columbia government. On this site, prospective bidders on government projects can find a range of information related to the relevant tender. In this sense, fulfills the first objective of government going online — namely, "iGovernment" (or the process by which governments save costs and increase ease of use by uploading otherwise paper-based forms to a website, from which the public can then download them).

Some government online procurement sites are only capable of making available tender forms. But goes much further. For example, as a supplier, you can register for the site's bid-watching service. You create a profile of the types of government contracts that would interest you, and every time one becomes available, the site automatically sends you an e-mail. This is a win-win service. It's easy for the government to implement, and it produces more bidders per project. It's also great for suppliers because it means they will not miss a bidding opportunity. On the other hand, suppliers' bid-to-win rates will likely fall, given the greater competition from the larger number of bidders.

Moreover, the site does not just make available bid documents for downloading. Companies can also post their bids and proposals online. Thus, the site contains more than just "information"; it also offers "interactivity." The result is easier and cheaper bidding, so the government gets more participants in each bid. Although each bidder's bid-to-win ratio may drop at, the total number of bidding opportunities will expand as all other Canadian governments adopt similar e-procurement systems. Bidders will thus be able to bid easily in more distant jurisdictions, resulting in benefits to both governments and bidders.

Nagging Legal Concerns?

While the benefits from online bidding are clear, those governments who have not adopted e-procurement, and potential bidders, still have concerns about the legality of online tendering, the main one being: "Is online bidding as legally effective as traditional paper-based bidding?" The answer, in a nutshell, is "Yes."

Over the past 10 years, several legal developments related to effecting commerce over the Internet have coalesced to produce a legal environment that is as safe and sound for doing business electronically as it has long been for doing business with paper-based tools such as written contracts.

Helpful E-Commerce Laws

Every jurisdiction in Canada (except the Northwest Territories, but including Nunavut and Yukon) today has an e-commerce statute like Ontario's Electronic Commerce Act (or, in respect of, B.C.'s Electronic Transactions Act). These statutes establish several important principles.

One is that information will not be legally ineffective merely because it is in electronic form. Now, that is not to say all information in electronic form is legally effective. There are still many ways information (whether in electronic or paper-based form) can be ineffective, such as when it results from fraud, mistake or lack of capacity, as with a minor. Therefore, it is still imperative that online bidding systems (such as be designed to effectively create binding contracts.

Canada's e-commerce statutes also provide how any legislative rule, requiring that certain information be in "writing," may be satisfied in an electronic environment. Equally, the statutes confirm that an "electronic signature" is any electronic information that a person creates or adopts (including a PIN or password) in order to sign a document, so long as it is in, attached to or associated with the document.

There are, however, a few exceptions. Manitoba has not yet implemented the e-signature part of its e-commerce statute, and PEI requires a "digital signature" under its e-commerce statute (which is a more secure version of an "electronic signature"). As noted above, the NWT has no such statute. In these three jurisdictions, however, reliance can be placed on the common law, which has recognized in Canada the effectiveness of e-signatures through judge-made law.

The e-commerce statutes in the other jurisdictions are still helpful because their e-signature provisions confirm statutorily the ability of websites to implement various technologies and processes to authenticate users. For example, issues a password (they call it an "e-bidding key") that a bidder uses when submitting binding bids. Each particular password designates only one particular entity. In this way, is comfortable knowing who submitted which specific bid, and is also confident that this type of process is blessed by B.C.'s Electronic Transactions Act.

Useful New Evidence Laws

The federal and various provincial evidence laws have also been amended usefully to help facilitate e-commerce. The question here is: "Is a copy of the electronic bidding information equally admissible as evidence in court as the traditional paper-based bidding material?" Again, the answer is "Yes," provided you can show that your computer system was working properly at all the relevant times.

Therefore, it is a "best practice" to keep a log of the operational history of your computers. Such a log should show how rarely they failed to operate properly, and ideally show that whenever a computer glitch occurred, it did not result in a corruption or loss of data. For example, follows this approach, as the site operators keep an audit trail of the operational history of their online system.

In this regard, we now have in Canada an official "standard" (called Electronic Records as Documenting Evidence) that sets out how to establish the integrity and authenticity of electronic records through the creation of an electronic records management program. Your program would be reflected in a manual that would address security, quality assurance, indexing and various other matters. In essence, if you follow this program, it is very unlikely that a copy of your electronic records will not be admitted as evidence in court should you need to do this some day.

Sensible Jurisprudence

Not only legislators are doing their part to create a legal environmental hospitable to e-procurement. Judges are assisting as well, in several helpful decisions dealing with various novel questions emanating from online commercial arrangements.

In one Canadian case, the court concluded that clicking the "I agree" button at the end of a set of terms and conditions presented on a computer screen was functionally the equivalent of signing a paper-based contract. When one party in the litigation argued that he hadn't read all the terms because they weren't all displayed on the single initial screen, the judge (sensibly) responded that a signatory to a multi-page paper contract does not see all the terms on one page either. Signatories have to turn the various pages, just as an online contract has to be scrolled through.

In another case, a judge was asked to approve a novel online shareholder voting system where shareholders were sent a password by e-mail and could then register on an Internet site where they could vote. The question to the judge was: "Is such a system as good as the traditional paper-based means of voting, where paper-based ballots/proxies are sent by regular mail to shareholders, who mark the ballots and send them back by regular mail?"

The judge in this case compared the various respective features of the paper-based and online systems, and concluded (sensibly) that the online method is preferable because it is safer, more secure and more efficient. Now, of course neither system is perfect, in the sense that both are capable of being subject to fraud, but the key point is that the paper-based process was itself not immune from forged signatures. Consequently, the electronic system should not seek perfection either. Rather, both should aim for a reasonable degree of security and authenticity.

Careful Website Design

That the legal environment in Canada today facilitates e-commerce and e-procurement is only half the battle. The other half is to carefully design your e-procurement site in a manner that ensures that binding bids and contracts are indeed made on it. You should, for example, require bidders to register on the site, and as part of the registration process they should agree to some sensible, and even-handed, terms and conditions.

One problem that often arises regarding such terms is that site operators make the terms far too one-sided by inserting provisions that are extremely onerous for users. In the consumer context, such overreaching terms are sometimes found to be unenforceable by courts. But even in the commercial world, it is a good idea to use sensible, even-handed terms.

Here is one example. Some e-procurement site operators say, in their terms, that they can discontinue the online service without notice to users of the site. Well, imagine the scenario where a bidder has come to rely exclusively on the site (and quite reasonably so, because the government wants to wean bidders off the expensive paper-based process). The bidder submits an online bid, only to be told later that it was never effectively received because the online procurement site (without any notice) had been terminated. It is an interesting question whether the bidder would have any recourse against the government, notwithstanding the site's terms and conditions to the contrary.

In short, the legal terms that bind the bidders (and the entity hosting the site) need to be drafted carefully and sensibly. But if this is done, parties using the site can be confident that their e-procurement activities on the site are as effective as traditional paper-based measures.

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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