Canada: Fairness And Transparency In Large Project Public Procurement

Last Updated: March 25 2019
Article by John S. Haythorne and Mollie Deyong

1. INTRODUCTION

At the core of any procurement are two fundamental elements: the description of what bidders are required to submit as a bid, and the description of how the owner will judge the bids to select the winner. Intuitively, all bidders should be invited to submit the same information, and the owner should use the same criteria in judging the bids. Procurements for complex projects challenge these intuitions.

The purpose of this paper is to examine the fairness and transparency requirements of the common law of tendering in Canada with reference to public sector procurement of large construction projects. In conducting this examination we will focus particularly on two questions:

  1. Must an owner define in tender documents "what a bidder must do to win"?
  2. May the owner retain discretion in the evaluation of bids?

We focus on large public sector construction projects because they represent a significant portion of the construction economy, but also because they can raise challenging procurement questions that are not often encountered in smaller or private sector procurements. Large public sector construction projects are invariably complex, making it difficult for the owner to identify in advance all the factors that may become important (or even critical) under a construction or project agreement and during the life of the project. Competitive procurements of these projects must wrestle with these uncertainties.

We focus on the two questions set out above because they arise in virtually every procurement; either expressly or by inference, for the owner and for bidders. The questions are important because, as we discuss more fully below, the answer to them can have a profound effect on the procurement method, including, for example, the scope of invited or permitted innovation.

In this paper we review the common law. Any governmental procurement may also be subject to other legal constraints. For example:

(a) Statutory Requirements. Restrictions or conditions may be imposed on the government owner's authority to contract, or the manner of procurement. For example, pursuant to the Canadian International Trade Tribunal Act "designated contracts", which means "a contract for the supply of goods or services that has been or is proposed to be awarded by a government institution and that is designated or a class of contract designated by the Canadian International Trade Tribunal Procurement Regulations" are subject to the jurisdiction of the Canadian International Trade Tribunal.3

(b) Trade Agreements. Trade agreements have recently come to the forefront as sources of procurement restrictions for public bodies. Both internal agreements (such as the Canadian Free Trade Agreement) and external agreements (such as the Comprehensive Economic and Trade Agreement) impose procurement rules on all levels of government entities with the intent of creating open and nondiscriminatory access to Canadian procurements for all potential proponents. Trade agreement rules apply to procurements above certain value thresholds, and include requirements relating to, for example, procurement documentation (i.e. Contract A terms), evaluation processes and publishing and access to opportunities. The ability of a public owner to sole source a contract is particularly restricted under the trade agreements, with sole sourcing being permitted only if a specified exception applies. A violation of applicable trade agreement procurement rules may result in a bid complaint from an aggrieved bidder, the result of which can be a monetary award or potential delay of a contract award.

(c) Government Procurement Policies. Many governments at all levels — federal, provincial and municipal — have adopted procurement policies and procedures.4 Some of these policies or procedures are binding, but many are just policy, intended only to give general guidance to the government's representatives. We note that in some instances policies that were not intended to be binding have been made binding in a procurement by including the policy by reference in the procurement documents.

Full consideration of the laws that apply to procurement should consider these other sources of possible legal restrictions, as well the requirements of common law.

2. COMMON LAW FRAMEWORK — FAIRNESS AND TRANSPARENCY

An analysis of the law of tender in Canada frequently begins with the oft-quoted statement of Estey J. speaking for the Supreme Court of Canada in R. v. Ron Engineering & Construction (Eastern) Ltd. ("Ron Engineering"):

I share the view expressed by the Court of Appeal that the integrity of the bidding system must be protected where under the law of contracts it is possible to do so.5

Since the Ron Engineering decision Canada has seen the development of a comprehensive common law framework for tendering processes. As stated by the Court of Queen's Bench for Saskatchewan in Surespan Construction Ltd. v. Saskatchewan:

A summary of [the legal principles related to competitive bidding] must start with the Supreme Court of Canada's decision in The Queen (Ont.) v Ron Engineering, 1981 CanLII 17 (SCC), [1981] 1 SCR 111 [Ron Engineering] which introduced the Contract A/Contract B concepts that now govern the interpretation of rights and obligations in the tendering process. The principles were further developed by the Supreme Court of Canada in M.J.B. Enterprises Ltd. v Defence Construction (1951) Ltd., 1999 CanLII 677 (SCC), [1999] 1 SCR 619 [M.J.B. Enterprises]; Martel Building Ltd. v Canada, 2000 SCC 60 (CanLII), [2000] 2 SCR 860 [Martel]; and Double N Earthmovers Ltd. v Edmonton (City), 2007 SCC 3 (CanLII), [2007] 1 SCR 116 [Double N]. They are designed to protect the integrity of the bidding system.6

We note that in each of the cases cited by the court as authority for the applicable principles the owner was a public sector owner

2.1 Flexible Contractual Basis for Tendering System

The common law of contracts in Canada gives contracting parties infinite freedom to decide for themselves the terms and conditions of their bargain,7 subject only to tests of validity (e.g. offer, acceptance, consideration) and various overriding doctrines such as uncertainty, illegality and mistake. Given that the common law of tendering is rooted in contract, it follows that an owner has similar freedom and flexibility in designing a tendering system and drafting procurement documents.

The courts have accepted this flexible paradigm for tendering, going so far as to hold that the procurement documents define whether, in fact, a Contract A will be formed at all, and if it is, the terms of the related tendering system. As the Supreme Court of Canada stated in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd. ("M.J.B."):

Therefore it is always possible that Contract A does not arise upon the submission of a tender, or that Contract A arises but the irrevocability of the tender is not one of its terms, all of this depending upon the terms and conditions of the tender call. To the extent that Ron Engineering suggests otherwise, I decline to follow it.8 [Emphasis added.]

The M.J.B. decision itself demonstrated this flexibility by addressing the question of whether "low price wins" is a rule in the common law of tendering. This is one example of the flexibility that an owner can reserve in tender documents. In M.J.B. the court established that, absent prohibitions contained in the tender documents, a privilege clause can allow an owner to retain the discretion to not select the bidder with the lowest priced proposal. In recognition of the fact that "low price" does not always mean "low cost", M.J.B. explained that tender documents can grant an owner the flexibility to take a "nuanced view of price." The court stated:

Therefore even where, as in this case, almost nothing separates the tenderers except the different prices they submit, the rejection of the lowest bid would not imply that a tender could be accepted on the basis of some undisclosed criterion. The discretion to accept not necessarily the lowest bid, retained by the owner through the privilege clause, is a discretion to take a more nuanced view of 'cost' than the prices quoted in the tenders. In this respect, I agree with the result in Acme Building & Construction Ltd. v. Newcastle (Town) (1992), 2 C.L.R. (2d) 308 (Ont. C.A.). In that case, Contract B was awarded to the second lowest bidder because it would complete the project in a shorter period than the lowest bid, resulting in a large cost saving and less disruption to business, and all tendering contractors had been asked to stipulate a completion date in their bids. It may also be the case that the owner may include other criteria in the tender package that will be weighed in addition to cost. However, needing to consider 'cost' in this manner does not require or indicate that there needs to be discretion to accept a noncompliant bid.9 [Emphasis added.]

Following M.J.B., the British Columbia Court of Appeal has confirmed an owner's right to award Contract B to the bid that, from the owner's perspective, provides the best value, tender documents permitting. In Sound Contracting Ltd. v. Nanaimo (City)10 ("Sound Contracting"), the City of Nanaimo ("Nanaimo") appealed a judgment for damages for failure to award a construction contract to the lowest bidder. Privilege clauses in the tender documents reserved the owner's right to reject any or all tenders, indicated that the lowest bid would not necessarily be accepted, and provided that Nanaimo would accept the tender deemed to be most favourable to the interests of the city. On the basis of M.J.B., the Court of Appeal in Sound Contracting held that the terms of the tender documents released Nanaimo from the obligation to award the work to the lowest bidder where there were valid, objective reasons for concluding that better value may not be obtained by accepting a higher bid.11 The bid evaluators felt that the lowest bidder would not result in the best value for Nanaimo due to concerns relating to the need for an on-site supervisor, the risk of under-running another contract because of anticipated work deletions due to budget restraints, and the likely costs of legal, staff and arbitration expenses.12 These concerns arose from Nanaimo's prior dealings with the lowest bidder. The second lowest bidder had never claimed for contract under-run or made previous claims resulting in extra arbitration costs. The Court of Appeal, in overturning the decision of the trial judge, found that it was not its place "to substitute [its] own analysis for that of the owner in whom the discretion to award the contract ultimately resides and whose staff [had] not been shown to have acted unfairly or other than in good faith in determining which tender provided the 'greatest value based on quality, service and price' to the City."13

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Footnote

1 Partner, Dentons Canada LLP

2 Articled Student, Dentons Canada LLP.

3 R.S.C. 1985, c. 47, ss. 30.11(1) and 30.1.

4 For example, the BC Government's Core Policies & Procedures Manual includes a chapter setting out policies applicable to all procurement at the ministry level (See: Government of British Columbia, "CCPM Policy Chapter 6: Procurement" Core Policy & Procedures Manual, online: ), and the majority of local government bodies in BC have procurement policies or guidelines covering similar topics.

5 For example, the BC Government's Core Policies & Procedures Manual includes a chapter setting out policies applicable to all procurement at the ministry level (See: Government of British Columbia, "CCPM Policy Chapter 6: Procurement" Core Policy & Procedures Manual, online: ), and the majority of local government bodies in BC have procurement policies or guidelines covering similar topics.

6 Surespan Construction Ltd. v. Saskatchewan, 2017 SKQB 55, 2017 CarswellSask 104 at para. 54 ("Surespan").

7 The words of Sir George Jessel M.R. in Printing Numerical Registering Co. v. Sampson (1875), L.R. 19 Eq. 462 (Eng. Rolls Ct.) at 465 are frequently cited for the classic rule of freedom of contract: "[I]fthere is one thing which more than another public policy requires it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily shall be held sacred. .."

8 M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., 1999 CarswellAlta 301, [1999] 1 S.C.R. 619 at para. 17 ("M.J.B.").

9 Ibid., at para. 46.

10 2000 BCCA 312, 2000 CarswellBC 1036, leave to appeal refused 2001 CarswellBC 125 (S.C.C.)

11 Ibid., at para. 17.

12 Ibid., at para. 7.

13 Ibid., at para. 19.

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