Canada: Notices Of Qualification And Applications For Qualification Governed By The Act Respecting Contracting By Public Bodies: The Court Of Appeal Clarifies The Rules

Public bodies subject to the Act respecting contracting by public bodies¹ may add a preliminary step to evaluate the qualifications of contractors and service providers interested in entering into contracts with them. During this step, the public body (the prospective client) publishes a notice of qualification and then studies the applications for qualification submitted in response to determine which contractors are sufficiently qualified to carry out a project or class of work. Only those contractors demonstrating that they have the required qualifications will be authorized to submit a tender during the actual call for tenders phase.

When no tender has yet been formally submitted, what are the rules governing this screening process? In the ruling Demix Construction, division de Holcim (Canada) inc. c. Québec (Procureur général)² rendered on October 19, 2010, the Quebec Court of Appeal resolved any uncertainty regarding this step by clearly stating that the general principles governing calls for tenders are applicable during the notice of qualification and application for qualification stage.

The facts

The facts underlying this decision are straightforward. Demix Construction (Demix) submitted an application in response to a notice of qualification published by the Ministry of Transport (Ministry), but, inadvertently and in good faith, omitted to enclose a one-page document containing a series of undertakings and a declaration by the person signing the application for qualification. The notice of qualification indicated that the one-page document was an [translation] "essential required" document, and that the application would automatically be rejected if it was missing. When Demix became aware of the omission and was informed that its application had been rejected, it provided the document, but only after the application for qualification deadline had passed. Citing the provision of the notice of qualification giving the public body the discretion to disregard any defect in form that it deemed minor, Demix asked the Ministry to reverse its decision. Backed by the opinion of its legal department, the Ministry refused to reconsider its initial decision to reject Demix's application.

After the Quebec Superior Court dismissed Demix's motion to quash the Ministry's administrative decision rejecting its application,³ Demix decided to take its case to the Quebec Court of Appeal. The contractor maintained that notices of qualification and applications for qualification should not be governed by the same compliance requirements as calls for tenders. According to Demix, this step should only be used to verify the qualifications of interested contractors. Therefore, an application containing an irregularity that does not raise concerns about a contractor's qualifications should not be excluded. Demix felt that, in any case, regardless of the applicable rules, the omission amounted to a minor defect that did not prevent the prospective client from evaluating Demix's qualifications. The appellant argued that the Ministry should therefore have used the discretionary power that it retained in the notice of qualification to disregard Demix's failure to comply with the requirement in question.

The Ministry argued that the notice of qualification clearly indicated that omitting this "essential required" document was a cause for peremptory rejection. In the Ministry's opinion, its omission was also a major defect that did not warrant the exercise of its discretionary power.

The decision of the Court of Appeal

In a unanimous decision, the Court of Appeal found that the qualification procedure for calls for tenders subject to the Act respecting contracting by public bodies is not a separate process from the call for tenders, but is rather, along with the subsequent bid, one of two steps in the tendering process. The court relied, in particular, on the sections of the Regulation respecting construction contracts of public bodies⁴ (Regulation) which specifically provide for the possible splitting of a call for tenders into two steps. The same general principles that govern calls for tenders therefore apply to notices of qualification and applications for qualification. Consequently, splitting a call for tenders into separate steps does not change these general principles, including equal and fair treatment of all tenderers:

[translation] Splitting the tendering mechanism into two steps cannot negate all the principles that would ordinarily apply to a call for tenders – in particular, the equal and fair treatment of competitors. The process put in place here is one of successive screenings, which simply requires adapting the general rules developed by case law.⁵

The Court of Appeal also pointed out that section 7 of the Regulation sets out the compliance requirements that are to be included in the tender documents and for which non-compliance will entail automatic rejection of a tender. These conditions include the absence of a required document or required signature:

Section 7 therefore gave the Ministry the right to specify, as it did in its documents, that a failure to provide documents qualified as "essential required" and a missing signature would entail peremptory rejection of an application for qualification. In this instance, the contractor had inadvertently failed to meet these two requirements.

Moreover, Demix argued that the omission amounted to a minor defect covered by the Ministry's discretionary power. In section 10 of the notice of qualification, the Ministry did, in fact, retain [translation] "complete discretion to disregard any defect in form of the Application for Qualification and the accompanying documents that it deems to be minor."

The Court of Appeal dismissed this argument for two reasons. First, when a notice of qualification states requirements for which a failure to comply entails peremptory rejection of an application, it does not matter how serious the failure to comply is: the requirement is met or it is not met. Such "complete discretion," often included in contingency clauses, may not be used to address a failure to comply with any such requirement. Second, the court determined that the failure to comply with such requirements amounted, in any case, to a major defect as the published document was the only means the Ministry had of verifying certain undertakings made by the contractor.

Scope of the decision

This Court of Appeal's ruling, which confirmed the Superior Court's judgment dismissing the motion to quash an administrative decision, clarifies the rules that apply at the notice of qualification and application for qualification phase. Reiterating the importance of section 7 of the Regulation relating to the Act respecting contracting by public bodies, the ruling insists on the public bodies' right to set out certain formal and substantive requirements for which non-compliance would entail automatic rejection of an application for qualification. Businesses responding to such notices of qualification must therefore bear in mind that when a tendering process is divided into two steps, the principle of equal treatment of tenderers requires strict enforcement of compliance requirements.

Footnotes

<sup>1. LRQ, c C-65.1.
2. 2010 QCCA 1871 (CanLII), jj. François Doyon, Marie-France Bich et Guy Cournoyer (ad hoc) (Demix Construction).
3. 2010 QCCS 3183 (CanLII), j. Pierre-C. Gagnon.
4. RRQ, c C-65.1, r 5, art 22, 26, 36-38.
5. Demix Construction, supra note 1, para 21.</sup>

Norton Rose OR LLP

Norton Rose OR LLP is a member of Norton Rose Group, a leading international legal practice offering a full business law service to many of the world's pre-eminent financial institutions and corporations from offices in Europe, Asia Pacific, Canada, Africa and the Middle East.

The Group's lawyers share industry knowledge and sector expertise across borders to support clients anywhere in the world. The Group is strong in financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and pharmaceuticals and life sciences.

Norton Rose Group has more than 2600 lawyers operating from 39 offices in Abu Dhabi, Amsterdam, Athens, Bahrain, Bangkok, Beijing, Brisbane, Brussels, Calgary, Canberra, Cape Town, Dubai, Durban, Frankfurt, Hamburg, Hong Kong, Johannesburg, London, Melbourne, Milan, Montréal, Moscow, Munich, Ottawa, Paris, Perth, Piraeus, Prague, Québec, Rome, Shanghai, Singapore, Sydney, Tokyo, Toronto and Warsaw; and from associate offices in Dar es Salaam, Ho Chi Minh City and Jakarta.

Norton Rose Group comprises Norton Rose LLP, Norton Rose Australia, Norton Rose OR LLP, Norton Rose South Africa (incorporated as Deneys Reitz Inc), and their respective affiliates.

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.