Public Construction Procurement - Key Cases Defining the Public Procurement Landscape

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Public Construction ProcurementKey Cases Defining the Public Procurement Landscape

Presented by: David R. ElliottNovember 2010Toronto, Ontario

http://www.fmc-law.com/People/ElliottDavid.aspx

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Double N Earthmovers Ltd. v. Edmonton (City) [2007] 1 S.C.R. 116

FACTS:

• In 1986, the City of Edmonton sought bids on a 30 month contract to move garbage at a landfill site.

• Mandatory requirement in City’s tender that all equipment be 1980 or newer. • Sureway submitted a bid indicating that one of the bulldozers was “1977 or 1980 rental unit”

with no license or serial numbers supplied for the rental unit, and another bulldozer listed as “1980” had a serial number and registration corresponding to a 1979 bulldozer.

• Double N suspected Sureway did not have 1980 or newer equipment, and warned the City about this. The City chose not to investigate.

• Sureway won the bid, and then proceeded to register equipment with the City that was older than 1980. City initially insisted on compliance, but when Sureway advised it could not comply, City dropped the matter.

• Double N sued the City for breach of contract. • Although the Trial Judge found that Sureway had intended to deceive the City into thinking it

had a compliant bid, and then to convince the City after its bid was accepted to permit older equipment to be used, the claim was dismissed. The Alberta Court of Appeal dismissed the appeal.

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ISSUE:

• Does a departure from the tender requirements after Contract B has been formed matter?

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ANALYSIS:

• Contract A is alive, but it has a limited life span. Contract A’s express terms are set out in the tender documents, and it may also contain implied terms (e.g. owner can only accept a compliant bid; owners must treat all bids “fairly and equally”).

• Double N’s bid was compliant; therefore it had Contract A with the City.

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MAJORITY (5):• Absence of serial numbers and registrations corresponding with 1980 or newer equipment

was an “informality” which the City could excuse by relying on a term of the tender.

• City had no duty to investigate bids.

• City followed its bidding documents at the time it awarded the contract to Sureway. It did not discover Sureway’s deceit until after the contract had been awarded.

• An owner’s obligations to unsuccessful bidders under Contract A die upon the creation of Contract B. Contract B is distinct from Contract A. The City’s waiver of its rights under Contract B occurred after the award. Double N is not a party to Contract B.

• Good policy reasons exist not to find in favour of Double N: successful bidders and parties to Contract B could fall under constant scrutiny by disgruntled Contract A holders.

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MINORITY (4):

• City breached its obligation to accept only a compliant bid, and breached its duty to treat all bidders fairly when it failed to hold Sureway to comply with the tender terms (1980 or newer).

• Integrity and fairness of the tendering process should be the paramount concern.

• The owner (City) has a duty to take reasonable steps to evaluate a bid to ensure that a bid is compliant.

• Sureway’s bid to supply a 1977 or 1980 unit was at best an ambiguous response to a material requirement of the tender, and cannot be dismissed as an irregularity.

• The City’s waiver condoned the deceit of Sureway, and effectively turned a non‐compliant bid into a compliant bid.

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CONCLUSION:

• This case is a battle between a contractual analysis supporting commercial reality vs. fairness and integrity.

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Design Services Ltd. v. Canada [2008] 1 S.C.R. 737

FACTS:

• The Crown (Public Works) launched a “design‐build” tendering process.

• The Crown awarded the contract to a non‐compliant bidder. Lawsuits ensue!

• Crown settles with the general contractor (the rightful winner),but subcontractors (i.e. Design Services) are left out in the cold‐ they have no contract with the Crown.

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ISSUE:

• Does an owner (i.e the Crown) in a tendering process owe a duty of care in tort to subcontractors?

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ANALYSIS:

• Claim does not fit within a recognized duty of care category.

• At trial (FCTD 2005) Mosley J. found that the Crown owed a new duty of care in tort to the appellants. Although there was no joint venture formed between the contractor and the subs, the situation was analogous to a joint venture and there was sufficient proximity between the Crown and the subs to allow for a duty of care. The case “cried out for a remedy”.

• On appeal (FCA 2006) Sexton J.A. disagreed with the Trial Judge, holding that he had made a “palpable and overriding error” in finding sufficient proximity between the subs and the Crown. Instead, a two tier relationship existed: Crown to contractor, and contractor to subcontractors.

• The SCC agreed with the FCA and dismissed the appeal.

• Martel (SCC 2000) left the door open regarding whether a duty of care may exist as between an owner and a subcontractor, and this case presented the SCC with the opportunity to close it.

• The SCC identified the 5 categories of negligence claims in cases of pure economic loss. Only relational economic loss came close, but not close enough since there was no injury or property damage done to the third party (the subcontractors).

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ANALYSIS (continued):

• A new duty of care? The Crown conceded reasonable forseeability of harm to the subcontractors, but that doesn’t automatically mean there is a duty of care.

• Policy considerations killed the prospect for a new duty of care in this case:

• (1) A joint venture could have been formed between the contractors and subs, thereby elevating the subs to having a “Contract A” with the Crown.

• (2) Indeterminate liability: there is the potential for the class of plaintiffs to “seep” into levels of the corporate structure of the design‐build team members (i.e. sub contractor parent companies, subsidiaries, suppliers, employees all making claims).

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CONCLUSIONS:

• No new finding of a duty of care between an owner and subcontractors in the context of a tendering process.

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Irving Shipbuilding Inc. v. Canada (Attorney General) [2009] F.C.J. No. 449

FACTS:

• Irving (and others) were subcontractors to BAE Systems which lost a bid to provide in‐service support to Canadian Submarines. BAE was the sole bidder, with Irving and others acting pursuant to a “teaming agreement” (not a joint venture).

• If successful, Irving et al would have been entitled to 50% of the revenue‐potentially 1.5 billion over 15 years.

• Irving brought a JR Application to the FCTD arguing that procedural fairness had been breached due to the alleged existence of conflict of interest and reasonable apprehension of bias based on a competitor’s employee having worked with Crown officials in another capacity in developing the solicitation documents.

• BAE did not challenge the award.

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ISSUE:

• Does the Crown owe a duty of procedural fairness to the subcontractors of an unsuccessful bidder?

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ANALYSIS:

• The FCTD rejected the JR brought by Irving. First, Irving had no standing to bring the JR, and secondly there was insufficient basis to establish procedural unfairness.

• FCA dismissed the appeal.

• Decision confirms that the award of a contract (and the tendering process leading to the award) can be the subject of a JR application to the Federal Court.

• The FCA merged the standing issue with the right to procedural fairness issue: if the Crown owed Irving a duty of fairness and breached that duty by awarding the contract to the competitor, then Irving is “directly affected” by the impugned decision.

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ANALYSIS continued:

• Duty of fairness may arise in 3 ways: contract, legislation or common law.

• Irving had no contract A with the Crown, only BAE did. BAE elected not to challenge the award. If Irving had entered into a joint venture with BAE, it would have shared the benefit of “Contract A”.

• No legislation conferred the right to procedural fairness in this case.

• The common law did not support finding a duty of procedural fairness. The FCA follows Design Services:

– the law favours “the more obvious plaintiff” with contractual rights. No need to extend procedural rights to subcontractors.

– procedural rights are largely personal to those whose substantive rights or interests they protect. If waived, they cannot generally be resurrected.

– there is an “alarming possibility of a cascading array of potential procedural rights holders.” This will impinge upon the goal of efficiency in the tendering process.

– when the Crown is entering into a contract, its rights and duties and available remedies are generally determined by the law of contract.

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CONCLUSION:

• FCA follows Design Services and closes the door on subcontractors having a right to procedural fairness in the tendering context, except perhaps in egregious cases.

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Northrop Grumman Overseas Services Corp. v. Canada (Attorney General) [2009] 3 S.C.R. 309

FACTS:

• Northrop, a foreign (U.S.) supplier, competed for and lost a bid to supply the Crown with infrared sensors for CF‐18 aircraft. Contract value = $140 million.

• Northrop challenged the award by bringing a complaint to the CITT, alleging that the Crown had failed to evaluate the bids in accordance with the tender.

• Northrop did not have access to NAFTA or WTO dispute resolution because of the exclusion related to military procurement.

• Northrop alleged a violation of s.506(6) of the AIT: “…the tender documents shall clearly identify the requirements of the procurement, the criteria that will be used in the evaluation of bids and the methods of weighing and evaluating the criteria.”

• The CITT agreed to hear the complaint, but before the merits could be dealt with the Crown challenged Northrop’s standing to file a complaint with the CITT.

• CITT ruled in favour of Northrop, but on a JR to the FCA it was held that only Canadian suppliers could bring complaints to the CITT under the AIT.

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ISSUE:

• Do non‐Canadian suppliers have standing before the CITT to bring a complaint based on an unfair bidding process based on the AIT?

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ANALYSIS:

• AIT is an intergovernmental agreement, part of which (Chp.5) is incorporated into the CITT statutory scheme.

• Standing before the CITT: “a potential suppliermay file a complain with the Tribunal concerning any aspect of the procurement process that relates to a designated contract and request the Tribunal to conduct an inquiry into the complaint.” (s.30.11(1) of the CITT Act)

• Potential Supplier: a bidder or prospective bidder on a designated contract.

• Designated Contract: a contract for the supply of goods or services to a government institution that is designated or of a class of contracts designated by the regulations.

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• SCC reviewed the scope of the AIT to conclude that it only applied to Canadian suppliers. This conclusion was borne out of references found to “equal access to procurement for all Canadian suppliers… the domestic market… Canadians…. and investments within Canada.” The SCC held that the AIT pertains to domestic trade within Canada‐ “Essentially, it is a domestic free trade agreement.”

• A Canadian Supplier is defined as a supplier having a place of business in Canada. (Art.518)

• To allow Northrop to bring complaints based on the AIT to the CITT would be to allow it rights to an agreement to which its government (U.S.) is not a party. Better to reserve the AIT access to the CITT to Canadian Suppliers, and thereby allow Canada to treat access to such dispute resolution bodies as carrots to offer other countries in exchange for privileged access for Canadian suppliers operating outside of Canada.

• Northrop can seek a remedy by way of JR to the FCTD.

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CONCLUSION:

• A decision reflecting the political nature of trade. Interestingly, all it would have apparently taken for Northrop to access the AIT and CITT is to have a place of business in Canada.

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Almon Equipment Ltd. v. Canada (Attorney General) [2010] F.C.J. no. 948 (FCA)

FACTS:

• Almon bids on a de‐icing and glycol clean up contract with the Crown (Trenton Air Force Base) worth $10 million.

• Almon lost the competition, and complained to the CITT. The CITT accepted for inquiry one of the complaints: whether the Crown properly evaluated Almon’s proposal.

• The Tribunal found that Almon’s bid was evaluated improperly, and based this ruling only on comments made on the “consensus scoring sheets”.

• As for remedy, the CITT gave only a partial remedy based on the chances Almon had of winning the contract. It awarded Almon 1/3 of the profit for the glycol clean up portion of the contract.

• Both the Crown and Almon bring JR applications to the FCA. Almon challenged the remedy granted, and the Crown challenged the facts found by the CITT supporting improper evaluation of the Almon bid.

• Both applications were borne out of inadequate record keeping on the part of the evaluators.

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Almon Equipment Ltd. v. Canada (Attorney General) [2010] F.C.J. no. 948 (FCA)

ISSUE:

• The proper scope of CITT review.

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Almon Equipment Ltd. v. Canada (Attorney General) [2010] F.C.J. no. 948 (FCA

ANALYSIS:

• The Complaint was a challenge brought under Art. 506(6). The government must announce its requirements, criteria, and evaluation methods in its request for proposals and associated documents and must adhere to those requirements when evaluating proposals.

• Court reviewed the CITT process leading up to an inquiry: Complaints, Screening, Inquiry, Findings and Recommendations, Remedies.

• Purpose of the regulatory regime: ensure fairness to competitors, competition among bidders, efficiency and integrity.

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• On the remedy awarded, FCA granted Almon’s JR application on the basis of 2 errors:

– (1)The CITT relied on comments on scoring sheets in the face of evidence that this was not a complete list of factors used in the evaluation, and more importantly in the face of evidence demonstrating a deficient level of organization and record keeping on the part of the evaluators. The CITT used this evidence only on the issue of credibility, but the FCA ruled that the CITT ought to have considered whether “the evaluator’s modest record keeping and the unknowable nature of the procedures they followed fundamentally compromised the integrity and efficiency of the procurement process.”

– (2)The CITT only considered compensation as a remedy, and failed to consider other remedies available to it.

• On the fact finding, The FCA granted the Crown’s JR application since the CITT’sfindings of credibility were “…internally inconsistent, incompatible or arbitrary, and do not necessarily lead to the Tribunal’s ultimate conclusion.”

• The FCA remitted the case back to the CITT.

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• CONCLUSION:

• Nobody wins, especially the CITT. The integrity of the procurement process is of paramount concern, but was not considered appropriately or at all by the CITT. Evaluators must keep proper records, or else risk having an adverse inference drawn from their omissions.

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Telezone Inc. v. Canada (Attorney General) [2008] O.J. no. 5291 (Ont. C.A.) Decision from the SCC pending.

FACTS:

• 4 appeals heard by the Ont.CA all dealing with the same issue: Does the Ontario Superior Court have jurisdiction over claims involving decisions made by a federal administrative board or tribunal?

• In each case the plaintiff commenced the claim in the Ontario Superior Court.

• In the wake of the Grenier decision, the Crown moved to dismiss each action for want of jurisdiction, arguing that jurisdiction lay with the Federal Court because an essential element of each plaintiff’s claim involved an attack on the decision of a federal administrative board or tribunal.

• Cases are factually distinct, but one dealt with procurement: G‐Civil submitted a tender for repair work to be done on the walls of the Rideau Canal. The Crown disqualified the tender because it was incomplete. G‐Civil brought an action claiming that its tender was properly completed in accordance with the specifications provided, and that it submitted the low tender. On the eve of trial, the Crown moved to dismiss, arguing that the Minister’s decision disqualifying the tender could only be challenged by way of a JR to the FC.

• G‐Civil was not appealed to the SCC, but the other cases were. In total, the SCC heard 6 other cases pertaining to the same issue.

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ISSUE:

• Can a plaintiff sue the Federal Crown in Superior Court for damages as a result of administrative action, or must the plaintiff first proceed with a JR application to the Federal Court?

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ANALYSIS:

• Section 18 of the Federal Court Act: FC has exclusive original jurisdiction to (a) issue an injunction, or prerogative writs against any federal board, commission or other tribunal, and to hear and determine any application or other proceeding for relief in the nature of relief contemplated by (a) against a federal board, commission or other tribunal.

• Case is fundamentally about jurisdiction, which the Ont. CA defines as “the power of a court to render an enforceable judgment.”

• Court refers to Ron Engineering and MJB Enterprises, two SCC cases establishing and refining the Contract A/B analysis. The Ont.CA saw both cases supporting the notion that the law of contract and the law of tender is uniform. There is no separate law applicable if one of the parties happens to be the Crown.

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• Jurisdiction lies in the Superior Court, unless it is removed by clear legislative language. Section 18 does not remove the Superior Court’s jurisdiction because the section deals with remedies, not with jurisdiction.

• Claims sought damages, which is not a form of relief contemplated by s.18

• Court rejects Crown’s argument that claims represent a “collateral attack” on the impugned administrative decision. None of the plaintiffs attack the correctness of the underlying decision. In each case the plaintiff claimed damages in tort or contract, and did not participate in the decision making process of the administrative decision. Finally, a collateral attack is a defence and does not go to jurisdiction.

• It is essential to decide jurisdiction motions early in the proceedings so the plaintiff can get on with its case.

• Grenier was wrongly decided. “The procedure it advocates would take litigants back to the days of Bleak House where they had to go from court to court until they were finally able to obtain their remedy.”

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CONCLUSION:

• Wait and see. According to the Ont.CA the superior court has jurisdiction over claims seeking damages, but the FCA (with some dissent) does not agree. The hope is for a ruling that provides clarity and avoids a multiplicity of proceedings, recognizing the need for the efficient resolution of claims.

• Claims for damages arising from alleged breaches of Contract A in the tendering process will likely remain within the jurisdiction of the Superior Court.

Public Construction Procurement: Key CasesNovember 2010David Elliott613‐783‐9638LinkedIn

http://www.fmc-law.com/People/ElliottDavid.aspx

The preceding presentation contains examples of the kinds of issues companies dealing with public constructionprocurements could face. If you are faced with one of these issues, please retain professional assistance as each situation is unique.

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Public Construction Procurement - Key Cases Defining the Public Procurement Landscape