Frontier Justice and the End of Contract A - FINALprocurementoffice.com/wp-content/uploads/Frontier... · 2018-09-19 · Frontier Justice The End of Contract A For those still using

Frontier Justice and the End of

Contract A

Paul EmanuelliManaging Director

The Procurement [email protected]

416-700-8528

www.procurementoffice.com

Copyright Notice

The following excerpts from GovernmentProcurement (copyright LexisNexis Butterworths2005, 2008, 2012 and 2017), The Laws ofPrecision Drafting (copyright Northern StandardPublishing 2009), Accelerating the Tendering Cycle(copyright Northern Standard Publishing 2012) andthe Procurement Law Update newsletter (copyrightPaul Emanuelli 2006-18) are reproduced withpermission. The further reproduction of thesematerials without the express written permission ofthe author is prohibited.

© Paul Emanuelli, 2018

For further information please contact:[email protected]

About the AuthorPaul Emanuelli is the General Counsel andManaging Director of the Procurement Office. Hewas recognized by Who's Who Legal as one of thetop ten public procurement lawyers in the world.His portfolio includes advising on strategicgovernance in public purchasing and onnegotiating high-profile major procurementprojects. Paul has an extensive track record ofpublic speaking, publishing and training. He is theauthor of Government Procurement, The Laws ofPrecision Drafting, Accelerating the TenderingCycle and the Procurement Law Updatenewsletter. Paul hosts a monthly webinar seriesand has trained and presented to thousands ofprocurement professionals from hundreds ofinstitutions across North America through theProcurement Office and in collaboration withleading industry organizations including NIGP,SCMA, the University of the West Indies andOsgoode Hall Law School.

Frontier Justice The End of Contract A

For those still using Contact A tendering formats, the June2018 Yukon Court of Appeal decision in Mega ReportingInc. v. Yukon (“Mega Reporting”) serves as a last call tofinally part company with the unclear Contract A rules andjoin the growing ranks of institutions using flexible, lower-risk tendering formats.

Frontier Justice Mega Reporting Adds to Court Disagreement

Mega Reporting, which dealt with a flawed evaluationprocess for court reporting services in a Yukongovernment Contract A RFP process, is another casewhere the courts could not agree on applying the groundrules for Contract A liability. In fact, forty years after theoriginal 1978 trial dispute that led to the Supreme Court ofCanada’s 1981 R. v. Ron Engineering Contract Aprecedent, the rules around Contract A lost profit damagesremain more uncertain than ever and, win or lose, leaveContract A users fully exposed to lengthy lawsuits.

Frontier JusticeMJB Confirmed Contract A Alternatives

However, there is an alternative. In 1999, the Supreme Courtof Canada brought some order to the litigious tenderingsystem in M.J.B. Enterprises Ltd. v. Defence Construction(“MJB”). This decision confirmed that purchasing institutionscan avoid the fixed-bid Contract A process and run tenderingprocedures under traditional contract law rules where bidsremain negotiable and losing bidders have no right to sue forlost profit damages. That precedent should have ended thelost profit liability debate years ago.

Unfortunately, while an ever-increasing number of institutionsleft Contract A lost profit claims behind by adopting flexible,lower-risk negotiated RFP formats, other institutions persistedwithin the flawed Contract A operating system and haveunnecessarily exposed themselves to protracted litigation andlost profit damages. This has cost hundreds of millions incourt-awarded damages and countless more in out-of-courtsettlements and legal fees. As explained below, theexperiment in attempting to limit litigation and reliably protectagainst lost profit awards by adding liability disclaimers toContract A tendering formats has failed.

Frontier Justice Liability Disclaimers No Match for Contract A Risk

By way of recap, in Tercon Contractors Ltd. v. BritishColumbia (Transportation and Highways) (“Tercon”), the BCgovernment banked on a disclaimer to try to shield itself fromliability after it awarded a contract to a non-compliant bidder.In its 2010 precedent-setting decision, the Supreme Court ofCanada established a three-part test for enforcing liabilitydisclaimers: (1) Did the disclaimer apply to the breach? (2)Was the disclaimer unconscionable? (3) Are there publicpolicy reasons against enforcing the disclaimer?

Frontier Justice Tercon’s Three-Part Test for Liability Disclaimers

Unfortunately, the Supreme Court could not agree on how toapply its own test and rendered a 5-4 split decision. Theruling majority sided with the original trial judge anddetermined that the BC government should be liable for $3.3million in lost profits, finding that the disclaimer was notdrafted clearly enough to shield the government from liability.The four-judge minority went the other way, as had the threejudges on the BC Court of Appeal, ruling in favour of theclause and against liability.

Frontier Justice Tercon Test Still Leads to Court Disagreement

In summary, thirteen judges over three levels of courtconsidered the same clause and divided 7-6 on whether itshould shield the government from liability within Contract A.Notwithstanding these conflicting results, some institutionsdismissed the problem as a wording issue that could be curedby drafting better disclaimers within their Contract Adocuments.

Frontier Justice Thirteen Judges, Three Levels of Court, Still Divided

Mega Reporting has put an end to that wishful thinking. In thiscase there was no issue with the wording of the disclaimer.Rather, the trial court struck down the clause on public policygrounds under part three of the Tercon test and awarded lostprofits. The Yukon Court of Appeal then reversed the trialdecision, ruling that disclaimers should only be struck downon policy grounds in extreme situations where harm to thepublic good is “substantially incontestable”.

Frontier JusticeMega Reporting Divides Courts Over Liability Clause

In other words, while the courts agreed that the clause wasclear enough to apply under part one of the Tercon test, theycould not agree on whether it should apply under part three ofthe test and, for good measure, also failed to clarify whetherthe clause was unconscionable under part two of that test.This left many unresolved issues for a potential appeal to theSupreme Court and, win or lose, further exposed Contract Ausers to more protracted litigation.

Frontier JusticeClause Application Under Scrutiny, Not Clarity

As these cases prove, institutions that rely on Contract Adisclaimers remain at the mercy of the courts, who, forty yearsafter the trial decision that first led to Contract A, are stillworking out the bugs in the Contract A liability analysis. In theinterim, for those interested in avoiding lengthy litigation andthe risk of lost profit damages, the Supreme Court offeredanother solution in 1999 in MJB when it unanimously ruled thatwe can avoid the Contract A tendering system in its entirety byusing more flexible tendering formats. The verdict is now in onthe better option.

Frontier Justice Contract A Disclaimers At Mercy of Courts

The End of Contract A?

Did the PartiesCreate Contract A?

Intention of the Purchaser

(Offer)

The SCC’s MJB Analysis

What Are the Terms of Contract A?

Was There a Breach of Contract A?

Is There a Remedy?4

3

2

1 Intention of Supplier(Acceptance)

Express Terms(The Written Terms)

Implied Terms(Duty of Fairness)

Were the Terms Followed?

Is Variation Saved by a Privilege Clause?

Causal Analysis

Calculation of Damages

TerconDisclaimer Test

Did the PartiesCreate Contract A?


(Offer)



Is There a Remedy?4

3

2






Causal Analysis



Did the Parties Create Contract A?

Did the Parties Intend to Create Contract A?


(Offer)




Is There a Remedy?4

3

2






Causal Analysis





(Offer)




Is There a Remedy?4

2

3






Causal Analysis





(Offer)

Is There a Remedy?



Is There a Remedy?

3

2

4






Causal Analysis





(Offer)

The Tercon Disclaimer Test



Is There a Remedy?

3

2

4






Causal Analysis


The Tercon Disclaimer Test

3

2

Does the Clause Apply?(Laws of Interpretation)

Is the Clause Unconscionable?

Is it Void For Public Policy Reasons?(Balancing Interests)

Entire Document

Rule

ExpressioUnius Rule

ContraProferentem

Relative Sophistication of Parties

Fair, Open & Transparent Procurement

Contextual Construction

1

Freedom of Contractvs.

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Documents

Frontier Justice and the End of Contract A - FINALprocurementoffice.com/wp-content/uploads/Frontier... · 2018-09-19 · Frontier Justice The End of Contract A For those still using