CONSTRUCTION LAW—2008 UPDATE
PAPER 1.1
Procurement: The Integrity of the Bidding Process
and the Role of the Consultant
These materials were prepared by Karen Martin of Bull, Housser & Tupper LLP, Vancouver, BC, for the
Continuing Legal Education Society of British Columbia, April 2008.
© Karen Martin
1.1.1
PROCUREMENT: THE INTEGRITY OF THE BIDDING PROCESS
AND THE ROLE OF THE CONSULTANT
I.
The Integrity of the Bidding Process ................................................................................... 1
A. The Scope of the Duty of Fairness........................................................................................ 1
1. What About Competing Interests? ............................................................................... 1
B. Negotiations.......................................................................................................................... 2
C. Confidentiality...................................................................................................................... 2
D. Ethical Issues and Best Practices............................................................................................ 3
II.
Role of the Consultant ......................................................................................................... 4
III.
Ethics and Best Practices for Consultants ............................................................................ 5
I.
A.
The Integrity of the Bidding Process
The Scope of the Duty of Fairness
In R. v. Ron Engineering and Construction (Eastern) Ltd., [1981] 1 S.C.R. 111, the Supreme Court of
Canada created Contract A to impose a contractual framework granting rights and imposing
obligations on bidders and owners in tender processes prior to the award of the construction contract.
In that case, and in subsequent cases, our highest court has sent a clear message that through the
implication of contractual terms, in particular a term that the owner owes a duty of fairness to bidders,
the courts strive to protect the integrity of the bidding process. The underlying policy is that if
bidders do not have confidence in the fairness of the bidding process, owners will not receive
competitive prices.
In Martel Building Ltd. v. Canada, [2000] 2 S.C.R. 860, the Supreme Court of Canada signaled to the
industry that the court was prepared to give a fair degree of latitude in applying the duty of fairness to
owners who incorporated clearly articulated restrictions on the duty in their tender documents. The
policy behind this approach is that if bidders know in advance the rules as to how bids will be treated,
they can choose not to bid or to alter their prices to reflect the risks. However, the courts are
prepared to deal harshly with an owner who applies a secret rule or changes the rules after closing.
1.
What About Competing Interests?
Some courts have attempted to reconcile the duty of fairness to bidders with competing policy
interests.
In Gagnon Demotion Inc. v. Windsor (City), [2004] O.J.N. 504, Brockenshire J. of the Ontario Superior
Court of Justice held that there was a competing interest to the duty of fairness to bidders: the duty of
public owners to protect the public purse called a “duty of fairness” to a city’s ratepayers.
In Continental Steel Ltd. v. Mierau Contractors, 2007 BCCA 292, the Court of Appeal made it clear that
it is not a breach of Contract A for a tendering authority (the general contractor in that case) to act in
its own best financial interests per se, so long as its decision is not unfair. The Court stated that it
1.1.2
should not lightly interfere with the exercise of business judgment by a tendering authority, which is
entitled to take a nuanced view of costs in evaluating bids. Rather, the duty of fairness should be
focussed on ensuring a fair process.
B.
Negotiations
The Supreme Court of Canada has explained in M.J.B. Enterprises Ltd. v. Defence Construction Ltd.,
[1999] 1 S.C.R. 619, that a tender is a competition which is designed to replace negotiations. Bidders
are asked to submit their best prices and to make them irrevocable for a period of time. Where tender
documents are silent on the issue, negotiation after closing will usually be characterized as bid
shopping and/or a breach of the duty of fairness (Stanco Projects Ltd. v. B.C., 2004 BCSC 1038).
However, applying the Martel principles, it is permissible to incorporate a clause in the tender
documents notifying bidders that negotiation can take place after closing. In fact, in RFPs, this is a
common clause. However, owners should be aware that the clause will have to be carefully drafted
and applied, as the courts will likely adopt a contra proferentum approach. In addition, owners can
expect that bid prices may not be as competitive as they otherwise would be.
Negotiation is an option where a tendering process has been properly ended for an appropriate reason
(i.e., all bids are over budget). However, this option must be pursued carefully to minimize the risk of
breaching the duty of fairness.
C.
Confidentiality
As with many issues in procurements, confidentiality is best dealt with expressly in the tender
documents.
Where a public opening is stipulated in a fixed price tender, prices are publicly announced and no one
expects confidentiality as to price. However, confidentiality issues may arise regarding the content of
a bid other than price, in unit price tenders, and in RFPs.
Here is an example of a confidentiality clause in an RFP:
All proposals became the property of [the owner] and will not be returned to the Proponent.
All proposals will be held in confidence by [the owner] unless otherwise required by law.
Proponents should be aware [the owner] is a “public body” defined by and subject to the
Freedom of Information and Protection of Privacy Act of British Columbia.
In the absence of a clause dealing with confidentiality, the content of bids and proposals is likely
impliedly agreed to be confidential, and disclosure of some content of bids or proposals to competitors
would constitute a breach of the duty of fairness.
Note that it is common for public owners to notify bidders that they are subject to freedom of
information legislation as in the clause above. Where an FOI request is received, it is the owner’s
obligation not to disclose documents or parts of documents that could cause harm to the commercial
interests of a third party.
Where a decision is taken to end the tender without an award but to follow a different process, care
must be taken not to breach the duty of fairness by disclosing confidential information of one bidder
to another during any subsequent negotiations or discussions.
It is prudent to require members of evaluation teams of Proposals under an RFP to sign confidentiality
agreements.
1.1.3
D.
Ethical Issues and Best Practices
The consequence of a breach of the duty of fairness by a tendering authority in a way that undermines
the integrity of the bidding process may be liability for contractual damages (typically lost profits).
Apart from advising tendering authorities as to the legal consequences of actions that undermine the
integrity of the bidding process, do lawyers practicing in this area have any other ethical duties?
Consider the following excerpts from the Professional Conduct Handbook.
Chapter 1
Canons of Legal Ethics
…
A lawyer is a minister of justice, an officer of the courts, a client’s advocate, and a
member of an ancient, honourable and learned profession.
…
1.
To the state
1(1) A lawyer owes a duty to the state, to maintain its integrity and its law. A lawyer
should not aid, counsel, or assist any person to act in any way contrary to the law.
…
3.
To the client
3(1) A lawyer should obtain sufficient knowledge of the relevant facts and give
adequate consideration to the applicable law before advising a client, and give an open
and undisguised opinion of the merits and probable results of the client’s cause. The
lawyer should be wary of bold and confident assurances to the client.
3(5) A lawyer should endeavour by all fair and honourable means to obtain for a
client the benefit of any and every remedy and defence which is authorized by law.
The lawyer must, however, steadfastly bear in mind that this great trust is to be
performed within and not without the bounds of the law. The office of the lawyer
does not permit, much less demand, for any client, violation of law or any manner of
fraud or chicanery. No client has a right to demand that the lawyer be illiberal or do
anything repugnant to the lawyer’s own sense of honour and propriety.
The Supreme Court of Canada has given us a set of principles to protect the integrity of the bidding
process. Is it assisting a person to act contrary to the law for a lawyer to be involved in blatant
breaches of those principles? Can a lawyer’s own sense of honour and propriety be engaged in such
circumstances?
Consider whether the following scenarios raise ethical issues:
•
applying the Martel principles, an owner wants to include a clause in its procurement
documents reserving the right to treat the bidders unevenly and unfairly;
•
a tendering authority wants to accept a clearly materially non-compliant bid when
there is a compliant bid within budget, in the hope that no one will find out and/or
challenge the decision;
•
an owner wants to “test the market” by issuing a tender but has no intention to award
a contract for the work (see Hub Excavating Ltd. v. Orca Estates, 2007 BCSC 1512);
•
an owner seeks to hide or destroy documents related to its evaluation process that
would suggest a breach of the duty of fairness;
•
a bidder commences legal action with the sole or primary intention of ascertaining
competitive information about its competitor.
1.1.4
Lawyers can protect the integrity of the bidding process by:
•
explaining the public policy consequences of breaching the duty of fairness (public
owners are attuned to this);
•
explaining the business consequences of breaching the duty of fairness;
•
explaining the legal consequences of breaching the duty of fairness.
II.
Role of the Consultant
It is common for design consultants on construction projects to be responsible for the preparation of
tender documents (even the front-end “legal” terms in the Instructions to Bidders) as well as the
administration of the tender process, including making contract award recommendations.
Recent case law makes it clear that consultants can be found liable to owners for negligence in
providing these services.
In Tectonic Infrastructure Inc. v. Middlesex Centre (Township), [2004] O.J. No. 4933, a consultant was
found by an Ontario Supreme Justice to have negligently prepared tender documents that were
confusing to bidders in terms of prices sought for differing combinations of bid irrevocability and
completion dates. The consultant recommended awarding the contract to a bidder who had inserted
handwritten additions on the Bid Form in relation to prices as a result of the confusion. The Court
found that the added words were not clear and unambiguous as to price and that the bid was noncompliant. Therefore, the owner was found liable to the unsuccessful bidder for its lost profits on the
project.
In relation to the owner’s third party claim against the consultant, the Court said:
It seems to me that if the [consultant] had the obligation to oversee the call for
tenders and review them, it had, as part of that obligation, the responsibility to at
least identify if not outright reject the bid of the numbered company as noncompliant, or recommend the owner seek legal advice in that regard.
The consultant was found liable for negligent misrepresentation.
In Stanco, the consultant was found liable to the owner for its “bid shopping” conduct when it entered
into negotiations with bidders after closing for a different scope than specified in the tender
documents. The Court noted that the consultant’s poor drafting contributed to the issue.
Notwithstanding that the owner was a sophisticated public owner and took legal advice, the
consultant was found 100% liable to the owner by the Court of Appeal for the damages the owner was
liable to pay to the unsuccessful bidder. This was based on the wording of an indemnity clause in the
consultant’s contract:
[The consultant] must indemnify and save harmless [the owner] and our employees
and agents (each an “Indemnified Person”) from any losses … that an Indemnified
Person may sustain, incur, suffer or be put to at any time, … which are based upon,
arise out of or occur, directly or indirectly, be reason of, any act or omission by you…
in providing the services except liability arising out of any independent negligent act by
us. (emphasis added)
Because the owner’s conduct was “connected with and not separate from” the consultant’s services, it
was not an independent act.
1.1.5
III. Ethics and Best Practices for Consultants
Consultants who charge a fee to owners for procurement document preparation and administration
would do well to:
•
have their standard Instructions to Bidders, front end tender documents, and RFP
terms reviewed periodically by a tender lawyer (since the law changes frequently);
•
recommend that owners have their standard Instructions to Bidders, front end tender
documents, and RFP terms reviewed by a tender lawyer;
•
educate themselves as to the basic principles of tender law and regularly attend
seminars to remain up to date with developments in the law;
•
focus on technical compliance in evaluating bids, and recommend the owner seek legal
advice on any significant identified compliance issues;
•
not give legal advice.