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Legal Notes
A word about fair play

by Robert C. Worthington

When the Supreme Court of Canada (SCC) speaks, we all listen, and so we should. Recently, the SCC issued another unanimous decision on competitive bidding law that goes a long way to clarifying several issues of interest for public purchasing professionals - Martel Building Ltd. v. Canada [2000] S.C.J. No. 60

The facts that gave rise to the dispute are fairly complicated but, in simplified terms, the federal government was leasing the Martel building in Ottawa and the lease was up for renewal. For undisclosed reasons, both parties could not come to agreeable terms in the negotiations for a new lease. The government issued an Invitation to Tender for office space and Martel bid on the invitation. As per the invitation's stated requirements, the government did a "total cost evaluation" of all the bids which involved adding various costs that the government would incur if it accepted a bid. The government added $1 million for "fit up costs" and $60,000 for a "card access system" to Martel's bid, effectively turning Martel's original lowest bid into the second lowest. When the government then awarded to another bidder (Standard Life), Martel sued, seeking its lost profit from the five-year lease.

The gist of Martel's allegations fell into three categories:

  • unfairness in negotiations before the Invitation was issued;
  • unfairness in how the Invitation to Tender was written; and
  • unfairness in how the evaluation was handled.

The government argued that there was no duty of fairness owed except in evaluations and that the evaluations had been done fairly.

Both the trial judge and the Court of Appeal found aspects of unfairness but only the Appeal Court was prepared to award damages. The Supreme Court of Canada unanimously disagreed and dismissed the claim entirely.

On the issue of any unfairness in negotiations prior to issuing the Invitation, the SCC refused to create any duty of good faith upon the parties in negotiation. It argued persuasively that public policy reasons dictated strongly against creating any obligation upon negotiating parties to be fair to each other during the negotiation.

On the issue of alleged unfairness in the writing of the Invitation to Tender requirements (Martel had argued its recent building improvement should have been counted), the Supreme Court refused to create any obligation of fairness on the Owner when it writes the invitation requirements stating, "…Martel is essentially asking to be given special treatment based upon its previous relationship with the Department. However, this would clearly give Martel an unfair advantage over the other bidders." … "…the Department acted properly in disregarding any past or planned improvement of the Martel Building by not accounting for them in Martel's bid."

On the issue of unfairness in evaluations, the SCC noted that the invitation explicitly stated the department would do this, and that it was done to all bids. As the court stated, while there is a general legal obligation upon the Owner in competitive bidding to act fairly and equally, an Owner also has "the right to include stipulations and restrictions and to reserve privileges to itself in the Tender documents." "[T]he Tender documents must be examined closely to determine the full extent of the obligation of fair and equal treatment. In order to respect the parties' intentions and reasonable expectations, such a duty must be defined with due consideration to the express contractual terms of the tender… ."

The government had reserved the right to add costs to each bid as it alone determined, and did so to all bids using a consistent method of calculation throughout. The Court did note that the cost of the card access system was added to Martel's bid but not to Standard Life's, which was unfair and a breach. However, even if the card access system cost were not added to Martel's bid, it still would have been $500,000 higher than the successful bid. Martel did not lose the lease due to this unfairness. The award was based upon best value to the government. The court felt it was clear that the government had properly exercised its discretion in awarding to the best value bidder. "At the end of the day, we also believe that Martel lost Contract B because Standard Life made a better offer."

In making this decision, the SCC discussed competitive bidding and more especially the extent of the obligation of fair and equal treatment (as determined after examining the wording of the invitation). In the next column, I will examine this in more detail, focusing on how this case differs from a public purchaser's obligations under NAFTA and Agreement on Internal Trade.


Robert C. Worthington is president of Worthington & Associates Ltd (www.purchasinglaw.com), a Vancouver-based company specializing in business education and training in purchasing law. He has lectured on law for public and private corporation in-house seminars, as well as at the University of British Columbia. He is the author of the Purchasing Law Handbook and several legal texts.


 

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