|February 24, 2014|
Previously published on February 17, 2014
Most people involved in the construction industry have heard about the law of tenders, the rules surrounding the submission of bids to an invitation by a project sponsor or owner. The 1981 Supreme Court of Canada case, R.v. Ron Engineering and Construction (Eastern) Ltd., and multiple cases that have subsequently followed its guidance have set the framework within which the law of tenders is housed.
These cases have made it clear that the rules set out in Tender Conditions or an Invitation to Tender are all important—and must be complied with—in each instance. In the event of a dispute , a court will examine those rules and guidelines to determine whether or not the ‘playing field’ is level for all proponents. But the courts have also made it clear that they will look beyond those rules and guidelines to see whether or not the entire process is fair, so as not to bring disrepute to the law of tenders, which is such an important feature of Canada’s construction industry.
The steps one must or must not take to be fair in the procurement process are not listed in the Tender Conditions and are not found in any checklist but, rather, are qualities that courts will impose as a matter of the common law to bring fairness and equity to the procurement or tendering process. How then can one know whether or not a particular procurement or tendering process is fair?
In this article I offer some guidance as to what constitutes fairness or unfairness in any given situation but it should be understood that the list is not exhaustive and that the common law will expand and mutate to fit other situations in which an issue of fairness arises.
One of the key tenets of fairness in a competitive selection or procurement process is the requirement for the process to be transparent. That is, all of those participating in the process, proponents and project sponsors alike, should be fully aware of the rules of the game and be able to readily determine whether or not those rules are being followed.
There should be no undisclosed preferences, no secret preferences and no discussions or decisions made in back rooms. If the process is not transparent, it may be unfair to one or more of the proponents who, although they are familiar with the published rules, are unaware of a different set existing behind closed doors.
Related to the transparency principle is the need for a project’s sponsors or evaluators to have no undisclosed preferences. The requirements to be met by proponents must be clearly set out in the tender documents. There cannot be any undisclosed preferences for local bidders or proponents, nor for experience not mentioned in the tender documents, nor for any particular proponent. Acting on any such undisclosed preferences can result in the tendering process being set aside at great cost to all concerned.
Similarly, those who are evaluating tenders must exercise discretion in their evaluation and award a contract to a preferred proponent without bias for or against any of the proponents. In other words, the evaluation process must be objective and not subjective, failing which the tendering process can again be placed in peril.
As a subset to the bias principle, those evaluating bids must be without a conflict of interest. By way of example: if an evaluator has a business relationship with a proponent that, one might reasonably conclude, would lead to a bias favouring that proponent, the conflict of interest should disqualify the evaluator. If the evaluator is not disqualified, and carries on to evaluate the bids submitted, the tendering process is threatened once more.
And, of course, as a matter of fairness, those evaluating the bids received must follow the tender conditions. So, if the tender conditions stipulate that a non-compliant bid—that is, a bid that does not comply with the tender conditions—cannot be accepted, the evaluator must follow those rules. If, however, the tender conditions permit the acceptance of a non-compliant bid—which many do these days—the evaluation conditions are less restrictive.
These and other fairness principles are critically important in the tendering process. Complying with them makes the process fair and obviates the prospect of a court setting aside the entire procurement process for being unfair. Needless to say, the latter result can prove to be the subject of time-consuming and expensive litigation as well as detrimental to all who are involved in the process, including the project sponsors and the proponents.
How does one know whether a particular procurement process is abiding by these fairness principles? In some instances, proponents do unwittingly participate in a process which, because some of its terms are undisclosed, they cannot recognize as unfair.
But, in other instances, the unfairness does become apparent. One of the proponents discovers that a non-compliant bid has been accepted. An evaluator's bias or conflict of interest becomes known during or following the procurement process. Or, it becomes apparent that the owners have awarded a bid to a proponent that has submitted a price after bid-shopping by an owner or project sponsor.
Is it ever possible to know conclusively whether or not these fairness principles are being honoured in any particular procurement process? There are two answers to this. First, many procurement processes will go from start to finish without anyone knowing whether or not fairness standards were complied with. They may or may not have been—but there is no vehicle available to determine the fact one way or another.
In other instances, however, project sponsors or owners, recognizing the importance of complying with these fairness principles, have engaged a fairness advisor or fairness monitor. This person is experienced in procurement or tendering law and in monitoring the procurement process to see that fairness principles are observed. This model is frequently used—in fact is mandated—in many public infrastructure projects currently being procured or constructed in British Columbia. It has also found its way into private industry in some larger projects.
Recognizing the consequences of non-compliance with these fairness principles, prospective bidders are well advised to determine whether monitoring of the procurement process is required in any particular instance. If a project sponsor’s goal is to get through the procurement process without subsequent litigation—or, in a worst-case scenario, repeating the entire process again—engaging a fairness monitor is prudent practice. If, on the other hand, the choice is to risk fairness principles being breached, then beware! The consequences can be severe, not only for the project sponsor, but for all those participating in the process.