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Fairness is in the Eye of the Beholder in the Tender Process

The tender process has long been a staple of the construction industry. Variations of that process, via requests for proposals (“RFPs”), requests for quotations (“RFQs”) or other similar processes have also been developed, with varying levels of adherence to the traditional tender model. These models allow someone putting a project out for bid to include protections for the amount or type of claims an unsuccessful bidder can advance.

One common protection is a “limitation of liability” clause restricting the amount of damages for which an unsuccessful bidder can sue.

Limitation of Liability Clauses Can be Enforceable

Whether a particular limitation of liability clause is enforceable was recently considered by the Yukon Court of Appeal in Mega Reporting Inc. v. Yukon (Government of), 2018 YKCA 10.

The Government of Yukon conducted an RFP for a contract to provide court reporting and transcription services. The RFP was to be conducted in two stages: the first was based on each bidder’s experience and performance,
and the second was based on price, though Yukon was not obliged to accept the lowest price. The bidding process was governed by Yukon legislation setting out various principles for public procurement, including commitments to fairness, openness, transparency, and accountability.

The RFP also included a clause purporting to limit Yukon’s liability for any costs associated with unfairness in the RFP process, other than for costs of preparing a bid or those awarded pursuant to a formal bid challenge process.

Two bids were received, one of which was from Mega Reporting Inc. (“Mega”). The bid evaluation committee concluded that Mega’s proposal did not meet the minimum technical requirements and awarded the contract to the
other bidder, whose price was higher.

The evaluation committee did not make any contemporaneous record of the decision-making process regarding Mega’s proposal. One member wrote comments directly on Mega’s proposal, but no other written record of the
meeting was kept. In a subsequent debriefing meeting with Mega, a document containing points for Mega’s proposal was provided. However, this document did not reflect the actual evaluation. Mega sued for breach of contract.

The trial judge held that Yukon failed to meet its duties of fairness, accountability, and transparency in the way it evaluated Mega’s bid, both at common law and under the governing legislation. She held that the limitation of liability clause was not applicable to the claim because public policy justified it not being enforced. Yukon successfully appealed, and Mega’s claim was dismissed.

The Court of Appeal held that the trial judge erred by not considering that the public policy must be “substantially incontestable” to justify not enforcing a limitation of liability clause. There is a high threshold necessary to establish that public policy outweighs the interests in enforcement. The Court reasoned that while there may be a public policy interest in ensuring fair procurement to encourage more competition in bidding and maximize value for public money, it is not substantially incontestable that such an interest should override the ability of Yukon to protect itself from liability.

The Court cited prior Supreme Court of Canada authority, Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, for the principle that “a contractor who does not think it is in its business interest to bid on the terms offered is free to decline to participate ... So long as contractors are willing to bid on such terms, I do not think it is the court’s job to rescue them from the consequences of their decision to do so.”

The Court concluded its analysis by noting that Mega was a sophisticated commercial party who was aware of the limitation of liability clause. If Yukon was not getting value for money it could change the clause, or the public could hold the government accountable at the ballot box.

How does this affect you?

If you are a contractor looking to bid on a project, whether via tender, RFP or RFQ, and have questions about the process and potential remedies, contact Anthony Burden.