Public Procurement Law in Canada – An Overview

In Canada, public procurement law is informed by the common law, trade treaties, statutory laws and administrative rules. The specific laws and rules applicable to a particular procurement depend on a variety of factors, including:

  • the nature/business location of the parties;
  • the nature/origin of the goods or services;
  • the value of the procurement; and
  • the terms of the purchaser’s solicitation document.

As the specific laws and rules vary widely, it is not possible to cover every legal principle that applies to a particular procurement in this high level overview however there are certain principles that are widely understood as defining the parameters of Canadian public procurement law. This article aims to provide the reader with an appreciation of those principles.

Canadian Common Law  

The 1981 decision of the Supreme Court of Canada Ontario v. Ron Engineering & Construction (Eastern) Ltd.[i] was the first in a series of Supreme Court of Canada decisions which today defines Canada’s procurement law at common law. The broad parameters of Canada’s modern procurement as established by this series of court decisions are set out below.

1981: The Contract A/Contract B Paradigm

When a purchaser issues a tender call and a bidder submits a compliant bid in response to that tender call, a process contract (also called “Contract A”) is formed between the purchaser and each compliant bidder which is governed by the terms of the solicitation.  Contract B, the performance contract, is the contract awarded to the winning bidder upon acceptance of that bidder’s tender. In Canada, the process rules in Contract A, such as the time bids need to be delivered, have generally been strictly enforced.[ii] Purchasers and bidders participating in bid solicitations have to be mindful of the rules and ensure they are strictly followed.

Examples of ‘strict compliance’ requirement:

  • A bid that was delivered 30 seconds past the date and time specified in the solicitation was deemed to be validly rejected by the purchaser. (Bradscot (MCL) Ltd. v. Hamilton Wentworth Catholic District School Board [1999] 42 O.R. (3d) 723 (Ont.C.A.))
  • A bid that used the wrong version of the tender form was deemed to be validly rejected by a purchaser. (Steelmac Ltd. v. Nova Scotia (Attorney General)[2007] NSJ. No. 216)

1999: Contract A and the Implied Contractual Duty of Fairness

The courts have implied a contractual duty of fairness and good faith as part of Contract A which is owed by the purchaser to all compliant bidders.[iii] The courts have relied upon the duty of fairness and good faith as the basis for other implied purchaser duties, such as:

  • duty to provide proper disclosure;
  • duty to reject non-compliant tenders;
  • duty to conduct a fair competition;
  • duty to award the contract to the winning bidder; and
  • duty to award the contract as tendered.

Each of these duties has been subject to a great deal of judicial scrutiny and imports a number of specific sub-duties that are beyond the scope of this article. Suffice it to say that under this Contract A/Contract B paradigm purchasers operate in a minefield of legal duties that expose them to unanticipated and undesired results when procuring by way of bid solicitation.  As the examples in this article show, uninformed bidders are also at risk of unanticipated rejection on the basis of what may seem to be minor technicalities by virtue of the particularities of Canadian bidding and tender laws.

Why this Matters

Imagine that the vendor who was 30 seconds late in the example above was a well-known reputable vendor with what is believed to be the best product on the market. Where a bid is delivered 30 seconds late under Canadian law the purchaser is left with the choice of:

(1) accepting the bid for evaluation regardless of the 30 second delay and risking a court challenge by the other bidders for breach of the purchaser’s duty of fairness (and risk having to pay an aggrieved bidder its lost profits in addition to paying for legal costs associated with the legal action);

(2) disqualifying the bid and thereby limiting the number of proposals/potential vendors and losing access to the best product (the disqualified bidder’s lawyer will likely tell it that there is no recourse under Canadian procurement law for this disqualification); or

(3) cancelling and re-issuing the solicitation and risking a legal challenge from the compliant bidders who will claim this was a breach of the purchaser’s duty of fairness and suffering operational delays in obtaining the goods being solicited (in addition to having to potentially litigate, pay damages and legal costs).

None of these options are appealing yet the above scenario is surprisingly common.

1999: Contract A is not Always Formed

Contract A is only formed, and the many implied duties will only be imposed on the purchaser, if it can be established that the parties intended to initiate contractual relations by the submission of a bid in response to the invitation to tender.[iv]  It has been recognized that in the world of bid solicitations there is a continuum where at one end there is the non-binding request for quotes and at the other end is the traditional binding tender call which includes bid irrevocability and bid security terms.[v] Inside the continuum are “hybrid” solicitations; solicitations which are not clearly tenders or clearly requests for quotes which leave uncertainty as to their binding nature. There is an abundance of caselaw on this point regrettably leaving uncertainty as to the legal status of hybrid solicitation vehicles.

Why have hybrid solicitations?

Hybrid solicitations are solicitations that import elements of the binding tender and the non-binding request for proposals leaving uncertainty as to their binding nature. Because of the potential of facing an unforeseen and unwanted outcome under Contract A as discussed in the “Why this Matters” example above, some purchasers are becoming creative and developing solicitations that have elements of the tender format while at the same time taking measures to contract out of their Contract A and implied duties by using clauses that have bidders acknowledging, as a term of the solicitation, that there is no contract A or having bidders sign a separate acknowledgement to that effect. While the use of exculpatory tactics such as these is a legally sound business practice, in light of the current state of the law, purchasers need to approach this practice cautiously.  Some Canadian courts have shown a low tolerance for purchasers engaging in quasi-tender solicitations while attempting to circumvent the duties of fairness to bidders.

2010: Limitation of Liability and Privilege Clauses 

In response to the above cases, clever purchasers are incorporating limitations of liability and special privileges into their solicitation documents. This practice is not receiving strong support in Canadian courts, particularly where a clause effectively neutralizes the purchaser’s duty of fairness to bidders.

No matter how broadly worded, a privilege clause giving the purchaser privileges to override Contract A duties in the bidding process runs the risk of being interpreted narrowly in order to protect the integrity and business efficacy of the bidding process. [vi]

In the 2010 Supreme Court of Canada’s decision Tercon Contractors Ltd. v. British Columbia[vii] the Court was divided on whether to recognize the application of a broad liability disclaimer clause to protect the B.C. government from liability for breach of its implied duty of fairness/duty to reject a non-compliant bid.  Using contract interpretation principles, the majority of the court (5 of 9 Supreme Court Justices) interpreted a broadly worded limitation of liability clause narrowly and concluded the clause did not shield the government from liability in these circumstances. The majority decision is reflective of Canadian courts’ general reluctance to support purchasers seeking to avoid their duties to bidders.

The decision of the court in Tercon is reflective of the state of Canadian jurisprudence on the interpretation of privilege clauses.  Much like the divided court dealing with a limitation clause denying a bidder recourse for breach of Contract A, the jurisprudence interpreting privilege clauses is inconsistent. In light of this inconsistency in the jurisprudence and the guidance provided by the majority decision in Tercon, purchasers are well-advised to be as clear as possible in the wording of their privilege clauses and not to rely too heavily on their protection as, when they need to, the courts will work around these clauses to protect the integrity and business efficacy of the bidding process.

Trade Agreements

Canada and its provinces have entered into a number of trade agreements intended to broaden market access for domestic vendors and strengthen Canada’s economy. The  more notable multilateral agreements that apply in Canada are the Agreement on Internal Trade (AIT), a domestic trade agreement which applies to provinces and the federal government[viii]; the North American Free Trade Agreement (NAFTA) and the World Trade Organization’s Agreement on Procurement (WTO-AGP). In addition, in 2014 Canada concluded negotiations on the Canada-European Union Comprehensive Economic Trade Agreement (CETA) which is ground-breaking in that it is the first multilateral international trade agreement that applies to provinces, municipalities and certain publicly funded organizations.[ix]

Each of these trade agreements contains stipulations on how a covered entity must conduct its covered procurements. The provisions address a variety of topics such as:

  • duty to publish the covered entity’s procurement policies and procedures
  • examples of the types of bid solicitations and rules for carrying them out;
  • what information must be included in a bid solicitation;
  • the obligation to draft technical specifications so as to not favour a particular product or vendor;
  • the obligation to publish weighted evaluation criteria;
  • the processes to be followed for various bid solicitation processes;
  • the manner in which technical specifications are presented;
  • time periods for posting;
  • the obligation to provide explanations to unsuccessful bidders and the relative advantages of the winning supplier’s bid.

In addition, the treaties explicitly or implicitly include many of the duties to treat all bidders fairly and include many of the collateral duties described earlier in this article.

The implications of the greater coverage of the CETA could be significant. Once this trade agreement is in force and the governments have enacted legislation to make it legally binding, organizations not previously subject to trade agreement procurement rules, such as the municipalities and publicly funded organizations may lose some flexibility in the design and conduct of their procurements. Under the CETA they will be subject to statutory duties and an implied duty of fairness and good faith in the conduct of their procurements where they might not otherwise have been.

That being said, it is no secret that the federal and provincial governments are still trying to establish effective enforcement mechanisms at the sub-national level within Canada for the enforcement of trade agreement obligations[x]. While the move towards including provinces, municipalities and publicly-funded entities under trade agreements is a positive one, it may still be a while before aggrieved suppliers have direct access to effective remedies for the breach of those agreements by these sub-national entities.  Until then, complainants must continue to seek recourse for breach of common law duties or by challenging breach of the actions of government under applicable statutory or administrative duties.[xi]

Statutory Law and Administrative Rules

In addition to the common law and trade treaties, some Canadian jurisdictions have enacted laws and administrative rules (ie. directives, bylaws) that apply to procurement. As these legal and non-legal instruments vary widely across Canada, it is not possible to include a meaningful discussion of these laws and rules as part of this overview. Bidders should however understand the entire legal and administrative framework that applies when participating in bid solicitations in order to maximize their chances of success in the process and to understand their legal rights. Purchasers should be aware that, under administrative law, the procuring entity may be legally required to adhere to their own, self-imposed, administrative rules, policies and internal procedures.[xii]

Conclusion

Procurement law in Canada has evolved considerably since 1981 to provide purchasers and sellers with rights and obligations when participating in bid solicitations and is still in a state of evolution.  In addition to evolving Supreme Court of Canada jurisprudence in the last decade, Canada is aggressively pursuing an international trade strategy that has seen it move from having trade agreements with only 2 countries in 1994 to having agreements in place or being finalized with 43 countries in 2014.[xiii]

Some aspects of the law remain uncertain as courts have demonstrated a tendency towards purposive reasoning in their decisions resulting in sometimes conflicting jurisprudence.  With this tendency it can be difficult to predict how the courts will reach a decision in a particular fact-situation.

Bidders and sellers are therefore well advised to stay abreast of legal developments as they conduct their procurement and bidding activities in Canada.  This is increasingly important as we see a trend towards greater reach of trade agreements and expanding expectation of fairness in procurement initiatives.

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[i] [1981] S.C.R. 111

[ii] Ron Engineering, supra and see also:  Government Procurement, Third Ed., Paul Emanuelli at Chapter 6. 3  M.J.B. Enterprises Ltd. v. Defence Construction (1951) Limited [1999] 1 S.C.R. 619; Martel Building Ltd. v. Canada [2000] S.C.R. 860.

[iv] M.J.B., supra. This is generally the case however there is lingering uncertainty in the case law regarding a standalone duty of fairness owed by purhcasers in the absence of the existence of Contract A.

[v] Mellco Developments Ltd. V. Portage la Prairie (City) 2002 MBCA 125 (Man.C.A.)

[vi] Tercon Contractors Ltd. v. British Columbia [2010] S.C.J. No.4

[vii] Ibid.

[viii] While the provinces have signed this agreement, as of the date of this article there are still no effective enforcement mechanisms for persons or organizations.  An aggrieved supplier does not have direct access to the entity that violates its treaty obligations. It is expected to submit a complaint to its home government and it is then up to that government to take action, or not, against the offending government.

[ix] The 2010 Canada-US Agreement on Government Procurement was the first international trade agreement expanded to apply to provinces and territories but it does not extend to municipal, academic, social services and hospital-related procurements.

[x] http://www.cme-mec.ca/download.php?file=4zlkqiyf8.pdf – industry advocates are pushing for the creation of an Internal Trade Tribunal which would have a similar mandate as the Canadian International Trade Tribunal and provide persons and entities.

[xi] Example of a recent case involving breach of administrative law duties in a procurement context by a subnational government: Bot Construction v. Ontario (Ministry of Transportation) [2009] O.J. No. 4709.

[xii] Ibid.

[xiii] http://www.marketwired.com/press-release/minister-moore-announces-new-measures-to-improve-trade-within-canada-1956273.htm