Canada: Procurement Law Basics - Is There A Free-Standing Duty Of Fairness?

In part 1, part 2 and part 3 of this procurement law basics series, we looked at the conceptual basis for procurement law in Canada – the contract A-contract B analysis and some of the terms that the courts have implied into contract A. Most recently, we looked at the implied term to act fairly and not to give any one bidder an unfair advantage over the others.  

This blog post looks at what happens if contract A does not come into existence – is there still a duty of fairness?  

Tender cases

In straightforward tender cases the courts have been clear in holding that there is no free-standing duty of fairness outside contract A. So, in Midwest Management v. BC Gas Utility Ltd., all the tenders were non-compliant and therefore no contract A came into existence with any bidder. The owner chose to negotiate with only one bidder. The BC Court of Appeal held that this decision could not be challenged by the other bidders. In Hub Excavating v. Orca Estates, the owner issued a tender knowing that its budget was probably too low for the job and then withdrew the tender when the bids came in too high. The BC Court of Appeal held that the owner did not owe bidders a duty of fairness in deciding whether or not to continue the tender process – that duty could only arise in the context of contract A.

RFPs

The contract A-contract B analysis has also been applied to requests for proposals. If an RFP gives rise to binding proposals and there is no scope for subsequent negotiations, a contract A will arise when compliant proposals are submitted and the duty of fairness is implied into that contract. However, the term "request for proposals" covers a wide range of documents and in certain cases, for example where the procuring body intends to negotiate the final form of contract with the preferred proponent and reserves considerable discretion, the courts have held that no contract A arises when the proposals are submitted.

However, in contrast to the pure tender cases, the courts have held in certain circumstances that, despite there not being a contract A when proposals are submitted, the procuring body may still be subject to a duty of fairness in considering the proposals.

In Mellco Developments Ltd. v. Portage La Prairie (City), the City was selling land for development purposes and issued an RFP for this purpose. One bidder submitted a detailed proposal which clearly complied with the terms of the RFP and offered $316,000 for the property. The other proposal did not match the RFP terms, but offered $425,000 for the property and had some innovative ideas for the development. The City accepted the second proposal and this decision was challenged. The Manitoba Court of Appeal held that no contract A arose at the time of submission of proposals. However, it went on to hold that even on a pure request for proposals, the City had a duty to "conduct itself fairly and in good faith".

Despite these clear statements in Mellco, other cases continue to cast doubt on the concept of a free-standing duty of fairness – see for example Guysborough (Municipality) v. Resource Recovery Fund Board Inc

Practice Point

Although the majority of the cases hold in favour of there not being a duty of fairness in the procurement process outside of contract A, owners should continue to take care if they want to act in a way that would be contrary to the duty to act fairly. The Mellco case shows that the courts may be willing to impose a duty of fairness in any event.  

The next blog will explore another avenue for imposing a duty of fairness in public sector procurement – the possibility of a judicial review action.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.