In this presentation, David Elliott of Fraser Milner Casgrain LLP, dicusses key cases defining Pubic Construction Procurements

1. Public Construction Procurement
Key Cases Defining the Public Procurement Landscape
Presented by: David R. Elliott
November 2010
Toronto, Ontario
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2. Double N Earthmovers Ltd. v. Edmonton (City) [2007] 1 S.C.R. 116
FACTS:
• In 1986, the City of Edmonton sought bids on a 30 month contract to move garbage at a landfill
site.
• Mandatory requirement in City’s tender that all equipment be 1980 or newer.
• Sureway submitted a bid indicating that one of the bulldozers was “1977 or 1980 rental unit”
with no license or serial numbers supplied for the rental unit, and another bulldozer listed as
“1980” had a serial number and registration corresponding to a 1979 bulldozer.
• Double N suspected Sureway did not have 1980 or newer equipment, and warned the City
about this. The City chose not to investigate.
• Sureway won the bid, and then proceeded to register equipment with the City that was older
than 1980. City initially insisted on compliance, but when Sureway advised it could not comply,
City dropped the matter.
• Double N sued the City for breach of contract.
• Although the Trial Judge found that Sureway had intended to deceive the City into thinking it
had a compliant bid, and then to convince the City after its bid was accepted to permit older
equipment to be used, the claim was dismissed. The Alberta Court of Appeal dismissed the
appeal.
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3. Double N Earthmovers Ltd. v. Edmonton (City) [2007] 1 S.C.R. 116
ISSUE:
• Does a departure from the tender requirements after Contract
B has been formed matter?
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4. Double N Earthmovers Ltd. v. Edmonton (City) [2007] 1 S.C.R. 116
ANALYSIS:
• Contract A is alive, but it has a limited life span. Contract A’s express terms
are set out in the tender documents, and it may also contain implied terms
(e.g. owner can only accept a compliant bid; owners must treat all bids
“fairly and equally”).
• Double N’s bid was compliant; therefore it had Contract A with the City.
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5. Double N Earthmovers Ltd. v. Edmonton (City) [2007] 1 S.C.R. 116
MAJORITY (5):
• Absence of serial numbers and registrations corresponding with 1980 or newer equipment
was an “informality” which the City could excuse by relying on a term of the tender.
• City had no duty to investigate bids.
• City followed its bidding documents at the time it awarded the contract to Sureway. It did not
discover Sureway’s deceit until after the contract had been awarded.
• An owner’s obligations to unsuccessful bidders under Contract A die upon the creation of
Contract B. Contract B is distinct from Contract A. The City’s waiver of its rights under Contract
B occurred after the award. Double N is not a party to Contract B.
• Good policy reasons exist not to find in favour of Double N: successful bidders and parties to
Contract B could fall under constant scrutiny by disgruntled Contract A holders.
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6. Double N Earthmovers Ltd. v. Edmonton (City) [2007] 1 S.C.R. 116
MINORITY (4):
• City breached its obligation to accept only a compliant bid, and breached its duty to
treat all bidders fairly when it failed to hold Sureway to comply with the tender
terms (1980 or newer).
• Integrity and fairness of the tendering process should be the paramount concern.
• The owner (City) has a duty to take reasonable steps to evaluate a bid to ensure
that a bid is compliant.
• Sureway’s bid to supply a 1977 or 1980 unit was at best an ambiguous response to
a material requirement of the tender, and cannot be dismissed as an irregularity.
• The City’s waiver condoned the deceit of Sureway, and effectively turned a non‐
compliant bid into a compliant bid.
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7. Double N Earthmovers Ltd. v. Edmonton (City) [2007] 1 S.C.R. 116
CONCLUSION:
• This case is a battle between a contractual analysis supporting
commercial reality vs. fairness and integrity.
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8. Design Services Ltd. v. Canada [2008] 1 S.C.R. 737
FACTS:
• The Crown (Public Works) launched a “design‐build” tendering
process.
• The Crown awarded the contract to a non‐compliant bidder.
Lawsuits ensue!
• Crown settles with the general contractor (the rightful winner),
but subcontractors (i.e. Design Services) are left out in the
cold‐ they have no contract with the Crown.
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9. Design Services Ltd. v. Canada [2008] 1 S.C.R. 737
ISSUE:
• Does an owner (i.e the Crown) in a tendering process owe a
duty of care in tort to subcontractors?
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10. Design Services Ltd. v. Canada [2008] 1 S.C.R. 737
ANALYSIS:
• Claim does not fit within a recognized duty of care category.
• At trial (FCTD 2005) Mosley J. found that the Crown owed a new duty of care in tort to the appellants.
Although there was no joint venture formed between the contractor and the subs, the situation was
analogous to a joint venture and there was sufficient proximity between the Crown and the subs to allow
for a duty of care. The case “cried out for a remedy”.
• On appeal (FCA 2006) Sexton J.A. disagreed with the Trial Judge, holding that he had made a “palpable and
overriding error” in finding sufficient proximity between the subs and the Crown. Instead, a two tier
relationship existed: Crown to contractor, and contractor to subcontractors.
• The SCC agreed with the FCA and dismissed the appeal.
• Martel (SCC 2000) left the door open regarding whether a duty of care may exist as between an owner and
a subcontractor, and this case presented the SCC with the opportunity to close it.
• The SCC identified the 5 categories of negligence claims in cases of pure economic loss. Only relational
economic loss came close, but not close enough since there was no injury or property damage done to the
third party (the subcontractors).
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11. Design Services Ltd. v. Canada [2008] 1 S.C.R. 737
ANALYSIS (continued):
• A new duty of care? The Crown conceded reasonable forseeability of harm to the
subcontractors, but that doesn’t automatically mean there is a duty of care.
• Policy considerations killed the prospect for a new duty of care in this case:
• (1) A joint venture could have been formed between the contractors
and subs, thereby elevating the subs to having a “Contract A” with the
Crown.
• (2) Indeterminate liability: there is the potential for the class of plaintiffs to
“seep” into levels of the corporate structure of the design‐build team
members (i.e. sub contractor parent companies, subsidiaries, suppliers,
employees all making claims).
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12. Design Services Ltd. v. Canada [2008] 1 S.C.R. 737
CONCLUSIONS:
• No new finding of a duty of care between an owner and
subcontractors in the context of a tendering process.
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13. Irving Shipbuilding Inc. v. Canada (Attorney General) [2009] F.C.J. No. 449
FACTS:
• Irving (and others) were subcontractors to BAE Systems which lost a bid to provide
in‐service support to Canadian Submarines. BAE was the sole bidder, with Irving
and others acting pursuant to a “teaming agreement” (not a joint venture).
• If successful, Irving et al would have been entitled to 50% of the revenue‐
potentially 1.5 billion over 15 years.
• Irving brought a JR Application to the FCTD arguing that procedural fairness had
been breached due to the alleged existence of conflict of interest and reasonable
apprehension of bias based on a competitor’s employee having worked with Crown
officials in another capacity in developing the solicitation documents.
• BAE did not challenge the award.
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14. Irving Shipbuilding Inc. v. Canada (Attorney General) [2009] F.C.J. No. 449
ISSUE:
• Does the Crown owe a duty of procedural fairness to the
subcontractors of an unsuccessful bidder?
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15. Irving Shipbuilding Inc. v. Canada (Attorney General) [2009] F.C.J. No. 449
ANALYSIS:
• The FCTD rejected the JR brought by Irving. First, Irving had no standing to bring the
JR, and secondly there was insufficient basis to establish procedural unfairness.
• FCA dismissed the appeal.
• Decision confirms that the award of a contract (and the tendering process leading
to the award) can be the subject of a JR application to the Federal Court.
• The FCA merged the standing issue with the right to procedural fairness issue: if the
Crown owed Irving a duty of fairness and breached that duty by awarding the
contract to the competitor, then Irving is “directly affected” by the impugned
decision.
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16. Irving Shipbuilding Inc. v. Canada (Attorney General) [2009] F.C.J. No. 449
ANALYSIS continued:
• Duty of fairness may arise in 3 ways: contract, legislation or common law.
• Irving had no contract A with the Crown, only BAE did. BAE elected not to challenge the
award. If Irving had entered into a joint venture with BAE, it would have shared the benefit of
“Contract A”.
• No legislation conferred the right to procedural fairness in this case.
• The common law did not support finding a duty of procedural fairness. The FCA follows Design
Services:
– the law favours “the more obvious plaintiff” with contractual rights. No need to extend procedural
rights to subcontractors.
– procedural rights are largely personal to those whose substantive rights or interests they protect. If
waived, they cannot generally be resurrected.
– there is an “alarming possibility of a cascading array of potential procedural rights holders.” This will
impinge upon the goal of efficiency in the tendering process.
– when the Crown is entering into a contract, its rights and duties and available remedies are generally
determined by the law of contract.
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17. Irving Shipbuilding Inc. v. Canada (Attorney General) [2009] F.C.J. No. 449
CONCLUSION:
• FCA follows Design Services and closes the door on
subcontractors having a right to procedural fairness in the
tendering context, except perhaps in egregious cases.
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18. Northrop Grumman Overseas Services Corp. v. Canada (Attorney General) [2009] 3 S.C.R. 309
FACTS:
• Northrop, a foreign (U.S.) supplier, competed for and lost a bid to supply the Crown with infrared sensors
for CF‐18 aircraft. Contract value = $140 million.
• Northrop challenged the award by bringing a complaint to the CITT, alleging that the Crown had failed to
evaluate the bids in accordance with the tender.
• Northrop did not have access to NAFTA or WTO dispute resolution because of the exclusion related to
military procurement.
• Northrop alleged a violation of s.506(6) of the AIT: “…the tender documents shall clearly identify the
requirements of the procurement, the criteria that will be used in the evaluation of bids and the methods of
weighing and evaluating the criteria.”
• The CITT agreed to hear the complaint, but before the merits could be dealt with the Crown challenged
Northrop’s standing to file a complaint with the CITT.
• CITT ruled in favour of Northrop, but on a JR to the FCA it was held that only Canadian suppliers could bring
complaints to the CITT under the AIT.
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19. Northrop Grumman Overseas Services Corp. v. Canada (Attorney General) [2009] 3 S.C.R. 309
ISSUE:
• Do non‐Canadian suppliers have standing before the CITT to
bring a complaint based on an unfair bidding process based on
the AIT?
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20. Northrop Grumman Overseas Services Corp. v. Canada (Attorney General) [2009] 3 S.C.R. 309
ANALYSIS:
• AIT is an intergovernmental agreement, part of which (Chp.5) is
incorporated into the CITT statutory scheme.
• Standing before the CITT: “a potential supplier may file a complain with the
Tribunal concerning any aspect of the procurement process that relates to
a designated contract and request the Tribunal to conduct an inquiry into
the complaint.” (s.30.11(1) of the CITT Act)
• Potential Supplier: a bidder or prospective bidder on a designated contract.
• Designated Contract: a contract for the supply of goods or services to a
government institution that is designated or of a class of contracts
designated by the regulations.
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21. Northrop Grumman Overseas Services Corp. v. Canada (Attorney General) [2009] 3 S.C.R. 309
ANALYSIS (continued):
• SCC reviewed the scope of the AIT to conclude that it only applied to Canadian suppliers. This
conclusion was borne out of references found to “equal access to procurement for all
Canadian suppliers… the domestic market… Canadians…. and investments within Canada.” The
SCC held that the AIT pertains to domestic trade within Canada‐ “Essentially, it is a domestic
free trade agreement.”
• A Canadian Supplier is defined as a supplier having a place of business in Canada. (Art.518)
• To allow Northrop to bring complaints based on the AIT to the CITT would be to allow it rights
to an agreement to which its government (U.S.) is not a party. Better to reserve the AIT access
to the CITT to Canadian Suppliers, and thereby allow Canada to treat access to such dispute
resolution bodies as carrots to offer other countries in exchange for privileged access for
Canadian suppliers operating outside of Canada.
• Northrop can seek a remedy by way of JR to the FCTD.
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22. Northrop Grumman Overseas Services Corp. v. Canada (Attorney General) [2009] 3 S.C.R. 309
CONCLUSION:
• A decision reflecting the political nature of trade. Interestingly,
all it would have apparently taken for Northrop to access the
AIT and CITT is to have a place of business in Canada.
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23. Almon Equipment Ltd. v. Canada (Attorney General) [2010] F.C.J. no. 948 (FCA)
FACTS:
• Almon bids on a de‐icing and glycol clean up contract with the Crown (Trenton Air Force Base) worth $10
million.
• Almon lost the competition, and complained to the CITT. The CITT accepted for inquiry one of the
complaints: whether the Crown properly evaluated Almon’s proposal.
• The Tribunal found that Almon’s bid was evaluated improperly, and based this ruling only on comments
made on the “consensus scoring sheets”.
• As for remedy, the CITT gave only a partial remedy based on the chances Almon had of winning the
contract. It awarded Almon 1/3 of the profit for the glycol clean up portion of the contract.
• Both the Crown and Almon bring JR applications to the FCA. Almon challenged the remedy granted, and the
Crown challenged the facts found by the CITT supporting improper evaluation of the Almon bid.
• Both applications were borne out of inadequate record keeping on the part of the evaluators.
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24. Almon Equipment Ltd. v. Canada (Attorney General) [2010] F.C.J. no. 948 (FCA)
ISSUE:
• The proper scope of CITT review.
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25. Almon Equipment Ltd. v. Canada (Attorney General) [2010] F.C.J. no. 948 (FCA
ANALYSIS:
• The Complaint was a challenge brought under Art. 506(6). The government
must announce its requirements, criteria, and evaluation methods in its
request for proposals and associated documents and must adhere to those
requirements when evaluating proposals.
• Court reviewed the CITT process leading up to an inquiry: Complaints,
Screening, Inquiry, Findings and Recommendations, Remedies.
• Purpose of the regulatory regime: ensure fairness to competitors,
competition among bidders, efficiency and integrity.
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26. Almon Equipment Ltd. v. Canada (Attorney General) [2010] F.C.J. no. 948 (FCA
ANALYSIS (continued):
• On the remedy awarded, FCA granted Almon’s JR application on the basis of 2
errors:
– (1)The CITT relied on comments on scoring sheets in the face of evidence that this was
not a complete list of factors used in the evaluation, and more importantly in the face of
evidence demonstrating a deficient level of organization and record keeping on the part
of the evaluators. The CITT used this evidence only on the issue of credibility, but the
FCA ruled that the CITT ought to have considered whether “the evaluator’s modest
record keeping and the unknowable nature of the procedures they followed
fundamentally compromised the integrity and efficiency of the procurement process.”
– (2)The CITT only considered compensation as a remedy, and failed to consider other
remedies available to it.
• On the fact finding, The FCA granted the Crown’s JR application since the CITT’s
findings of credibility were “…internally inconsistent, incompatible or arbitrary, and
do not necessarily lead to the Tribunal’s ultimate conclusion.”
• The FCA remitted the case back to the CITT.
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27. Almon Equipment Ltd. v. Canada (Attorney General) [2010] F.C.J. no. 948 (FCA
• CONCLUSION:
• Nobody wins, especially the CITT. The integrity of the
procurement process is of paramount concern, but was not
considered appropriately or at all by the CITT. Evaluators must
keep proper records, or else risk having an adverse inference
drawn from their omissions.
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28. Telezone Inc. v. Canada (Attorney General) [2008] O.J. no. 5291 (Ont. C.A.)
Decision from the SCC pending.
FACTS:
• 4 appeals heard by the Ont.CA all dealing with the same issue: Does the Ontario Superior Court have
jurisdiction over claims involving decisions made by a federal administrative board or tribunal?
• In each case the plaintiff commenced the claim in the Ontario Superior Court.
• In the wake of the Grenier decision, the Crown moved to dismiss each action for want of jurisdiction,
arguing that jurisdiction lay with the Federal Court because an essential element of each plaintiff’s claim
involved an attack on the decision of a federal administrative board or tribunal.
• Cases are factually distinct, but one dealt with procurement: G‐Civil submitted a tender for repair work to
be done on the walls of the Rideau Canal. The Crown disqualified the tender because it was incomplete. G‐
Civil brought an action claiming that its tender was properly completed in accordance with the
specifications provided, and that it submitted the low tender. On the eve of trial, the Crown moved to
dismiss, arguing that the Minister’s decision disqualifying the tender could only be challenged by way of a
JR to the FC.
• G‐Civil was not appealed to the SCC, but the other cases were. In total, the SCC heard 6 other cases
pertaining to the same issue.
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29. Telezone Inc. v. Canada (Attorney General) [2008] O.J. no. 5291 (Ont. C.A.)
Decision from the SCC pending.
ISSUE:
• Can a plaintiff sue the Federal Crown in Superior Court for
damages as a result of administrative action, or must the
plaintiff first proceed with a JR application to the Federal
Court?
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30. Telezone Inc. v. Canada (Attorney General) [2008] O.J. no. 5291 (Ont. C.A.)
Decision from the SCC pending.
ANALYSIS:
• Section 18 of the Federal Court Act: FC has exclusive original jurisdiction to
(a) issue an injunction, or prerogative writs against any federal board,
commission or other tribunal, and to hear and determine any application
or other proceeding for relief in the nature of relief contemplated by (a)
against a federal board, commission or other tribunal.
• Case is fundamentally about jurisdiction, which the Ont. CA defines as “the
power of a court to render an enforceable judgment.”
• Court refers to Ron Engineering and MJB Enterprises, two SCC cases
establishing and refining the Contract A/B analysis. The Ont.CA saw both
cases supporting the notion that the law of contract and the law of tender
is uniform. There is no separate law applicable if one of the parties
happens to be the Crown.
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31. Telezone Inc. v. Canada (Attorney General) [2008] O.J. no. 5291 (Ont. C.A.)
Decision from the SCC pending.
ANALYSIS (continued):
• Jurisdiction lies in the Superior Court, unless it is removed by clear legislative language. Section 18 does not
remove the Superior Court’s jurisdiction because the section deals with remedies, not with jurisdiction.
• Claims sought damages, which is not a form of relief contemplated by s.18
• Court rejects Crown’s argument that claims represent a “collateral attack” on the impugned administrative
decision. None of the plaintiffs attack the correctness of the underlying decision. In each case the plaintiff
claimed damages in tort or contract, and did not participate in the decision making process of the
administrative decision. Finally, a collateral attack is a defence and does not go to jurisdiction.
• It is essential to decide jurisdiction motions early in the proceedings so the plaintiff can get on with its case.
• Grenier was wrongly decided. “The procedure it advocates would take litigants back to the days of Bleak
House where they had to go from court to court until they were finally able to obtain their remedy.”
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32. Telezone Inc. v. Canada (Attorney General) [2008] O.J. no. 5291 (Ont. C.A.)
Decision from the SCC pending.
CONCLUSION:
• Wait and see. According to the Ont.CA the superior court has
jurisdiction over claims seeking damages, but the FCA (with
some dissent) does not agree. The hope is for a ruling that
provides clarity and avoids a multiplicity of proceedings,
recognizing the need for the efficient resolution of claims.
• Claims for damages arising from alleged breaches of Contract
A in the tendering process will likely remain within the
jurisdiction of the Superior Court.
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33. Public Construction Procurement:
Key Cases
November 2010
David Elliott
613‐783‐9638
LinkedIn

34. The preceding presentation contains examples of the kinds of
issues companies dealing with public construction
procurements could face. If you are faced with one of these
issues, please retain professional assistance as each situation is
unique.