Legal Blog

Fairness

The development and understanding of the law of tender has progressed significantly over the past few years. The courts have upheld the standard privilege clause. The only real control on the tendering authority is the nebulous concept of fairness, a concept that was explored in the 2002 decision of the Ontario Court of Appeal in Cable Assembly v. Dufferin-Peel Catholic Board.

RFP 

The owner sent out a request for proposal, which is simply a glorified call for tenders, for the provision of computer cabling. The RFP called for bidders to provide pricing for computer drops at 88 sites. The owner wanted 40 sites completed in 1995 and the remainder in 1996. However, the owner cautioned that although it hoped to obtain budgetary approval for the remaining sites in 1996, it had not yet obtained that approval.

The plaintiff was the low bidder among all of the suppliers at a price of $1,900,000 and was the only supplier whose bid was lower than the owner’s original budget allowance of $2,000,000.

Ultimately, the owner did not receive the 1996 funding and, accordingly, the project’s budget was reduced to $1,000,000. Given its time constraints, the owner decided not to re-tender the project, but, rather, to negotiate with the three lowest tenderers. The owner relied upon the privilege clause and a clause in the RFP that allowed the owner to negotiate the price if the proposals were all higher than the original budget allocation.

After negotiations, one of the three “finalists” presented an amended proposal that provided for half the drops in all 88 of the sites and the owner ultimately chose its proposal over the plaintiff’s original proposal. The plaintiff was not amused and sued.

Acting Unfairly 

The parties had agreed on damages in advance and had agreed that the owner had a duty to treat all tenderers fairly. The only issue was whether the owner had treated the plaintiff fairly. The plaintiff argued that the owner breached its duty of fairness for two reasons. First, the owner should have negotiated only with the plaintiff and ignored the other two suppliers. Second, when the owner chose to deal with all three suppliers, it did not give the plaintiff an equal opportunity to make a new proposal, thus treating the three suppliers differently.

The plaintiff argued that since its bid was less than the original budgeted cost, the owner had no right to halve that cost in determining whether it could negotiate with other tenderers. It argued that the original RFP and budget allocation were for the entire job, the plaintiff’s price for the entire job beat the original price, and therefore the plaintiff was the only supplier with whom the owner could negotiate. If the owner did not wish to negotiate only with the plaintiff, the owner’s only recourse was to call for new tenders.

The trial judge noted that it would have been prudent for the owner to negotiate only with the plaintiff. However, he felt that the owner was not excluded from negotiating with a wider circle of suppliers. The Court of Appeal agreed. The Court held that the RFP made it clear that the scope of the project and the budget allocation were subject to available funding in 1996. When the funding was unavailable, the budget price was reduced, and no proposals were sufficiently low.

The plaintiff also argued that the ultimate winner seemed to come into the post-tender meeting knowing exactly what the owner wanted, information that the plaintiff had never received. The trial judge was not satisfied that there had been a leak in information. He held that the new approach was one that two minds would have been able to conceive independently of the other. The Court of Appeal agreed.

The judge did note that that the owner had treated the suppliers differently and that the differing treatment was “unfortunate and inappropriate.” However, he felt that the different treatment had no bearing on the ultimate decision and, therefore, was not relevant to the allegations of unfairness. We were not told what the different treatment was. The Court of Appeal agreed with the trial judge in this decision also.

The plaintiff lost both at trial and on appeal.

Smell

Unfairness is often in the eye of the beholder. In this case, the law was a given and the decision was determined on the findings of fact. The concept of fairness allows a court to review the presented facts and make a decision based on these facts and the court’s concept of fairness. In the Cable Assembly case, it would have been nigh well impossible for counsel to have accurately predicted who was going to be successful. Giving effect to the concept of fairness ensures that the benefit of certainty is sacrificed on the altar of flexibility.