This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its January 2019 decision in Inzola Group Limited v. City of Brampton, the Ontario Superior Court of Justice dismissed a lost profit claim against the City of Brampton in connection with a Competitive Dialogue Request for Proposals (RFP) process. The case dealt with the construction of an extension to the Brampton City Hall. The plaintiff was disqualified for failing to sign a confidentiality agreement required by the RFP rules and then breaching the RFP communication protocols by raising its concerns over the confidentiality agreement directly with City Council and the media. It sued for lost profit damages in the amount of approximately $25 million (CAD).
As the Court summarized, Brampton adopted the Competitive Dialogue RFP format for its tendering process due to the complexity of the project and its intention to seek solution-based proposals:
On October 30, 2009 the City of Brampton (“the City”) issued a Request for Proposals (“RFP”) for an addition to the Brampton City Hall. (Terms are capitalized as they appear in the RFP.) The RFP provided that qualified Respondents would engage with City staff in a “Competitive Dialogue” process. Competitive Dialogue was widely used in the European Union and particularly in the United Kingdom. It was considered appropriate when the contracting authority was not able to define the scope of the project and so wanted to harness the creativity of the private sector to craft possible solutions.
While the two other proponents signed the required confidentiality agreement, the plaintiff refused to sign it, arguing that the agreement was too broad and asserting its right to make its final bid submission directly to City Council. As the Court stated, this resulted in the plaintiff’s disqualification:
The Respondents Dominus and Morguard signed the Confidentially Agreement and began the Competitive Dialogue process. Inzola objected to signing on the basis the Confidentiality Agreement was overly broad. Inzola also took the position that the Respondents should be able to present their Final Offers directly to Council.
Inzola sought an opportunity to appear before City Council and address its concerns. When Inzola was denied this opportunity it sent a letter dated June 1, 2010 to the Mayor and all members of Council setting out its objections to the Confidentiality Agreement and to the process being followed. Acting on the recommendation of the Process and Fairness Advisor the City, by letter dated June 11, 2010, advised Inzola that it was disqualified from further participation in the RFP process.
The plaintiff claimed that while the City promised an open and fair RFP process, the Mayor, the City Manager, and the RFP evaluation committee were all biased against it. The plaintiff also asserted that its refusal to sign the confidentiality agreement and appeal directly to City Council did not breach the process rules. It claimed that its disqualification was based on personal animus and bias and sought $25 million in lost profit damages.
The Court was careful to note that while the plaintiff had past relationships with many members of the City Council, there was nothing untoward about these relationships, even if the plaintiff perceived itself as having a “home field advantage”:
As of 2009-2010 seven of eleven Councillors had served for more than 15 years. From 2003 to 2010, the Mayor, and all but one member of Council, received donations from corporations related to Inzola or its principals. Mayor Fennell, at her first speech to the Brampton Board of Trade, referred to Mr. Cutruzzola as “Mr. Brampton”. Mayor Fennell and her husband attended the weddings of both of Mr. Cutruzzola’s sons.
I am not suggesting there was anything untoward in these relationships. I do, however, find that Inzola perceived itself as having something of a “home field advantage” in relation to decisions made at City Council.
As the Court summarized, city staff sought to enforce the recommendations of the Bellamy Commission, which called for a depoliticization of the procurement process to protect against inappropriate interference with municipal contract award decisions:
The City staff who testified all indicated that the 2005 Toronto Computer Leasing Inquiry report of Justice Bellamy, which they referred to as the “Bellamy Report”, was instructive and guided their approach. The Bellamy Report stated, in part:
Role of Elected Officials
Experts suggest that in best practices jurisdictions – U.S. and Canada, federal, provincial/state, and municipal – elected officials understand the importance of remaining outside of the competitive tendering process. In this regard, it is generally viewed that one of the benefits of having a highly professionalized procurement function is the ability to insulate and protect politicians from allegations of attempting to influence procurement decisions.
Experts suggest that politicians who understand their role and the importance of fairness and equity in procurement would tend to focus on quality assurance, i.e. whether the approved process was followed and used appropriately. Only in the most exceptional circumstances would a staff recommendation be rejected or a competition cancelled. Even more usual [sic] would be for a Council or Standing Committee to ignore a staff recommendation and make an award to another bidder.
Where this kind of understanding does not exist, the political level can often become overly and in the view of many experts, inappropriately involved in the details of the award. This could include wanting to review the RFP in detail, wanting to see the actual bid documents, scrutinizing individual evaluations, meeting with individual vendors, etc. At its most extreme – and in terms of the integrity of the process, highest risk – this could involve a Council or Standing Committee beginning to engage in re-evaluating the bids and making its own decision about the outcome.
The Bellamy Report contained the following specific recommendations:
City Council should establish fair, transparent, and objective procurement processes. These processes should be structured so that they are and clearly appear to be completely free from political influence or interference.
Councillors should separate themselves from the procurement process. They should have no involvement whatsoever in specific procurements. They have the strongest ethical obligation to refrain from seeking to be involved in any way.
Members of Council should not see any documents or receive any information related to a particular procurement while the procurement process is ongoing.
Notwithstanding the Bellamy recommendations, the Court noted that some members of City Council wanted more direct involvement in the process. However, the RFP fairness advisor confirmed that the RFP rules did not permit direct contact between the proponents and Council members, nor did those rules permit Council members to insert themselves into the process to engage in their own evaluation process:
The 2005 RFEI process had included some members of Council on the Evaluation Committee. This created an expectation on the part of some Council members that they would get to see the Submissions and the Final Offers of all Respondents in their entirety.
At the Council meeting on February 24, 2010, Mr. Patteson indicated staff would report to Council and provide sufficient information to enable Council to understand the staff recommendations. Councillors Moore and Gibson indicated they wanted to see the Submissions. Mr. Patteson responded that he would consult Professor McKellar about whether the Submissions could or should be made available to Council.
By email dated March 12, 2010, Professor McKellar advised as follows:
The RFP is very clear on the issue of selection, as outlined on Page 10, and I quote:
“The Evaluation Committee will evaluate the Final Offers and identify and subsequently recommend the Preferred Respondent to Council for approval.” The process itself is depicted in Appendix 2 and again this is very clear as to the role of Council.
In response to your enquiry, and according the explicit provisions of the RFP:
(A) Council will not see all three submissions. I cannot account for any misunderstanding on this point by any Council member given the clarity of the wording in the RFP. The obvious response would be to draw Council’s attention to the RFP if such misunderstandings persist.
(B) Council will make the final decision. This responsibility is distinct from Council doing the actual evaluation. Council will make the final decision and can either approve or reject the Preferred Respondent based on the recommendation of the Evaluation Committee.
The Evaluation Committee has an obligation to prepare a recommendation for Council and this recommendation would contain the basis for selecting the Preferred Respondent. There is a clear obligation by Council to adhere to the provisions of the RFP.
I am free Monday morning if you want to discuss, however, I am not sure what there is to discuss other than remind Council to review the RFP. [Bold lettering in original]
Mr. McKaig testified that he agreed with Professor McKellar’s advice.
After some members of City Council did not appear to accept that staff advice, the fairness advisor provided further clarification regarding the respective roles of the evaluation committee and of City Council:
Council can accept or reject the recommendation of the Evaluation Committee, but Council does not have the option of reviewing all Final Offers received, selecting elements from among the Final Offers, or substituting a different or unspecified evaluation process to arrive at a decision based on these offers.
As the Court found, while the fairness advisor recommended that the plaintiff be disqualified for failing to sign the confidentiality agreement and for communicating its objections regarding the process directly with City Council, City staff were reluctant to follow that disqualification advice:
D. Events leading to the Disqualification of Inzola on June 11, 2010
In the back and forth dialogue leading to the disqualification of Inzola there are recurring themes:
a. Inzola maintained the position it took on November 26, 2009 that Council members should review all three Final Offers and the Respondents should be permitted to present them in person to Council.
b. Some Councillors expected to be able to review the Submissions and the Final Offers in their entirety. In Professor McKellar’s opinion the RFP did not allow for this.
c. Professor McKellar maintained the position that Inzola must sign the Confidentiality Agreement as drafted and refrain from communicating directly with Council. His further position was that Inzola should be disqualified for failing to sign the Confidentiality Agreement and communicating directly with Council.
d. City staff considered or made recommendations as to how Inzola might be accommodated and for a considerable time resisted Professor McKellar’s recommendations.
However, after a series of written exchanges between City staff and the plaintiff’s lawyer, wherein the plaintiff refused to sign the confidentiality agreement and instead insisted that all proponents be permitted to submit their final proposals directly to City Council in open public forum, the City eventually followed the fairness advisor’s advice to disqualify the plaintiff.
The plaintiff challenged the reasonableness of the confidentiality agreement, arguing that it was overly broad in applying to all confidential information without any time limits. However, the Court rejected the plaintiff’s arguments and accepted expert evidence from the City regarding the confidentiality agreement. The Court concluded that it was not practical to limit the scope of the confidentiality agreement to only “commercial information” or to impose time limits on the confidentiality obligations as requested by the plaintiff:
Under the RFP Inzola was “required to sign a Confidentiality Agreement in a form and substance prescribed by the City”. I do not agree that the fact that the RFP contained two references to protecting “commercial confidentiality” precluded the City from asking for the form of Confidentiality Agreement it did. I also agree with Mr. Emanuelli’s point that it would be extremely difficult to determine what confidential information was commercial and what was not.
I do not agree that the Confidentiality Agreement was overly broad. The agreement was drafted by external counsel. Mr. Emanuelli testified that as of 2009 the definition of confidential information in the agreement was a standard one that he had seen “countless times”. He also testified it was standard practice to make confidentiality obligations of indefinite duration. Dominus and Morguard were familiar with confidentiality agreements, had the Confidentiality Agreement reviewed by counsel and signed without question.
Inzola submitted that Mr. Emanuelli’s evidence should be discounted because Competitive Dialogue had not been used before in Canada so there can be no industry norm related to it. I do not agree. Mr. Emanuelli testified, and I accept, that Competitive Dialogue is the same or similar to other RFP processes that as of 2009 were commonly used on complex projects in Canada.
The Court determined that, irrespective of the City’s expert evidence, the fact that the other proponents agreed to sign the same agreement after receiving legal advice was sufficient to establish its reasonableness. Furthermore, the Court ruled that the plaintiff’s real issue with the confidentiality agreement was not the scope of the agreement but the fact that it would preclude proponents from making direct submissions to City Council:
While I have referred to the evidence of Mr. Emanuelli it is not essential to my decision. Leaving aside his evidence, the evidence that the Confidentiality Agreement was drafted by external counsel and signed by Morguard and Dominus supports the conclusion that the language was not overly broad or contrary to the RFP.
In any event Inzola’s real concern about the Confidentiality Agreement was that it would preclude Inzola from presenting its proposal and pricing directly to Council. In my opinion, this was not a legitimate concern. I agree with Professor McKellar and interpret the RFP as not allowing Respondents to present their Final Offers directly to Council.
As such, I find that Inzola breached the RFP by not signing the Confidentiality Agreement.
The Court also concluded that the plaintiff breached the communication protocols under the RFP rules by communicating its objections to the confidentiality agreement directly with City Council and then directly to the media. The Court found that the plaintiff’s attempt to use City Council as a “court of appeal” for its procedural protests ran contrary to the standards contained in the Bellamy recommendations regarding the depoliticization of the public procurement process:
I, therefore, do not accept Inzola’s argument that the RFP sole point of contact requirement did not prevent it from taking “concerns or complaints about the City’s conduct of the RFP process” to Council. Inzola submitted that Council should have, in effect, served as a court of appeal for the RFP process. Council should have heard submissions about the process and made a decision. Inzola’s position obviously was that Council should have required that the Confidentiality Agreement be amended and that Respondents be allowed to present their Final Offers to Council. Utilizing Council as a court of appeal during the RFP process is antithetical to the Bellamy Report recommendations.
As such, I conclude that Inzola also breached the sole point of contact provision in the RFP.
Furthermore, the Court determined that the proponent’s direct communications with the media were also a breach of the RFP rules:
I see no reason why the City cannot rely upon Mr. Cutruzzola’s comments reported in the June 2, 2010 Brampton Guardian. This article was clearly a factor in the City’s decision as it was cited in Professor McKellar’s letter of June 6, 2010 advising the City to disqualify Inzola. I see no relevant distinction between an announcement or press release and a response to a media inquiry. I also note that on May 28, 2010 Mr. Cutruzzola left the City Clerk a message indicating that if he was not allowed to speak to Council he would “do it through the press”.
As such, I also find that Inzola breached the RFP prohibition on making public announcements or disclosure to the media.
The Court found that the plaintiff perceived it had a “home field advantage” in Brampton, so it “played hardball, and engaged in brinksmanship” to force the direct involvement of City Council in the process and increase its chances of winning the contract:
I find that, with some justification, Inzola perceived that it had a “home field advantage” due to the fact that it constructed the original City Hall and dealt with City staff and Council on an ongoing basis. I further find that Inzola perceived that the greater the involvement of Council, the greater the advantage to Inzola.
There is much to be admired in the life stories of Mr. Cutruzzola and Mr. Kanellopoulos. They came to Canada as young men, worked hard, achieved great success and contributed to the community. My overall assessment, however, is that they played hardball, and engaged in brinkmanship, throughout this process. There is nothing wrong with that and sometimes it achieves the desired result. In this regard:
Cutruzzola wanted to get the City Hall expansion back on track and went so far as to suggest at public meetings that staff were deliberately overstating the likely costs.
Inzola’s position that it fundamentally disagreed with the RFP and wanted a very different process was made clear in Mr. Davis’ letter to the City of November 26, 2009. Despite that, Mr. Cutruzzola took the opportunity to raise the same issues at the November 27, 2009 site meeting in front of approximately 45 potential Respondents. Mr. Cutruzzola criticized the central role of staff in the RFP process and went so far as to ask senior staff for a show of hands as to who actually lived in Brampton. I think Mr. Patteson is probably correct that this dissuaded some potential Respondents.
Inzola responded to the RFP, which was an “unqualified acceptance” of the RFP terms, but continued to press for a completely different process which would allow it to submit its Final Offer directly to Council.
Inzola disregarded the RFP and took its dispute to Council. There were a number of possible consequences that would benefit Inzola:
Council could agree to amend the RFP as requested.
Council could decide to cancel the process as being flawed for the reasons Inzola identified.
Morguard and/or Dominus could decide to withdraw from the process because it was politicized.
Appealing to Council was a risky, but calculated, move by Inzola. It did not work.
Further, the Court found that the plaintiff’s disqualification was not due to bias against the plaintiff. In fact, the Court found that City staff made attempts to keep the plaintiff in the process to avoid a political and legal escalation and to maintain greater competition in the process:
On April 26, 2010 the City took the position that if Inzola did not sign the Confidentiality Agreement by May 4, 2010, it would be deemed to have withdrawn from the process. It was the Evaluation Committee headed by Messrs. Lewis and Patteson, acting contrary to advice from Professor McKellar, which backed down from the May 4 deadline. It was the Evaluation Committee which decided to give Inzola an opportunity to suggest revisions to the Confidentiality Agreement.
The Evaluation Committee did not do this out of affection for Mr. Cutruzzola. I think the Committee members recognized that the disqualification of Inzola could have major political and legal repercussions. I also find that Messrs. Patteson and Lewis, and indeed the entire Evaluation Committee, wanted to keep Inzola in the process as that would enhance the Competitive Dialogue.
I appreciate that post-disqualification there are references in Evaluation Committee minutes to the fact that a failure of the process could benefit Inzola. I do not find these references surprising. From the perspective of City staff, Inzola was continuing to try to scuttle the RFP. I agree. In May, 2011, Mr. Cutruzzola was attending public meetings and giving interviews suggesting that the process be stopped and that Council could still pick Inzola over Dominus. It is no wonder that Inzola would still be a topic of discussion. I can also appreciate why City staff would not look forward to Inzola participating in a future process.
I also do not see anything wrong in Mr. Patteson and Mr. Lewis updating the City Manager as to the status of the RFP and with respect to issues, such as the potential disqualification of Inzola, which could be controversial or attract public and media attention. The Evaluation Committee minutes of May 25, 2010 confirmed that Messrs. Patteson and Lewis were authorized to brief the City Manager concerning the RFP. There was nothing covert about these briefings and obviously none of the members of the Evaluation Committee saw anything wrong with it.
As I have already explained I do not accept the submission of Inzola that after-the-fact evidence supports the argument that the decision to disqualify Inzola resulted from bias.
The Court also ruled that even if the plaintiff had been improperly disqualified, it would not have been entitled to lost profit damages since the process used by the City was not a Contract A bidding process, but was a properly designed negotiated RFP that did not give rise to lost profit damages:
B. The Nature of RFPS in General and this RFP in Particular
In Chippewas, discussed in Part III above, the Ontario Court of Appeal endorsed the proposition, stated by authors Sandori and Pigott in Bidding and Tendering: What is the Law?, 2d ed. (Toronto: Butterworths, 2000), at p. 239, that:
Properly drawn, an RFP asks parties for expressions of interest and sets out the owner’s intention to consider those expressions of interest and then to undertake negotiations with one or more parties whose proposal(s) appeal to the owner. [emphasis in original]
In my opinion the City had a “properly drawn” RFP. This is supported by provision K12 of the RFP which states:
This RFP does NOT constitute an offer by the City of Brampton to contract. Neither does this RFP, nor will any Submission, constitute such an offer or create any contractual or other obligations whatsoever. Issuance of this RFP, the Respondent’s preparation of a Submission, and the subsequent receipt and evaluation of the Submission by the City of Brampton does not obligate or commit the City of Brampton in any manner whatsoever, including awarding a contract to any Respondent(s). Only the execution and delivery of a contract between the City of Brampton and a Respondent will obligate the City of Brampton in accordance with the terms and conditions in such a contract.
This conclusion is also supported by the surrounding circumstances. In the RFP the City only provided the most general description of its wants and needs, which left much to be negotiated. In addition, it was common ground that the Respondents to the RFP assumed no obligations and could have walked away at any time during the Competitive Dialogue process.
I also note that it was common ground that the RFP process did not create a “Contract A” between Inzola and the City. In a Contract A/Contract B tender process, Contract A typically has appended the form of Contract B which has a defined scope of work. Contract A obliges the owner and the low bidder to enter into Contract B.
The Court concluded that even if the plaintiff had been improperly disqualified, it would only have been entitled to $2,763,652 in bidding costs, rather $25 million in lost profits, since non-Contract A negotiated RFPs are designed to avoid exposing purchasing institutions to protracted lost profit claims:
There was nothing unusual about the City’s RFP that would give Inzola special rights and expectations. If Inzola can claim expectation damages based upon the RFP it would turn the law on its head. Anyone issuing an RFP would be exposed to damages based upon the ultimate contract. This would effectively eliminate the well-recognized distinction between a RFP and a tender process. Put differently if the City’s RFP provision, that only the execution of a contract will create an obligation in relation to the construction contract, does not protect the City from a claim for expectation damages then I do not see what language would.
If Inzola is correct there is no doubt that RFPs would become more complex and expensive. An RFP in any significant project could not be left to purchasing specialists. Lawyers would be required at every stage. Purchasers, in this case ultimately the taxpayers of the City, could be burdened by multi-million dollar damage claims based upon the mishandling of a process that was simply directed to obtaining expressions of interest.
If Inzola is correct there will be more, and more expensive, litigation. When you have a Contract A by definition you know all the terms of Contract B. Calculation of damages is fairly straight forward. In the case of an RFP, and particularly in this RFP that called for Competitive Dialogue, determining expectation damages requires a highly speculative process of attempting to determine how a negotiation process would have unfolded. Proof of such damages takes a lot of time at trial as this case demonstrates.
The losing plaintiff’s claim was rejected and it was ordered to pay legal costs in favour of the City.