Court Upholds Incumbent Local Preference in Low Bid Bypass

The following is an excerpt from The Art of Tendering: A Global Due Diligence Guide, written by Paul Emanuelli.

In its June 2018 decision in Miller Group Inc. v. The Village of Salisbury, the New Brunswick Court of Queen’s Bench upheld the bypass of a low bidder based on local preference exceptions under the relevant provincial statute. The case dealt with a tendering process for winter snow plowing and salting services. The plaintiff submitted a bid of $233,776, which was $4,824 lower then the next-best bid submitted by the local incumbent contractor. The Village bypassed the low bid and selected the local incumbent. The low bidder sued. Citing the New Brunswick Procurement Act, which allows public institutions to accept local bids that come within an acceptable range of the low bidder, the court upheld the low bid bypass:

132 A procuring entity may give preferential treatment to a prospective supplier from New Brunswick for the procurement of goods or services if the applicable trade agreements provide an exception for those goods or services or those goods or services are not subject to trade agreements.
Evaluations based on price

133(1) When bid submissions are evaluated on price, a procuring entity may give preferential treatment under section 132 if the bid, when compared to the lowest acceptable bid, is within the applicable range set out in section 135.

133(2) Prospective suppliers given preferential treatment under subsection (1) shall be ranked according to the order of priority set out in section 136.

Evaluations based on points
134(1) When bid submissions are evaluated on a point system, a procuring entity may give preferential treatment under section 132 if the price component of a bid submission, when compared with the price component of the bid submission that receives the highest score before preferential treatment is applied, is within the applicable range set out in section 135.

134(2) The additional points that may be given as preferential treatment under this section shall be equal to no more than 5% of the total points that a bid is otherwise eligible to receive, and the percentage awarded to each class of prospective supplier shall be determined in accordance with the order of priority in section 136.

134(3) The maximum number of points that may be given to a manufacturer under subsection (2) may be given to a vendor if no bid from a manufacturer has been retained for preferential treatment.

Price Ranges
135 For the the [sic] purposes of sections 133 and 134, the applicable ranges are the following:

(a) for a procurement contract with an estimated value of $250,000 or less, a variation of 10% or $15,000, whichever is less;

(b) for a procurement contract with an estimated value greater than $250,000 and less than $1,000,000, a variation of 5% or $25,000, whichever is less;

(c) for a procurement contract with an estimated value of $1,000,000 or greater, but less than $5,000,000, a variation of 2.5% or $100,000, whichever is less;

(d) for a procurement contract with an estimated value of $5,000,000 or greater, but less than $10,000,000, a variation of 2.5% or $200,000, whichever is less; and

(e) for a procurement contract with an estimated value of $10,000,000 or greater, a variation of 2.5% or $400,000, whichever is less.

While it ruled that the local incumbent fell within the applicable ten percent range under the statute, and therefore upheld the award, the court failed to expressly address the precondition to applying local preference set out in section 132 of the statue, which only permits the application of the local preference formula “if the applicable trade agreements provide an exception for those goods or services or those goods or services are not subject to trade agreements.”

At the time of the tender, the Agreement on Internal Trade (now the Canadian Free Trade Agreement) applied to municipal construction projects valued at $250,000 or over and prohibited local preferences in the award of tendered contracts. While the award in question appears to have fallen just under those limits, the court failed to address the potential applicability of that trade treaty. For example, the decision failed to expressly consider whether any options under the awarded contract could have taken it over the $250,000 threshold stated in the selected bid and thereby outside of the local preference exception and into the trade treaty rules that prohibit local preference.

While this may be a moot point in this specific case, if the contract award did not include extension or expansion options and was limited only to the direct value of the selected bid, the failure to expressly address the trade treaty issue creates the risk that the decision will be taken out of context and be understood to create a precedent for permitting local preference even where the trade treaties apply.

This case therefore serves as a useful reminder to interpret exceptions contained in local rules against the more broadly applicable standards contained within trade treaties. When looked at in a more global context, the local preference bypass in this case falls within a narrow exception to more broadly applicable prohibitions against local preferences in public procurement.

Categories: Canadian Case Law|