By Paul Emanuelli

This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.

As evidenced by the number of lawsuits in the area, a purchasing institution’s disclosure duties during a tendering process continue to create project risks and result in disputes and adverse audit findings across multiple jurisdictions.

By way of example, in its May 2007 decision in Trade-Winds Environmental Restoration, Inc., the Office of the New York State Comptroller found that the State University of New York’s price evaluation in an environmental services tender was flawed due to inaccurate volume estimates. In its decision, the Comptroller stated that “while the hours used to evaluate proposals need not mathematically track historic usage, such hours must have a reasonable relationship to historic patterns of use, except where the agency can document that there is some reasonable basis to believe that there will be major changes in future usage.” However, it found “significant unexplained discrepancies between the levels of historical usage and the weight given such categories for evaluation purposes, which materially affected the outcome of this procurement.” For example, the evaluators calculated the cost of non-emergency tank trucks for petroleum, sewage, and chemical cleanup at 1,000 hours when annual usage had historically only been 5.3 hours. Similarly, emergency tank truck costs were calculated at 200 hours and remediation services at 1,000 hours when historical usage was 2.5 hours and 18 hours, respectively. The resulting contract award was therefore rejected and a re-evaluation ordered.

More recently, in its March 2016 ruling in Brad Gould Trucking & Excavating Ltd. v. Bird Construction Co., the Supreme Court of Canada preserved a New Brunswick Court of Appeal decision that found the provincial government not liable for the extra costs incurred by a contractor on a courthouse construction project. The trial court initially found the province liable since the contract provided for additional payments in the event of unforeseen circumstances. However, the appeal court disagreed, finding the province not liable since the contractor should have reasonably anticipated the soil conditions encountered on the project based on engineering reports disclosed by the province. By dismissing the contractor’s appeal, the Supreme Court preserved the no-liability ruling.

Shortly thereafter, in its December 2017 report entitled Investigation into changes to Community Rehabilitation Company contracts, the United Kingdom National Audit Office concluded that the Ministry of Justice overestimated required service levels when the Ministry outsourced community rehabilitation services for its Prison and Probation Services agency. While the number of supervised offenders had increased, the number of required services was lower than estimated, which resulted in the Ministry paying higher amounts to the service providers than what was agreed to under the contract. This report underscores the importance of having accurate volume estimates and price adjustment formulas in procurement contracts.

Then in its June 2017 decision in ASI Group v. Toronto, the Ontario Superior Court of Justice upheld a municipality’s decision to cancel and retender a project. The case dealt with a tender call for dive services. The municipality decided to cancel and re-tender the project upon discovering that it had failed to provide material background information to all bidders. The low bidder sued. The Court rejected the lost profit claim, finding that the City of Toronto was under a duty to cancel and re-tender the contract since the disclosure of missing material information was necessary to maintain a level playing field between incumbent contractors and new bidders.

As these cases illustrate, managing material disclosures represent a recurring and long-standing risk area in the public tendering process.