This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
As the courts have recognized, transparency is not an absolute, particularly when complex projects are involved. While the low bid Invitation to Tender (ITT) format with a public opening and immediate announcement of the low bidder may be appropriate for simpler construction projects, it is not an appropriate approach to more complex projects that involve the evaluation of price and non-price factors, the assessment of contractor capacity, and the evaluation of unique and creative proposed approaches to a complex project. In such instances, the ultimate duty to ensure transparency in outcomes should not be confused with a (non-existent) obligation to conduct an entire process in a public forum subject to direct political oversight. In complex projects, transparency in the ultimate outcome must be balanced with confidentiality to protect the integrity of the bidding, evaluation, and selection process and to shield the process from politicization and lobbying. While a complete summary of the relevant case law is outside the scope of this discussion, some of the prevailing governing principles from the jurisprudence are discussed below.
Pharand Ski Corp. v. Alberta: Common Law Duty to Protect Confidential Information
Public institutions are under a legal duty to protect the confidential business information of competing bidders. A leading case that applied this principle to a major project was the May 1991 decision in Pharand Ski Corp. v. Alberta, where the Alberta Court of Queen’s Bench found the Alberta government liable for breaching the common law confidentiality duties it owed the plaintiff supplier who had provided confidential business information during a tendering process. This case dealt with an Alberta government initiative to build an alpine ski event site for the 1988 Calgary Winter Olympics. Alberta used information contained in the plaintiff’s submissions but did not award a contract to the plaintiff. The Court awarded the plaintiff $1.3 million in damages on account of Alberta’s breach of the confidentiality duties it owed to the plaintiff.
The complex background facts in this decision revealed a process with multiple proposal calls and mid-stream changes in direction. In response to a first proposal call, the plaintiff had submitted a detailed proposal identifying, among other things, a specific proposed development site. The plaintiff believed it was competing in a single-stage process for a position as selected developer, but that process was ultimately converted into the prequalification stage of a multi-stage process. The plaintiff further learned that its proposed development site had been revealed to all six prequalified proponents as a prospective site for the project, and that its development plan had been publicly disclosed. When it became apparent to the plaintiff that it would not be awarded a government contract, it sought compensation for the inappropriate and unlawful use of its confidential information.
After a detailed consideration of the background facts, the Court noted the existence of a common law obligation of confidentiality arising out the nature of certain relationships:
There has been, at law, a long recognized obligation of confidence, the breach of which gives rise to a number of remedies, including damages, compensatory or nominal, an accounting for profits earned from the breach, the issuance of an injunction to protect privacy, even an in rem remedy, the constructive trust. The nature of the remedy is dependent upon the jurisdictional basis applicable to the nature of the confidence and the breach. The obligation of confidence can arise both in private as well as public law. [citations omitted]
In the case of United Kingdom v. Observer Ltd., Lord Keith of Kinkel described the nature and scope of the obligation at common law in these terms [p. 244]:
The law has long recognised that an obligation of confidence can arise out of particular relationships. Examples are the relationships of doctor and patient, priest and penitent, solicitor and client, banker and customer. The obligation may be imposed by an express or implied term in a contract but it may also exist independently of any contract on the basis of an independent equitable principle of confidence: Saltman Engineering Co. Ltd. v. Campbell Engineering Co. Ltd. (1948), 65 R.P.C. 203.
The Court concluded that Alberta had breached the common law duty of confidence it owed to the plaintiff by supplying its confidential information to other proponents. It noted that:
All this confidential information imparted by the plaintiff to the defendant was now being used by the defendant for a purpose inconsistent with the purpose for which it was given, that is to say, the opportunity to be selected as a developer to work with the defendant as a co-developer of the specific site. This contravened the express purpose of the first proposals call. It also breached the condition of confidence obtained by the plaintiff before taking part in the first proposals call, and it breached the equitable relation of confidence and trust between the plaintiff and defendant imposed by equity under all of the circumstances of the case.
The Court was critical of the manner that Alberta had conducted its tender call process:
A careful examination of the whole proposals call system shows it was badly flawed and obviously prepared without sound legal advice. It was designed to select a developer with whom the Province would negotiate and conclude a mutually acceptable plan of development of a specific site or sites and the implementation of that plan. But it was unrealistic and failed to provide a proper business base to which a proponent could respond.
This excerpt reflects the importance of conducting a well-organized procurement process, where the governing rules, including the rules pertaining to the protection of confidential bidder information, are expressly and clearly set out in the tender call documents and are honoured during that process.
The Court reviewed the relevant principles for quantifying damages for breach of confidence and, given the amount of effort and information provided to Alberta by the plaintiff during the course of the tendering process, awarded $1.3 million, a figure that represented the value of the information and the direct expenses incurred by the plaintiff over the course of the process.
This case illustrates the existence of a common law duty to protect confidential bidder information that applies generally to public sector organizations running competitive processes.
Savik Enterprises v. Nunavut: Confidentiality Must Be Balanced with Transparency
The January 2004 decision of the Nunavut Court of Justice in Savik Enterprises v. Nunavut (Commissioner) illustrates how the confidentiality obligations of public institutions can conflict with, and must therefore be balanced against, the obligation to maintain an open and transparent procurement process. This case dealt with a tender call for the award of a ten-year contract for the provision of bulk fuel to Nunavut communities. The incumbent fuel provider, Savik Enterprises, lost the competition to a group of smaller, locally owned co-operatives operating as Article Cooperatives Ltd., referred to as the Cooperatives. Savik Enterprises sued the government, alleging improprieties in the contract award process.
In the course of the pre-trial discoveries, the plaintiff demanded access to the documents that were submitted by the successful bidders. The government asserted privilege over those documents and refused to release them.
The Court noted that in addition to common law duties, the Nunavut government was under a statutory duty to protect bidder information:
The privacy interest is also recognized in statutory form by Nunavut’s Access to Information and Protection of Privacy Act 1994 C.20. This legislation maintains a precarious balance; a balance between the need to protect and preserve privacy interests on the one hand, with the need to promote accountability of public bodies through enhanced access to certain types of information, on the other.
Hence, as with the other jurisdictions across Canada, Nunavut’s common law and statutory obligations required it to balance its confidentiality and privacy obligations with its public accountability and transparency duties during a competitive bidding process.
The Court also noted that bidders were entitled to privacy over their information:
On the evidence before me I am satisfied that the creators of the successful proposals maintain a legitimate privacy interest in relation to the information contained in the proposals. This information was created by the successful Cooperatives for a limited purpose. Some of this information details the inner workings, the resources and personnel of the corporate citizens involved. This is information that would not otherwise be available to the general public. For the limited purpose of this application I am satisfied that The Cooperatives privacy interests will be affected by the order compelling disclosure sought by the Plaintiff.
As the Court found, the proposals contained confidential business information that would not otherwise be public knowledge. Furthermore, the Court noted that the Cooperatives did not waive their right to maintain the confidentiality of this business information by virtue of having participated in the public tendering process. Rather, the Nunavut government owed bidders a duty to protect the confidentiality of their sensitive business information:
The Cooperatives common law privacy interest in their proposals has not been affected by the transmission of this information to government. The RFP process under which the information was created expressly provided that any future release of this information was to be governed by the provisions of the Access to Information and Protection of Privacy Act. This legislation, as indicated earlier, not only confirmed the existence of the privacy interests now asserted by the Cooperatives, but provided procedural protection to those whose interests may be affected by a decision to disclose. The Cooperatives quite properly anticipated both notice and standing to argue the issue of disclosure when this information was first provided to government. There is nothing on the evidence to suggest that the Cooperatives intended to waive or did waive this privacy interest when the information was transmitted to the Defendant by the RFP process now under challenge.
The Cooperatives were therefore entitled to the protection of their confidential business information and to standing in the legal proceeding in order to assert those rights and protect that information from their competitors.
The Court then proceeded to balance these important considerations against the need to promote transparent government procurement practices that better ensure the responsible expenditure of government resources:
While the public policy argument advanced by the Defendant in favor of protecting the integrity of the RFP process remains an important consideration, there is an equally compelling, if not greater public policy argument favoring disclosure where the expenditure of public funds is concerned. Openness and transparency in public administration promotes accountability and fairness in public government. Secrecy breeds suspicion and mistrust. Claims of partiality or discrimination tend to germinate and flourish in a secretive environment. Given the importance of government contracts to the private sector in Nunavut, it is particularly important that those bidding on contracts have confidence in the fairness of the process adopted by government in making its contract awards.
The Court was careful to distinguish between the need for absolute confidentiality during the tendering process in order to protect fair competition and a less absolute need for confidentiality once a process has resulted in the award of a contract. Once the tendering process has culminated with the award of a contract, confidentiality concerns need to be balanced against transparency considerations:
Absolute confidentiality must be maintained during the sub-mission phase of the government procurement process in or-der to facilitate a fair and honest competition for government contracts. Secrecy at this stage is clearly essential to the process itself, and is in the public interest. However, the public interest in maintaining this wall of secrecy diminishes rapidly once a decision on the merits has been reached.
While the Court was careful to note that the need to preserve the confidentiality of sensitive information continues to be an important duty even after the award of a contract, it also noted that this duty must be balanced with the need to ensure the accountability of public institutions through the promotion of transparency:
Accountability for public funds and fairness in public administration are values essential to the preservation of a democratically elected government. Public trust and fairness in public administration are values transcending all others. These values complement each other. It is difficult for one to exist without the other. These values must be preserved and protected by the process employed by government to expend public funds. Transparency of process is as integral to the building and maintaining of trust in matters of public administration as it is to the justice system itself.
As the Court stated, the balance of confidentiality and transparency calls for a “difficult compromise” that entails a complex balancing act within the competitive bidding process. These principles serve to distinguish the importance of absolute confidentiality during the bidding and evaluation process from the requirement to balance that confidentiality with (i) an appropriate degree of disclosure to governing bodies to obtain final approval for the contract award, and (ii) the subsequent disclosure of the results of the contract award to the public.
