This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
While the courts have in some instances upheld a purchaser’s right to bar problematic suppliers, purchasers should ensure that these practices are developed and implemented in a reasonable and measured fashion consistent with applicable legal procedures.
For example, in its July 1973 decision in White Construction Co. Inc. v. Division of Admin., the Florida Supreme Court overruled the state of Florida’s suspension of a bidder. The case dealt with a Request for Bids (RFB) issued by the state for the construction of several road projects. State officials suspended a contractor and refused to accept that contractor’s bid due to concerns over alleged environmental damage caused by the contractor in the performance of prior contracts. The contractor, White Construction Co. Inc., challenged the ban. The Court sided with the contractor after finding that state officials had stepped outside their statutory authority when they exercised contractor suspension powers that could only be exercised directly by the Secretary of Transportation:
…it appears from the record before us that respondent failed to properly follow the procedure set out in its rules and regulations for suspension for good cause. Chapter 14-8.01, 14.C, specifically requires that the Secretary of Transportation may suspend for good cause. From the record before us, we can determine that the Secretary of Transportation did not suspend White, but rather the letter of April 12, 1973, purporting to suspend White was written by J.W. Brown, Director of Road Operations, and was signed for Brown by P.J. White, State Construction Engineer. It does not appear from the letter that it constituted action by the Secretary of Transportation. The rules and regulations specifically require action by the Secretary himself to exercise such drastic authority and responsibility in such an important matter as the suspension of a bidder for cause.
As this case illustrates, when public bodies seek to suspend contractors due to past performance issues, they should ensure that they properly follow applicable statutory procedures and stay within their delegated statutory powers. Failing to do so can undermine the defensibility of any contractor suspension decisions.
Conversely, in its 2007 judgment in Advanced Ergonomics Inc. v. British Columbia (Workers’ Compensation Board), the British Columbia Supreme Court dismissed an unsuccessful proponent’s claim of bias and conspiracy and upheld the purchaser’s right to refuse subsequent proposals from the litigious supplier. The case dealt with a Request for Proposals (RFP) for ergonomics consulting services. The plaintiff responded to the RFP but was unsuccessful. It brought an action alleging bias and conspiracy, claiming that although it had been invited to bid, the purchaser had decided in advance that it would not win. The plaintiff claimed that it had incurred $100,000 in bidding costs. The Court found no basis for the plaintiff’s claims and dismissed the action. Furthermore, the Court recognized a purchaser’s right to deny a supplier the opportunity to bid on contracts due to ongoing lawsuits. As this case illustrates, barring litigious bidders can be a useful remedy for purchasers in appropriate circumstances.
Similarly, the 2001 decision of the Alberta Court of Queen’s Bench in Green Country Maintenance Ltd. v. Calgary (City) illustrates the importance of sound contract management and record-keeping in obtaining value-for-money under current and future contracts. After receiving a complaint that one of its contractors was leaving work early, the City of Calgary investigated the operations of the particular contractor for one-and-a-half months and discovered that during that period the contractor had submitted inaccurate time sheets, which had resulted in an over-billing of $541. The contract was terminated and the contractor’s tenders for subsequent contracts were rejected.
The contractor challenged the City’s actions but the Court upheld both the contract termination and the subsequent tender rejections, stating that “I am of the view, after reading all the evidence and hearing the submissions from counsel, that the City of Calgary acted in a fair manner that was within its authority when it suspended the services of Green Country, and when it subsequently refused the tenders.” The contract in question contained a clause that allowed the City to terminate when a contractor failed to provide “quality service.” That clause also contained the right, depending on the severity of the circumstances, to declare a terminated contractor ineligible for future tendered work. The reservation of those rights, coupled with a well-documented monitoring of performance, allowed the City to address the performance issue on an immediate and ongoing basis. In so doing, the City provided purchasers with a useful illustration of how contract management is an essential part of the procurement cycle.
Conversely, in its April 2005 decision in Soo Logging Co. v. British Columbia (Minister of Forests), the British Columbia Supreme Court found that the government improperly blacklisted a contractor due to alleged past-performance problems. The Ministry of Forests had previously terminated the contractor due to the alleged performance problems. When the contractor sued, the Ministry unofficially blacklisted the contractor from subsequent tendering opportunities. The contractor challenged those actions. The Court was critical of the Ministry’s conduct, noting its unreasonable and intransigent approach in the course of the litigation. The Court found “conduct deserving of rebuke on the part of the Ministry representatives who were instructing counsel.” As this case illustrates, purchasers should be careful not to use subsequent tendering processes as an opportunity to “get even” with past performance disputes, particularly in instances where there may have been shared responsibility for prior performance problems.
In a more recent example, in its February 2017 decision in Della Pello Paving, Inc. v. New Jersey, the New Jersey Superior Court of Justice – Appellate Division upheld the debarment of a contractor under the state’s “pay-to-play” law. The case dealt with the debarment of a construction contractor for paying $500 for a political fundraising dinner. The Appellate Court dismissed the contractor’s “inadvertence” defence since the contractor failed to seek a refund within the 30 days required by the state law. It upheld the debarment for the duration of the current governor’s term and upheld the government’s decision to rescind a $4.2 million contract that was previously awarded to the contractor.
However, in its May 2017 decision in Four Seasons Site Development Ltd. v. Toronto (City), the Ontario Superior Court of Justice granted an injunction against a municipal debarment decision. The applicant was barred from bidding on construction projects for alleged past performance issues. While the City of Toronto had updated its procedures to enable debarment for past performance, the contractor challenged the retroactive application of those rules, arguing that City officials had acted outside of their authority since, at the material time, debarment only applied to code of conduct breaches but not to past performance. The Court suspended the debarment decision until its merits could be assessed at trial.
Finally, in its September 2017 decision in Casertana Costruzioni Srl v. Ministero delle Infrastrutture e dei Trasporti, the European Court of Justice ruled that the Italian transportation ministry properly rejected a bidder for naming a barred subcontractor in its bid. The case dealt with an Invitation to Tender (ITT) for a construction contract. The rejected bidder argued that it should be permitted to substitute a new subcontractor for the barred subcontractor. The Court disagreed, finding that the debarment provisions under the Italian law, as well as the prohibition against the post-bid substitution of named subcontractors, were compliant with European law and the European procurement Directive.
As these cases illustrate, public institutions should ensure that they adhere to applicable due process standards whenever they plan to make a debarment decision since those decisions remain subject to legal challenge and should therefore be made with a view to downstream defensibility.
