This article is an excerpt from Government Procurement, which is available for purchase.
In its November 2011 decision in Innovations for Audio Video Inc. v. Vancouver (City), the British Columbia Supreme Court upheld a Small Claims Court trial decision that found the City of Vancouver not liable for cancelling a tendering process for budgetary reasons. The case dealt with an RFP for the supply and installation of a sound system in the Killarney Ice Arena. The plaintiff, Innovations for Audio Video, was one of five bidders that responded to the solicitation. The project was cancelled by the City since no funding was available. Seven weeks later, after a local community group supplied the required funds, the contract was awarded to one of the other companies that had originally submitted a proposal. Innovations launched a legal claim for $19,000 in lost profits, $7,800 in legal fees and $57,000 in punitive damages. The matter went to trial:
After four days of evidence and a further day for argument, the trial judge reserved his decision for several months, eventually dismissing the claim with detailed reasons. He concluded the appellant had been treated fairly, that there had been no sham, and said:
Regardless of the City’s obligations arising from the issuance of the RFP upon receipt of the proposals including that from Innovation, the City discharged those obligations including its obligation to treat all of the proposals fairly. The obligations of the City were terminated when the RFP process was properly terminated.
The trial judge also found that, even if there had been a breach, Innovations would not be entitled to damages for loss of profit as claimed because the amount included loss of Mr. Lazarescu’s wages, and Mr. Lazarescu is not a party to the action. As well, the trial judge found that the claim for punitive damages had no application to the circumstances of this case. (paras. 7-8)
Innovations appealed the trial judgment, arguing that the trial judge made a number of errors in findings of fact, including errors in considering whether the City had acted in bad faith in rejecting the original bids. However, the British Columbia Supreme Court agreed with the trial judge’s finding regarding the City’s right to terminate for budgetary reasons:
The RFP states that it is dependent on funding. The trial judge referred to the provision in the RFP that allowed the City to cancel it at any time, and in particular if funding was not approved. The City did not have the funding. Mr. Maxey’s evidence was uncontradicted on that point, and there is no evidence to the contrary. His evidence was accepted by the trial judge. The trial judge’s statement that “Innovation would have or should have known of that term of the RFP when it submitted its proposal” is in line with the law respecting obligations arising from the tendering process. (para. 36)
As this case illustrates, a purchasing institution may have the right to cancel a bidding process due to budgetary constraints. However, such cancellation decisions are subject to legal challenge. Even when successfully defended, these claims can prove costly in time and financial resources. Purchasers should therefore be careful to properly plan their procurements and should avoid going to market with a tender call without first ensuring that they have sufficient funds to pay for their requirements.
