This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
The November 2011 ruling of the British Columbia Supreme Court in Innovations for Audio Video Inc. v. Vancouver (City) upheld a small claims court ruling that found the City of Vancouver not liable for cancelling a bidding process due to funding issues. The dispute involved a Request for Proposals (RFP) for an ice rink sound system. The City cancelled the bidding process since no funding was available but then awarded a contract to one of the bidders after funds were collected from a local community group. One of the other bidders sued for $19,000 in lost profits, $57,000 in punitive damages and $7,800 in legal fees. As the British Columbia Supreme Court summarized, the small claims court trial took five days:
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 plaintiff appealed the small claims ruling, but the British Columbia Supreme Court upheld the trial judge’s decision, finding that the City had the right to cancel the bidding process due to 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.
While the cancellation decision was ultimately upheld, the City was required to defend that decision in a multi-day trial and then respond to an appeal that required the expenditure of further time and financial resources.
As this case study illustrates, since cancellation decisions give rise to the risk of legal challenge, they should only be made for defensible reasons.
