This article is an excerpt from Government Procurement, which is available for purchase.
In its May 2015 decision in Elan Construction Ltd. v. South Fish Creek Recreational Assn., the Alberta Court of Queen’s Bench determined that the defendant purchasing institution ran an unfair evaluation process. However, the court ultimately ruled against awarding the plaintiff bidder lost profit damages after finding that the contractor who actually won the bidding process lost money on the project. The case dealt with a tender call for a $19 million expansion to a recreational facility run by a number of non-profit sports and community associations. The project was primarily funded by the City of Calgary, who contributed $14 million, with an additional $3.2 million provided by the government of Alberta, $1 million by the government of Canada and the remaining $800,000 contributed through community fundraising efforts. After bidding unsuccessfully on the project, the plaintiff brought a legal action for lost profits against the Association. The plaintiff claimed that the Association ran an unfair evaluation process that contained a number of irregularities including the use of undisclosed scoring factors for the assessment of proposed project timelines, the unfair collection of post-bid information, the use of an interview process that was not disclosed in the tender call evaluation rules and the post-bid substitution of the winning bidder’s proposed project lead.
The court found in favour of the plaintiff on these grounds, determining that the Association had run an unfair evaluation process and had breached the good faith duties it owed to competing bidders. In particular, the court found that the improper evaluation of the substantial completion dates proposed by competing bidders had a direct impact on the rankings and thereby cost the plaintiff the contract award:
99 Finally, I find that, absent SFCRA’s breaches of the Bid Contract, Elan would have been awarded the General Contract. It is common ground that Elan received the maximum 35 points for price while Chandos received 26. I accept Elan’s submission that, had the substantial completion dates been evaluated appropriately, Elan would have received 35 points to Chandos’ 24. The result would have been that, based on the first two criteria, Elan would have had 70 points to Chandos’ 50. Thus, even leaving the points for experience and references unaltered (Elan’s 12 + 7 = 19 and Chandos’ 19 + 8 = 27), the final scores would have been 89 points for Elan and 77 points for Chandos. Had the experience points been allocated differently, the disparity would have been even greater.
However, the court ruled that the plaintiff was not entitled to any lost profit damages since the winning contractor, Chandos, ultimately lost money on the tendered project:
152 SFCRA was not able to meet its onus in proving a discount for uncertainty or for Elan’s avoidance of its loss. However, as stated above, SFCRA has met its onus in demonstrating that Elan would have incurred a loss due to the unanticipated negative circumstances found on site. Accordingly, Elan’s initial reduced damages of $519,908 must be discounted to reflect these conditions.
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154 There is no evidence in this case upon which I can conclude that Elan had a competitive advantage over Chandos and that Elan could have avoided Chandos’ losses if it had been awarded the General Contract. Having found that Chandos operated at a $950,000 deficit (the loss of its expected $300,000 in profits on top of $650,000 it incurred in unanticipated costs), I also find that Elan would have suffered a substantial loss in the same range had the Bid Contract not been breached. As such, Elan’s damages arising from the breach are nil. However, following the reasoning in Bowlay Logging, and in recognition of the fact that SFCRA did breach the Bid Contract, I award Elan nominal damages of $1,000.
As the nominal damages award made by the court illustrates, in order to be entitled to lost profit damages, a plaintiff bidder must do more than establish that the defendant purchasing institution breached its tendering rules and unfairly cost it a contract award. A plaintiff bidder must also show that, had it been awarded the contract, it would have earned a profit on the tendered contract. Where the defendant purchasing institution can establish that the contract in question was ultimately unprofitable, this can serve as an effective shield against financial liability even in instances where a plaintiff bidder can prove that a breach of the process rules cost it a contract award.
