This article is an extract from the 5th edition of Government Procurement.
In its March 2019 decision in Jermark v. Metropolitan, the Ontario Superior Court of Justice rejected a summary dismissal application brought by a private condominium corporation. The dispute dealt with a Contract A lost profit claim brought against a plumbing company that claimed it won an invitational bidding process but was then denied the resulting work. The defendant condominium corporation denied running a formal bidding process and sought summary dismissal of the claim:
To begin, both parties rely upon the law regarding contract formation in the context of tenders as set out in Ron Engineering & Construction (Eastern) Ltd. v. Ontario, [1981] 1 S.C.R. 111. This case held that the submission of a bid in response to a tender creates a binding contract referred to as Contract A. This contract is distinct from the subsequent performance/construction contract referred to as Contract B when a submission is accepted. In this case, the existence and the terms and conditions of both types of contracts are in issue.
There are a number of critical issues raised in this action:
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The Plaintiff alleges that on February 24, 2013, even before the alleged tenders were solicited, a single supplier contract had been awarded to Jermark. Jermark bases this argument upon the interactions between Mr. Cohen, a principal of Jermark, and Mr. Reed-Lewis, the President of the Board for MTCC 1371. By contrast, MTCC 1371 responds that no such contractual arrangement was formed at that time and points to the subsequent events when three companies including Jermark were approached for quotes. MTCC 1371 argues that this action for soliciting quotes belies Jermark’s position that it already had a contract.
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MTCC 1371 denies that any contractual relations were formed by the request for quotes from the three contractors. It points to a number of factors including evidence that no formal tender documents were submitted, no deposits were requested, and not much work was put in by Jermark. In other words, MTCC 1371 submits that Contract A, as it is known in the tender process, was never established. Jermark responds that the evidence is clear that not only was Contract A formed, but Jermark won the bid given the documents and emails that support this conclusion.
Notwithstanding the condominium corporation’s attempt to summarily dismiss the matter on the basis that no Contract A was created, the Court sided with the contractor and determined that the matter should proceed to trial to review evidence of whether a formal bidding process giving rise to Contract A lost profit claim remedies was initiated by the corporation. As the Court determined, the ambiguity of the challenged process left that answer unclear, which meant that a summary dismissal could not be granted:
With respect to the first stage of the analysis, I find that there are genuine issues requiring a trial.
This case significantly differs from the usual tender process. Here, the whole process of finding a contractor was informal, and there is a lack of formal documentary evidence. Tender instructions and documents are critical in the analysis of whether contractual relations are created: Martel Building Ltd. v. R., [2000] 2 S.C.R. 860 at paras. 86-89. In this case, there were no formal tender documents. Whether Contract A arises on the facts depends upon whether the parties intended to initiate contractual relations by the submission of a bid in response to an invitation to tender. As noted above, this is very much in dispute by the parties. MTCC 1371 takes the position that only quotes were solicited. Jermark responds by saying that however informal, this was an invitation to tender, and they along with two other companies’ submitted bids.
An important factual matter in the determination of this issue, in my view, is the process and the reason why after the documents seem to support Jermark’s contention that by the end of February 2013, it had obtained the project, MTCC 1371 seemed to reverse course and tender the project to three potential contractors including Jermark. As the law establishes, any tender process to be valid must be a legitimate and fair one.
In addition, the exact nature of the terms and conditions of any contractual relations formed between Jermark and MTCC 1371, whether it is Contract A or Contract B, is unsupported by clear documentation. An important matter of dispute is exactly what was agreed to as being subject to court approval. Was it the single supplier solution per se? Or was it Jermark’s participation as that single supplier solution? In other words, it is Jermark’s position that its involvement in the project depended upon the court’s acceptance of a single supplier solution. If that solution was accepted by the court, then Jermark argues that there was a contract with MTCC 1371 that it was to be that single supplier. It is Jermark’s position that it was only if the court did not approve a single supplier solution, could MTCC 1371 be relieved of its obligations to Jermark. Jermark submits that MTCC 1371 could not simply break its contractual commitment to Jermark and contract with a different contractor if a single supplier solution was pursued.
I find that any resolution of this question will depend very much on the actual intention of the parties and the surrounding factual matrix.
As this case illustrates, the failure to use tendering formats with clear process rules exposes purchasing institutions, whether public or private, to protracted lawsuits over the issue of whether the tendering process in question was subject to lost profit claims under Contract A process contract rules. While prior cases have shown that clearly drafted solicitation documents can address those issues and enable the successful summary dismissal of a Contract A lost profit claim, this case underscores the risk of using ambiguous tendering formats that can draw purchasing institutions into protracted legal battles.
