This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its June 2018 decision in Interpaving Limited v. City of Greater Sudbury, the Ontario Superior Court of Justice – Divisional Court found that the City of Greater Sudbury breached its fair process duties when it failed to provide advanced notice to Interpaving Limited prior to barring the contractor from future City contracts. While the majority of the Court ruled that the City cured that initial process breach through a subsequent improvised reconsideration, the dissenting judge found that this reconsideration failed to cure the initial process breach since Interpaving was provided insufficient documentary evidence of the allegations supporting the debarment decision and, additionally, the City introduced new undisclosed grounds for debarment during that improvised reconsideration.
As the Court summarized, Interpaving had a 40-year track record performing work for the City, with contracts valued at up to $19 million annually and a workforce that fluctuated seasonally from 200 to 400 staff. The City decided to debar Interpaving for four years because the contractor had initiated litigation against the City and also violated health and safety legislation, both of which were recognized grounds for debarment under the relevant City by-law.
As the Court summarized, the City alleged that Interpaving had breached health and safety standards, and Interpaving then took a position against the City in the Ministry of Labour safety violation proceedings:
By way of example, the City cited seven orders issued by the Ministry of Labour under the Occupational Health and Safety Act, R.S.O. 1990, c.0.1 (the “OHSA”) relating to the Elgin Street Project. On September 30, 2015, a pedestrian was struck and killed by a construction vehicle as she entered a construction zone in which Interpaving was working. The Ministry of Labour (the “MOL”) investigated the accident immediately and issued four substantive work orders and three stop work orders against Interpaving. The MOL also issued four orders against the City and an order that the City was the “constructor” (as defined under the OHSA) on the Elgin Street Project having overall responsibility for health and safety on the Project. There are now charges against both Interpaving and the City as a result of this event.
The City appealed the orders against it. Interpaving also appealed the work orders issued against it. These appeals have been adjourned pending the City’s appeal of the MOL order that it was the “constructor” of the Project, which is material to the charges against the City. Under the contractual documentation between Interpaving and the City, Interpaving had the responsibilities of the “constructor” of the Project. However, Interpaving obtained intervener status in the City’s appeal and, in doing so, provided evidence and made submissions in support of the MOL position that the City was the “constructor” of the Project. Interpaving has not changed its position in that proceeding since the commencement of this application.
The City also referred to Interpaving’s failure on numerous occasions, to understand its obligations under the OHSA, including its role as “constructor”, and stated “is also apparent that Interpaving is unwilling to co-operate with the City in relation to health and safety matters.” It is understood that these statements also refer, in part, to Interpaving’s involvement in respect of the Elgin Street Project.
The City further alleged that Interpaving abused the contract change processes and threatened City staff and inspectors:
The City also stated that it had documented evidence of poor performance in the management of lnterpaving’s contractual relationships with the City. It gave as an example, Interpaving’s “routine abuse” of the change order mechanism under the City’s General Conditions, including the assertion of frivolous claims and the failure to assert claims in a timely manner. The General Conditions govern the contractual arrangements between a contractor and the City regarding City projects.
Interpaving had a “significant history of abusive behaviour and threatening conduct directed from Interpaving owners and employees toward City employees from May 2003 to [the date of the Debarment Letter]”. Those instances were set out in writing. The City referred by way of example to an incident on August 29, 2012 in which Mr. Argento, a director and shareholder of Interpaving, threatened to run over a City inspector who had ordered a suspension of work due to issues regarding concrete testing and pouring on the site. The Debarment Letter also stated that the City had met with Interpaving representatives on numerous occasions to put a stop to such behaviour without success.
After receiving the initial debarment letter, Interpaving met with City officials and sought a rescission of the City’s debarment decision. The City ultimately directed Interpaving to seek a reconsideration and to make written submissions in response to the issues raised in its debarment letter:
After Interpaving received the Debarment Letter, City officials met with employees of Interpaving on March 30 and April 12, 2016, in each case at the request of Interpaving. Interpaving sought to have the Debarment Decision rescinded. At the end of the March 30 meeting, the City invited Interpaving to formally request reconsideration of the Debarment Decision and to provide the City with written submissions with respect to the debarment and the steps Interpaving was taking to respond to the City’s concerns. At the commencement of the second meeting, Interpaving provided a letter dated April 12, 2016 written by Steve Vacarro, the Vice-President of lnterpaving (“Vacarro”), containing written submissions explaining why it believed that it should not be debarred (the “Vacarro Letter”), together with a summary thereof. At the second meeting, Interpaving was accompanied by legal counsel who subsequently also had conversations with City representatives regarding Interpaving’s position on certain issues referred to in the Debarment Letter and the two meetings.
After considering the responses provided by Interpaving, the City issued a reconsideration letter, which confirmed that the City had taken Interpaving’s submissions into account but had decided to maintain its original debarment decision. Interpaving then brought a court application challenging its debarment.
As an initial finding, the Court determined that neither the City’s by-law debarment rules nor its specific debarment decision breached applicable open competition obligations under the trade treaties:
There is no evidence that either the By-Law or the Debarment Decision contravenes Canada’s free trade agreements. Moreover, as noted in Shell, “a municipality has essentially the same right as a business person to decide with whom it will do business”. There are good reasons for doing this including the effect of ongoing litigation on the parties’ working relationship and the fear of doing business with a party prone to litigation. (See Cox Bros. Contracting & Assoc. Ltd. v. Big Lakes (Municipal District) (1997), 215 A.R. 126 (Q.B.)
However, the Court then found that the City’s debarment decision was subject to procedural fairness and determined that the City’s failure to provide advanced notice to Interpaving prior to making the debarment decision breached its due process duties:
In considering the content of procedural fairness in this case, the following factors are relevant.
First, the Debarment Decision was an administrative decision, as to who was entitled to bid on contracts paid for with public funds, which involves the exercise of discretion. The City is not adjudicating Interpaving’s rights as there is no right to obtain contracts from the City.
Second, this is a commercial decision regarding who the City is prepared to do business with. A municipality is entitled to discriminate against a supplier, provided it does so within the confines of the enabling legislation and without contravening the Charter or prevailing legislation. In Shell Canada at p. 282, Sopinka J. wrote for the majority;
Obviously in carrying on the business of the City or acquiring property from suppliers or vendors, the City must make choices that can be said to discriminate. Discrimination for commercial or business reasons is a power that is incidental to the powers to carry on business or acquire property.
Third, on the other hand, while private entities are free to discriminate with respect to the parties with whom they contract, different considerations apply to similar decisions of public bodies such as municipalities that undertake commercial and contractual activities using public funds. (Shell Canada (supra).) In particular, they cannot act in bad faith or for an improper purpose. Moreover, they must have regard to the consequences for the municipality. In this regard, disqualification of a contractor can have the effect of reducing competition among eligible bidders which, in turn, can have the effect of increasing the price that the City is required to pay for its work.
Fourth, under the By-Law, the decision-makers have “absolute sole discretion” to decide whether or not to debar a person whose actions fall within the provisions of the Bylaw, which argues for a reasonableness standard. In addition, the By-Law contains no right of appeal or formal reconsideration procedure.
Fifth, an important aspect of the duty of fairness is the individual’s entitlement to notice and the right to know the case to be met. Notice allows a party an opportunity to respond to the proposed decision.
Sixth, debarment can have a significant direct financial impact on a contractor insofar as it cannot bid on contracts as the contractor. This financial impact may be mitigated in this case to the extent that Interpaving can continue to work as a sub-contractor on City projects. The parties dispute the ability of lnterpaving to obtain such contracts. However, in addition, debarment is a public process that may adversely affect a contractor’s reputation more generally as the decision becomes a matter of public knowledge.
Seventh, the reasons offered must be sufficient to explain what was decided and why it was decided that way, but not how it was decided. (R. v. R.E.M., 2008 SCC 51, [2008] 3 S.C.R. 3.) 2018 ONSC 3005 (CanLII) Page: 9
Finally, one of the goals of the By-Law is “to ensure openness, accountability and transparency while protecting the financial interests of the City of Greater Sudbury”.
Given the importance of the decision to Interpaving, and the fact that there is no appeal of the City’s decision, although it is an administrative decision, Interpaving should have received notice of the intention to debar and the proposed penalty, a summary of the grounds for the proposed decision, an opportunity to respond, and reasons for the decision. (Khan v. University of Ottawa, 1997 CanLII 941, 34 OR. (3d) 535, at p. 546.)
The City’s failure to provide Interpaving with formal notice of the City’s proposal to debar it from bidding on City paving contracts for four years and an opportunity to be heard before the Debarment Decision was made constitutes a breach of procedural fairness.
However, notwithstanding the initial breach of its procedural fairness duties, and notwithstanding challenges by Interpaving regarding the admissibility of evidence in subsequent discussions between the parties prior to the City’s reconsideration decision, the Court found that the City ultimately cured its original procedural defects through its improvised reconsideration process since Interpaving was given the opportunity to address the initial grounds of debarment:
The City argues that any unfairness that resulted from the procedure that was followed by the City in this case was cured by the Decision-Makers’ subsequent reconsideration and redetermination of the Debarment Decision. Interpaving says that it did not ask for a reconsideration of the Debarment Decision. It suggests that, therefore, the City’s actions cannot be characterized as a reconsideration.
We do not agree. Interpaving sought to convince the City that the Debarment Decision was wrong and sought a withdrawal of that decision. This amounts to a request for a reconsideration and rescission of the Debarment Decision. The City could not rescind the Debarment Decision without first reconsidering it. Further, the manner in which Interpaving sought a withdrawal of the Debarment Decision does not determine what occurred as a substantive matter. The issue is whether the City engaged in a bona fide reconsideration of Debarment Decision that satisfies the requirements of procedural fairness.
In support of the conclusion that the City had cured its initial procedural defect, the Court noted that Interpaving was provided ample opportunity to respond to the grounds on which the original debarment decision was made:
Initially, Interpaving sought to circumvent the Decision-Makers and to obtain a political decision overriding the Debarment Decision. The City was not, however, prepared to proceed in this manner. Instead, the Mayor ensured that the City’s Decision-Makers were present at the meeting on March 30, 2016 and that the Interpaving representatives made their case to them as well as to the other participants in the meeting. Further, at the end of that meeting, Interpaving was invited by the City representatives to request a reconsideration and to put its position in writing. Interpaving met the City’s Decision Makers and other City representatives a second time at Interpaving’ s request. At that meeting, Interpaving delivered the Vacarro Letter. Between the two meetings Interpaving and the City appear to have thoroughly canvassed the issues between them.
In any event, there was nothing in the City’s actions that prevented Interpaving from putting forward its views including regarding the penalty imposed. Nor is there any suggestion that Interpaving failed to do so. There is also no suggestion that the City’s Decision-Makers did not understand the position of Interpaving on the matters upon which the City based the Debarment Decision after these two meetings and delivery of its written submissions. Interpaving says that it did not understand that the City’s Decision-Makers were approaching the presentations in these meetings and in the written submissions as a reconsideration. This is certainly open to doubt. In any event, however, there is no suggestion that Interpaving would have put forward any material arguments or evidence in support of its position on these matters if it had known that the City’s decision-makers were approaching the presentations in these meetings and in the written submissions as a reconsideration.
The Court then elaborated on the series of factors that supported its conclusion that the City had cured the procedural defects in the initial debarment decision:
The evidence provided demonstrates that the City cured the procedural defects in the Debarment Letter by engaging in a fresh consideration of the events.
First, having received the Debarment Letter, Interpaving had notice of the principal matters on which the Debarment Decision was made, to the extent it was not already aware based on its regular interaction with City representatives.
Second, Interpaving was able to put forward any evidence it considered to be relevant that had not been put before the City’s Decision-Makers. In the end, the only evidence of this nature was the fact that, in respect of the incident involving Mr. Argento, the City representative who was cross-examined indicated that he was not aware that, several years before Mr. Argento threatened to run over the City employee, the City employee involved had allegedly stated in another interchange with Mr. Argento, that he wished Mr. Argento had been under a bridge that had recently collapsed in Montreal. Whatever the prior history between the two individuals, it did not justify Mr. Argento’s physical threat to the City employee involved in the incident several years later.
Third, Interpaving was able to put forward all of its submissions for discussion by the parties. There is no evidence put before this Court that was not raised in the meetings. In particular, Interpaving could have raised the length of the debarment period if it considered that there was a principled reason for a shorter period. It chose, however, to restrict its demand to a complete withdrawal of the Debarment Decision.
Fourth, there is no suggestion that the procedure followed in order to allow Interpaving an opportunity to respond would have been any different or that the content of the meetings would have been any different if the City had provided notice of its intended decision and an opportunity to be heard prior to taking its decision.
Most importantly, the difference between the parties on the principal issues is not factual to any material extent. Rather, it is a matter of a difference of opinion as to the significance to be attached to a number of matters in dispute that have arisen between the parties over the years as evidenced by the Record and of which Interpaving is well aware. That is an issue that goes to the reasonableness of the Debarment Decision, which is addressed below, rather than to any issue of procedural fairness. Moreover, the fact that the City’s DecisionMakers confirmed the Debarment Decision after the reconsideration is not evidence, in itself, of a lack of procedural fairness in the reconsideration process. In the present circumstances, it is merely a reflection of the reasonableness of the Decision as discussed below.
Lastly, the central issue is whether the City’s decision-makers kept an open mind during the reconsideration. There is no doubt that they responded in the two meetings to the Interpaving submissions. However, that is not the same as saying that they acted in bad faith and merely “went through the motions”. Interpaving does not suggest this and there is no evidence to support such a finding.
The Court concluded that the process followed by the City after the initial debarment letter constituted “a bonafide reconsideration” of the debarment decision, which “cured the initial lack of procedural fairness in the City’s failure to give notice” by providing Interpaving with an opportunity to make submissions prior to the final reconsideration of the debarment decision. The Court also concluded that “the City’s actions after delivery of the Debarment Letter satisfied the requirements for procedural fairness in respect of the Debarment Decision.”
However, while the majority of the Court concluded that the flawed initial debarment decision was subsequently cured through the City’s improvised reconsideration process, the dissenting judge disagreed, finding that the City failed to provide adequate documentary disclosure to Interpaving about the grounds of debarment, and that the City introduced new debarment grounds during its reconsideration decision, but failed to provide Interpaving with an adequate opportunity to respond to those new grounds.
With respect to documentary disclosure, the dissenting judge found that the City was under an obligation to provide the contractor with the specific evidence it was relying on prior to making a debarment decision:
I agree with my colleagues that the duty of procedural fairness imposed upon the City required it to give notice, an opportunity to respond, and reasons for its decision. However, I believe that fairness required more in the circumstances of this case. I believe that by virtue of the wording of the By-Law and the specific grounds upon which the City relied in debarring Interpaving, fairness also required documentary disclosure. One of the provisions of the By-Law relied upon by the City was s. 37(2)(c). That section allows disqualification where “there is documented evidence of poor performance”. In my view, the City should have disclosed these documents, the very existence of which provides a ground for debarment.
In the Debarment Letter, the City also said it had “a documented record” of a history of abusive behaviour going back to 2003 in support of debarment under s. 37(2)(g). At the very least, Interpaving could expect disclosure of such a record, to refer to one of the Baker factors specifically. In my opinion, such an expectation would be reasonable, given the By-Law’s expressed purpose of ensuring “openness, accountability and transparency” in the procurement (and debarment) process. The City ought to have disclosed these documents in advance of making the Debarment Decision. Moreover, given the importance of the decision both to the taxpayers of the City and to Interpaving, I do not think it is too much to suggest that the City should disclose all of the documentary evidence upon which it proposes to debar a bidder. I am not persuaded that imposing such a requirement would place too great a burden on the City.
The Record of Proceedings compiled by the City in response to this application demonstrates the potential for a significant amount of documentary disclosure as part of the debarment process. This is no doubt due, at least in part, to the grounds relied upon for debarment and the length of time over which the Decision-Makers considered Interpaving’s conduct. Disclosure of the documentary evidence in most other cases is likely to be much less onerous. Take, for example, where the basis for the proposed debarment is just that the contractor has sued the City, or failed to pay an amount owed to the City. In any event, if the Decision-Makers are looking at the whole picture before making a decision to debar, as they should, then disclosure of what they find along the way could not be that difficult.
The dissenting judge further found that the improvised reconsideration process failed to cure the initial breach of procedural fairness, as it did not provide adequate notice to Interpaving to respond to the additional grounds of debarment raised by City staff during the improvised reconsideration process. While the Court majority found that the new grounds were immaterial since the original grounds were sufficient to justify the debarment, the dissenting judge disagreed:
While I agree that what took place after the Debarment Decision was communicated in the Debarment Letter was in the nature of a request for reconsideration and, for that reason, settlement privilege does not apply to preclude evidence about those events, I do not agree with my colleagues that those events had the effect of curing the procedural fairness that preceded the Debarment Decision.
I do not agree that the issues were “thoroughly canvassed” between Interpaving and the City during the meetings, as my colleagues suggest (para. 57). The parties did not even discuss the length of the debarment. That is one of the few conclusions that we can safely draw from the record in this case.
In fact, the dissenting judge noted that there were contradictory accounts of the communication that unfolded during the City’s improvised reconsideration process and that Interpaving was never formally notified of a pending reconsideration decision:
The Application Record contains wildly contradictory statements about what took place during the meetings after the Debarment Letter was sent. Even if we were able to resolve these contradictions on a purely paper record – and we are not – it is clear that there was also no discussion whatsoever with respect to some of the grounds relied upon in the Reconsideration Decision. In particular, there is no affidavit evidence that the parties ever discussed Interpaving’s performance on the Big Nickel Mine Road project as a ground for debarment.
Nor did Interpaving ever address any grounds for debarment that were not discussed. Kevin Fowke deposes that, at the conclusion of the meeting, Interpaving was invited to “formally request reconsideration of the [Debarment] Decision and to provide the City with written submissions with respect to the disqualification”. Based on this evidence, Interpaving was asked to address only the grounds that had been expressed in the Debarment Decision. These did not include Big Nickel Mine Road project. Clearly, Interpaving had no notice that the City would rely on allegations relating to that project. This is confirmed by the fact that there was no mention made of that project in the Vaccaro letter.
For a number of reasons, I do not agree with the suggestion that Interpaving ought to have known that it could be debarred and why. For one, Interpaving commenced the Lawsuit before the By-Law was even passed. For another, there is no evidence that debarment was ever mentioned during any of the many discussions between officials from the City and Interpaving in the years leading up to the Debarment Decision. Even if Interpaving was “an outlier” with respect to its contract performance, health and safety issues, and its abusive working environment, how could it have known when “enough was enough” without the mention of debarment? The relationship between the parties was approximately 40 years old and Interpaving was the first contractor ever to be debarred under the By-Law. It is no answer to the failure to give notice and an opportunity to be heard to say that Interpaving ought to have known that it “had it coming”.
My colleagues refer to the fact that Ken Edwards, the general manager of one of the Interpaving companies, was well aware of the issues between the parties over the Big Nickel Mine Road project. In my view, even if this conclusion is available to us, this knowledge does nothing to cure the procedural unfairness that resulted when the City relied on those issues to support its Debarment Decision. It is one thing to be aware of the facts upon which a decision-maker may rely; it is entirely another not to be given the opportunity to make submissions about the accuracy and the importance of those facts.
Interpaving was given no opportunity to be heard with respect to the further grounds relied upon by the City in the Reconsideration Decision. Instead, when Interpaving was asked to address the grounds for the Debarment Decision, the City then relied on other grounds that it admitted were “additional” to those it relied on initially. That was not fair, in my respectful view.
The dissenting judge therefore concluded that the debarment decision should be struck down and, now that the City had provided Interpaving with documentary disclosure as part of the court proceedings, a fresh reconsideration should be conducted by individuals who were not involved in the City’s original debarment decisions:
For these reasons, I would quash the Debarment Decision and remit the matter to the City for a fresh determination. As disclosure has now been made by the City as part of its response to this application, it is not necessary that it be made again. However, the City should provide notice of all of the grounds upon which it intends to rely and Interpaving should be given an opportunity to make further submissions in writing with respect to those grounds.
Given the involvement of the Decision-Makers in the decisions at issue, fairness requires that Interpaving’s submissions be considered by a differently composed group of Decision-Makers. The City should be free to choose two other members of the City’s staff who are knowledgeable with respect to the supply of services by Bidders such as Interpaving. If necessary, the City should retain outside counsel to take the place of Labelle with respect to the fresh decision.
The majority and dissenting judgments in this case provide the following useful debarment guidelines and principles for public institutions:
- Establish debarment rules. This case confirmed that public institutions may establish debarment rules and bar suppliers from future contract award opportunities under the relevant trade treaties.
- Provide prior notice and the opportunity to respond to potential debarment. The case established that contractors are entitled to prior notice and the opportunity to respond to the grounds of the potential debarment prior to a debarment decision. While the failure to provide proper notice can potentially be cured through subsequent reconsiderations, this is not a substitute for proper initial notice since improvised cure processes remain subject to further judicial second-guessing.
- Disclose all grounds for the debarment decision. As this case illustrates, public institutions should ensure that all the grounds relied on for a debarment decision are disclosed to the contractor at the outset of a debarment process. Public institutions should avoid raising new grounds midstream in a fragmented fashion, as this can raise questions regarding the adequacy of the initial advanced notice.
- Include documentary disclosures substantiating the debarment grounds with the notice. Finally, to guard against future claims that the contractor was provided with insufficient notice or an insufficient opportunity to address the grounds of debarment, the advanced notice provided to a contractor prior to any debarment decision should be accompanied by documentary disclosures that substantiate the grounds being relied on for support.
As this case illustrates, the greater the adherence to these principles, the better the chances that a debarment decision will stand up to judicial scrutiny when a contractor seeks to challenge that decision.
