This article is an excerpt from Government Procurement, which is available for purchase.
In its January 2013 decision in Rankin Construction Inc. v. Ontario, the Ontario Superior Court of Justice upheld the government’s decision to disqualify a bidder whose bid contained misrepresentations. The dispute dealt with a tender call issued by the Ontario Ministry of Transportation for the widening of a Highway 406 in the Niagara region. Rankin’s low bid was rejected as non-compliant. It took issue with its rejection and sued the Ministry for lost profits. The court ultimately determined that the bid was validly rejected due to Rankin’s failure to accurately disclose the amount of domestic steel it intended to use for its project.
As the court summarized, following the public opening of bids and prior to the award of a contract, a competing bidder and the local road builder’s association disputed the accuracy of the Canadian content representations in Rankin’s tender:
Following the tender opening, the MTO published a list of the bidders showing Rankin as the low bidder on both the Total Tender and the Total Adjusted Tender. In accordance with the Instructions to Bidders, the three lowest bidders were required to submit additional documentation to the MTO, including a detailed list of its unit prices for the various components of the project. These documents were utilized by the MTO to carry out a pre-award evaluation of the three lowest tenders.
Some time prior to October 11, 2005 the MTO received a complaint from a competing bidder Hard Rock Paving (“Hard Rock”) that Rankin’s bid was too low to do the work on the project. Hard Rock followed up with a letter dated October 12, 2005 asserting that Rankin’s bid was not compliant for failure to include H-Piles in its declared Value of Imported Steel since H-Piles are not manufactured in Canada, and claiming that the contract should be awarded to it as the next lowest bidder. The MTO received a letter dated October 19, 2005 from the Ontario Road Builders’ Association (“ORBA”) to a similar effect, asserting that, if it was found that Rankin’s bid did not properly declare the foreign origin of the H-Piles, its tender should be declared informal, or non-compliant, and the contract awarded to the next lowest bidder. It is noted that Hard Rock was a member of ORBA but Rankin was not.
The Ministry decided to look behind the accuracy of Rankin’s Canadian content calculations. It found that the concerns were valid. The Ministry ultimately determined that Rankin’s low bid should be rejected in order to preserve the integrity of the bidding process:
Mr. MacLean and Mr. Hennum each testified that the primary consideration behind the Ministry’s decision was the perceived need to maintain fairness among all bidders and the integrity of the tender process. In reference to the discretion clause at para. 11.1 of the Instructions to Bidders, by which the MTO retained the right to reject any or all tenders and to waive irregularities “in the Ministry’s interest”, Mr. MacLean testified that the key interest of the Ministry at the time was the maintenance of the integrity of the bidding process. He considered that a waiver by the Ministry of the non-compliance in Rankin’s bid would not be fair to all bidders. He questioned how confidence in the Ministry’s tender process could be maintained among contractors if the Ministry, having received a complaint about a non-compliant bid, chose to ignore the issue and accept a bid determined to be non-compliant.
Rankin challenged its disqualification, arguing that that the Supreme Court of Canada’s precedent setting decision in Double N Earthmovers v. Edmonton (City) prohibited purchasers from looking behind representations made in a bidder’s tender. The court disagreed, noting that the Supreme Court of Canada’s Double N decision held that purchasers were not required to investigate allegations of misrepresentation and non-compliance raised by competing bidders, but that they continued to have the right to do investigate where concerns over the validity of bidder representations arose. In distinguishing the facts in the dispute from those in Double N, the court noted that in the latter, the City of Edmonton was sued after it failed to look behind the low bidder’s misrepresentation but that in this case the Ministry had chosen to exercise its right to make further inquiries after receiving bids:
The situation in the present case is different. The question is not whether there is a duty owed by an owner to all tenderers to carry out investigations of bids for non-compliance, but rather whether an owner is disentitled to carry out such an investigation, and whether, if it does so at the instance of a rival bidder, it thereby breaches an obligation to the low bidder whose bid is found to be non-compliant as a result of the investigation.
In court justified its rejection of Rankin’s assertion that purchasers were prohibited from investigating the accuracy of tender compliance information in a bid since turning a blind eye in the face of concerns over misrepresentation would undermine confidence in the tendering system:
In my view, to require an owner to stay its hand and refrain from making enquiries in the face of information that it will be impossible for a bidder to fulfil a material requirement of its bid, and to award the contract to such a bidder, does not promote the integrity of the bidding process. Public sector owners, such as the MTO in this case, have a long-term interest in protecting of the integrity of the bidding process. Their concern is not necessarily restricted to the individual project under consideration, but with the maintenance of a vigorous and competitive tendering process on future projects. Anything which would dissuade potential bidders from participating in the bidding process in the future, due to a perception of unfairness in the process, would not be in the public interest.
In rejecting Rankin’s argument, the court agreed with the Ministry’s assertions that purchasers have the right to investigate valid concerns over bidder misrepresentations that related to compliance of the bid:
To impose a blanket prohibition on the right of a tender-calling authority to investigate whether it is possible for a bidder to fulfil the terms of its tender would threaten the integrity of the bidding process by encouraging the submission of bids which, while compliant on their face, may give bidders an unfair advantage over other bidders. To maintain an entitlement, but not an obligation, for an owner to investigate whether compliance is possible, would encourage bidders to rigorously prepare and scrutinize their bids to achieve compliance or run the risk of having their bids ruled to be non-compliant.
To entitle owners to investigate allegations of non-compliance, but not require them to do so, would address the concern expressed by the majority in Double N respecting the danger of unwarranted attacks by rival bidders resulting in possible unequal treatment of bidders and frustration of the process, by giving owners to right to choose to investigate only allegations of non-compliance considered to be legitimate and bona fide.
In coming to its conclusion, the court also determined that the Ontario government’s Procurement Directive and Procurement Operating Policy did not prohibit such investigations and that, in any event, these internal procedures were not expressly incorporated into the tender call rules and were therefore not part of the rules of the particular tendering process.
The court ultimately determined that Rankin’s bid contained material factual inaccuracies since it understated the amount of foreign steel required to do the work. This led to the inaccurate calculation of the Canadian content for the purposes of the 10% domestic preference and thereby impacted the price calculation in Rankin’s bid. The court therefore determined that the Ministry had properly rejected the bid as non-compliant due to these misrepresentations:
The accuracy of the Declared Value of Imported Steel is therefore crucial to the determination of the low bidder, as it bears directly on the Adjusted Total Tender of each bidder. An understatement by a bidder of its Declared Value of Imported Steel would therefore give that bidder an advantage over others in the tender process.
The PPCC formed an integral and fundamental element of the tender scheme for the project. Non-compliance with the requirement to provide an accurate Declared Value of Imported Steel would therefore be regarded prima facie as a material non-compliance. Because of the importance of the PPCC to the tender scheme, the MTO was entitled to rely on an expectation that submitted declarations of the value of imported steel would be accurate.
As the court noted, taking the facts in Rankin’s bid at face value would have resulted in an improper evaluation and improper award. The Ministry was therefore justified in looking behind the representations and rejecting Rankin’s bid.
In concluding its decision, the court also applied the governing three-part test from the Supreme Court of Canada’s Tercon Contractors Limited v. British Columbia (Transportation and Highways) decision and determined that even if the bid had not been validly rejected, the limitation of liability provision in the Ministry’s tender would have shielded the Ministry from liability to Rankin for lost profits. This conclusion is in line with prior decisions where the courts have ruled in favour of enforcing legal disclaimer clauses in tendering disputes after already concluding that there was no breach of the rules and no liability in the first place. However, the enforceability of such clauses is far less certain in instances where a breach of the rules and liability have been found by the court and the award of damages turns on the enforcement or non-enforcement of a liability disclaimer. As the Supreme Court of Canada’s controversial split decision in Tercon illustrates, when a court determines that a purchasing entity has broken the rules and the liability disclaimer stands as the final barrier between a prejudiced bidder and a lost-profit award, the enforceability of such a provision is far from certain. Purchasers would therefore be wise not to put too much weight behind this aspect of the court’s decision in the Rankin case.
