This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its 1996 decision in Berwick West Development Inc. v. British Columbia Hydro and Power Authority Power, the British Columbia Supreme Court found that the purchaser could rely on its general privilege clause to apply undisclosed evaluation factors when those factors were recognized industry customs. However, the Court also found that other undisclosed factors constituted undisclosed preferences that could not be saved by the privilege clause.
The case dealt with a British Columbia Hydro and Power Authority tender call for a debris cleaning contract. The Authority bypassed the low bidder. That bidder sued. The dispute revolved around the Authority’s reliance on an industry “blue book” to factor in the “added value” of tenders based on the machinery that the bidder proposed for the work. As the Court explained, the Authority had applied its own undisclosed additional calculations in making its assessment:
The evaluation process employed by B.C. Hydro in 1992 and 1993 involved attempting to determine the “added value” to B.C. Hydro, by using the equipment rental rate guide prepared for B.C. Hydro and B.C. Rail by the Province of British Columbia, commonly referred to as the “blue book”. That book lists standard hourly rates for each kind of cat. It recognizes that older and smaller horsepower machines are less productive and efficient than newer and larger horsepower machines, and assigns hourly rates to each category of cats, depending on its horsepower and age…. [B]ids were assessed, not according to the lowest absolute dollar amounts, but by calculating the difference between the hourly rate bid for a particular machine, and the rate for that machine as set out in the blue book. The theory was that such an evaluation would determine the bid which gave the greatest value to B.C. Hydro. However, the equipment rental guide only referred to cats built in 1976 or later. [BC Hydro] thus adopted a practice…[o]f reducing the blue book rate of older machines by 5% for each three years before 1976 to the year in which the machine was manufactured. Thus, a 1974 machine was assigned the 1976 blue book rate, less 5%.
The Court found that the Authority’s five percent deduction fell outside of industry practices. Accordingly, the undisclosed calculation could not be saved as a reasonably implied term of the process. Instead, it constituted an improper hidden preference:
With respect to the 5% deduction from the blue book rate for machines older than 1976, that was a practice which had not been used in previous years, nor was it generally known to the contractors submitting bids. I accept the evidence that the custom in the industry with respect to vehicles older than the years shown in the blue book was to use the rate for the oldest year of machine shown in the blue book. Although the 5% deduction for older machines may have been applied to all bidders, it was, in effect, a secret preference, not set out in the tender documents, preferring bidders with newer machines. In the words of Legg J.A. in Chinook Aggregates,…[i]t was “an undisclosed term that is inconsistent with that tendering process”. I thus find the use of the 5% deduction to be improper. What properly should have been done was to use the rate of the oldest equipment shown in the blue book.
The Court therefore concluded that the five percent deduction did not fall within the legitimate exercise of the Authority’s general privilege clause.
As this case illustrates, a privilege clause has limited utility in saving undisclosed criteria and is no substitute for proper disclosure.
