This article is an extract from the 5th edition of Government Procurement.
In its March 2021 decision in Inzola Group Limited v. City of Brampton, the Ontario Court of Appeal upheld a trial decision that rejected a losing bidder’s $25 million lost profit claim.
Turning first to the trial decision, in its January 2019 decision in Inzola Group Limited v. City of Brampton, the Ontario Superior Court of Justice dismissed a lost profit claim against the City of Brampton in connection with a Competitive Dialogue Request for Proposals (“RFP”) process. The case dealt with the construction of an extension to the Brampton City Hall. The plaintiff was disqualified for failing to sign a confidentiality agreement required by the RFP rules and then breaching the RFP communication protocols by raising its concerns over the confidentiality agreement directly with City Council and the media. It sued for lost profit damages in the amount of approximately $25 million.
Brampton adopted the “Competitive Dialogue” RFP format for its tendering process due to the complexity of the project and its intention to seek solution-based proposals. While the two other proponents signed the required confidentiality agreement, the plaintiff refused to sign it, arguing that the agreement was too broad and asserting its right to make its final bid submission directly to City Council. This resulted in the plaintiff’s disqualification.
The plaintiff claimed that while the municipality promised an open and fair RFP process, the Mayor, the City Manager, and the RFP evaluation committee were all biased against it. The plaintiff also asserted that its refusal to sign the confidentiality agreement and appeal directly to City Council did not breach the process rules. It claimed that its disqualification was based on personal animus and bias and sought $25 million in lost profit damages.
As the court summarized, city staff sought to enforce the recommendations of the Bellamy Commission, which called for a depoliticization of the procurement process to protect against inappropriate interference with municipal contract award decisions.
The plaintiff challenged the reasonableness of the confidentiality agreement, arguing that it was overly broad in applying to all confidential information without any time limits. However, the court rejected the plaintiff’s arguments and accepted expert evidence from the municipality regarding the confidentiality agreement.
The court also ruled that even if the plaintiff had been improperly disqualified, it would not have been entitled to lost profit damages since the process used by the municipality was not a Contract A bidding process, but was a properly designed negotiated RFP that did not give rise to lost profit damages:
B. The Nature of RFPS in General and this RFP in Particular
In Chippewas, discussed in Part III above, the Ontario Court of Appeal endorsed the proposition, stated by authors Sandori and Pigott in Bidding and Tendering: What is the Law?, 2d ed. (Toronto: Butterworths, 2000), at p. 239, that:
Properly drawn, an RFP asks parties for expressions of interest and sets out the owner’s intention to consider those expressions of interest and then to undertake negotiations with one or more parties whose proposal(s) appeal to the owner. [emphasis in original]
In my opinion the City had a “properly drawn” RFP. This is supported by provision K12 of the RFP which states:
This RFP does NOT constitute an offer by the City of Brampton to contract. Neither does this RFP, nor will any Submission, constitute such an offer or create any contractual or other obligations whatsoever. Issuance of this RFP, the Respondent’s preparation of a Submission, and the subsequent receipt and evaluation of the Submission by the City of Brampton does not obligate or commit the City of Brampton in any manner whatsoever, including awarding a contract to any Respondent(s). Only the execution and delivery of a contract between the City of Brampton and a Respondent will obligate the City of Brampton in accordance with the terms and conditions in such a contract.
This conclusion is also supported by the surrounding circumstances. In the RFP the City only provided the most general description of its wants and needs, which left much to be negotiated. In addition, it was common ground that the Respondents to the RFP assumed no obligations and could have walked away at any time during the Competitive Dialogue process.
I also note that it was common ground that the RFP process did not create a “Contract A” between Inzola and the City. In a Contract A/Contract B tender process, Contract A typically has appended the form of Contract B which has a defined scope of work. Contract A obliges the owner and the low bidder to enter into Contract B.
As the court further explained, non-Contract A negotiated RFPs are designed to avoid exposing purchasing institutions to protracted lost profit claims:
There was nothing unusual about the City’s RFP that would give Inzola special rights and expectations. If Inzola can claim expectation damages based upon the RFP it would turn the law on its head. Anyone issuing an RFP would be exposed to damages based upon the ultimate contract. This would effectively eliminate the well-recognized distinction between a RFP and a tender process. Put differently if the City’s RFP provision, that only the execution of a contract will create an obligation in relation to the construction contract, does not protect the City from a claim for expectation damages then I do not see what language would.
If Inzola is correct there is no doubt that RFPs would become more complex and expensive. An RFP in any significant project could not be left to purchasing specialists. Lawyers would be required at every stage. Purchasers, in this case ultimately the taxpayers of the City, could be burdened by multi-million dollar damage claims based upon the mishandling of a process that was simply directed to obtaining expressions of interest.
If Inzola is correct there will be more, and more expensive, litigation. When you have a Contract A by definition you know all the terms of Contract B. Calculation of damages is fairly straight forward. In the case of an RFP, and particularly in this RFP that called for Competitive Dialogue, determining expectation damages requires a highly speculative process of attempting to determine how a negotiation process would have unfolded. Proof of such damages takes a lot of time at trial as this case demonstrates.
The losing plaintiff’s claim was rejected, and it was ordered to pay legal costs to the municipality. In March 2021 the Ontario Court of Appeal upheld the trial decision. The Court of Appeal noted that the plaintiff had refused to sign the confidentiality agreement since it wanted to directly lobby City Council for the contract award and that it had breached the “no media contact” protocols in the RFP in an attempt to undermine and politicize the bidding process. The Court of Appeal also agreed that the trail judge properly interpreted the RFP rules, which called for a depoliticized procurement process.
The Court of Appeal ultimately concluded that the plaintiff “was disqualified because its conduct not only breached the terms of the RFP, but because it threatened the credibility and integrity of the RFP process.” The plaintiff’s appeal was dismissed and the trial court’s order for the plaintiff to pay over $3 million in legal costs was upheld.
