This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its August 2013 ruling in Canada Forgings Inc. v. Atomic Energy of Canada Ltd., the Ontario Superior Court of Justice rejected a summary dismissal application of Atomic Energy of Canada (referred to as AECL) in a Contract A lost profit case brought by a losing bidder. The dispute involved a tendering process for the refurbishment of a nuclear reactor. AECL argued that after its Contract A bidding process expired, it was free to directly negotiate a contract award with any supplier and was therefore allowed to award a contract to any of the original bidders. However, a bidder that submitted a better bid than the supplier that was ultimately awarded the contract sued for its lost profits under Contract A. The plaintiff bidder argued that AECL breached its fairness duties by cutting it out of the post-bid process that led to the award to another supplier. AECL sought a summary dismissal from the court, arguing that its Contract A duties expired when the bid validity period expired:
CanForge argues that AECL owed a duty of fairness to it. It arose when AECL issued a tender for bids for the end fitting assemblies. It stated that this arose on September 1, 2004; at that time Donlee, CanForge and Patriot submitted bids.
At that time and during the period of time there was a Contract “A” relationship between the bidders and AECL. It becomes a Contract “B” when, and if, AECL enters into an agreement with one of the bidders.
Paul Emanuelli in his book Government Procurement Third Edition, wrote at page 768 the following:
The primary indicator of a Contract A process is the requirement that bidders submit tenders that will be legally binding, typically for a predetermined amount of time set out in the tender call. However, a tender call may be ambiguous and may not contain express language regarding the intention of the parties, the binding nature of a tender, the irrevocability period or the legal sanctions that may attach to a bidder’s failure to honour its tender.
Since each case is considered on its own facts, no decision to date has provided a complete list of factors, nor have the courts conclusively indicated whether any particular factor is in itself determinative of the overall intention of the parties. However, based on the general concepts articulated in the decisions that have considered this issue, the factors that courts typically look for when determining whether the purchaser intended to create Contract A include:
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The use of traditional tendering terms, phrases and concepts, particularly those historically associated with the construction industry bidding process.
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Formal procedural rules that must be followed by all prospective suppliers in order to avoid disqualification.
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Standards that a tender must meet to be compliant and eligible for acceptance.
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A detailed matrix to score rated criteria.
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The inclusion of pre-established performance terms and standards incorporated into pro forma agreement that replace or limit negotiations during the bidder selection and contract formalization process.
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The requirement that bidders be irrevocably bound to their tenders, often for a predetermined amount of time specified in the tender call.
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The requirement that bidders provide bid security, such as a bid bond or letter of credit, to be forfeited if the bidder is selected but fails to honour its tender.
Precision’s bid was rejected for technical reasons, that left Invar and Donlee bids to be considered by AECL.
In the tender document of AECL, which was dated July 6, 2004, gave a validity date of 180 days. This is found at page 92 of Volume 1 of the motion record of AECL. In the form of tender of the three bidders, Donlee, Invar and Precision, the validity date for all three stated 180 days. …
The position of AECL is that there was no acceptance during the 180 days and thus the tender period was over. This, according to AECL, allowed it to deal with Patriot directly and was not bound by any duty of fairness.
However, the plaintiff argued that the original Contract A tendering process created residual fairness duties that applied to AECL even after the expiry of the bid validity period. While the Court rejected this argument, it found too many lingering issues regarding the transparency of the original Contract A tendering process to grant a summary dismissal of the lost profit lawsuit.
As this case study illustrates, once a Contract A tendering process is initiated, obtaining a summary dismissal of a resulting lost profit claim remains exceedingly difficult, particularly in large complex projects. Purchasing institutions would be well-served to avoid creating a Contract A bidding process in the first place, instead of seeking to extract themselves out of those processes after having initiated them. Using a properly structured negotiated Request for Proposals (RFP) is a far better solution then defending against protracted lost profit claims.
