This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
Establishing clear contract approval and award protocols is essential to good governance in the procurement process. The following cases provide examples of how legal liability can turn on the failure to properly manage this key aspect of internal governance. The first example deals with an improper contract award that was made without first obtaining the necessary internal approvals. The second deals with a situation where an institution failed to follow up with proper paperwork to document a senior-level commitment to enter into a long-term contract. Both cases underscore the importance of properly lining up internal governance with the external commitments made to suppliers.
The 2005 decision of the Newfoundland and Labrador Supreme Court in Canship Ltd. v. Newfoundland and Labrador (Minister of Works, Services and Transportation) illustrates the risks of not aligning an institution’s internal approvals with its external awards. The case dealt with a tender call for the provision of a container ocean vessel. Minutes before the expiry of the tenders, the government sent the plaintiff bidder a Letter of Acceptance. Within thirty minutes of sending the letter, the government attempted to rescind the award, taking the position that the letter had been issued without the required internal Treasury Board approvals. The Court rejected this argument, noting that non-compliance with internal approvals did not give the government the right to cancel the contract award, particularly since the individual who made the award knew he was proceeding without internal approvals and had assumed that they would be obtained. As the Court stated:
In these circumstances I find there was no error on the part of the Government Purchasing Agency in sending the Letter of Acceptance to Canship. The Agency intended to communicate to Canship that it was the successful bidder and would be requested to enter into a formal contract. I accept that Mr. Baker knew the Letter should not go out before the Department received the authorization of Treasury Board to award to the higher bidder. I am satisfied, however, that he expected to have received this authorization by the telephone call to Treasury Board shortly before 2:00 p.m. I conclude the premature issuing of the Letter by the Purchasing Agency resulted from Mr. Baker’s not being sufficiently explicit in his instructions to the Agency that the Letter should be held, from his not allowing sufficient time to request an extension of the Tender Validity Period in the event Treasury Board approval was not forthcoming, and from his not contacting the Agency or ensuring he would be available to Mr. Cahill before 2:00 p.m. once he realized Treasury Board approval would not be routinely granted.
The Court awarded the plaintiff damages for breach of the improperly rescinded contract.
As illustrated in the Nova Scotia Court of Appeal 2001 decision in Founders Square Ltd. v. Nova Scotia (Attorney General), the failure to properly document commitments made by a senior official can cause significant downstream issues when new management takes over an organization. By way of background, the Nova Scotia government had purchased a number of derelict buildings near the Nova Scotia Legislative Assembly and planned to demolish them to build a central government office facility. However, the government came under pressure from heritage groups who lobbied to preserve the buildings. After striking a Cabinet Committee to address the issue, the Premier announced that Founders Square, a developer who was already in the area undertaking other projects, would restore the buildings. As part of the arrangement, the government would lease 25 percent of the restored space for 30 years to help amortize the costs. The paperwork setting out this arrangement was not completed. Instead, the matter was redirected to the Department of Government Services and it imposed a standard five-year letter lease on Founders Square. When a new Premier took over, the government relied on the letter lease to support a new policy direction and cancel the project. The developer sued. The Court ordered the government to honour its original 30-year commitment. This case underscores the importance of having a clear internal approval and award process, and of ensuring that contracts are documented to properly reflect the arrangements agreed to between the parties.
As these cases illustrate, institutions should maintain proper internal approval protocols and be careful to ensure that: (i) the commitments made to external suppliers properly align with those approvals; and (ii) those commitments are clearly documented for future reference by decision-makers.
