Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4 (“Tercon”) was released by the Supreme Court of Canada this year and is the Court’s most recent pronouncement on the law of tendering. A few points are worth noting.

Facts

• The BC Government (the “Province”) issued a Request for Expressions of Interest (“RFEI”) with respect to a project to design and build a highway in Northern BC. But, after receiving responses, decided it would undertake the design itself and sought proposals for only the construction of the highway.

• The proposals were sought via a Request for Proposals (the “RFP”) and only those that had responded to the RFEI were entitled to submit responses to the RFP and the RFP, expressly stated that, “Only the six Proponents, qualified through the RFEI process, are eligible to submit responses to this RFP. Proposals received from any other party shall not be considered.”

• The RFP contained a exclusion of liability clause that stated, “Except as expressly and specifically permitted in these Instructions to Proponents, no Proponent shall have any claim for any compensation of any kind whatsoever, as a result of participating in this RFP, and by submitting a proposal each proponent shall be deemed to have agreed that it has no claim” (the “Privilege Clause”).

• Tercon Constructors Ltd. (“TCL”) responded to the RFEI and subsequently submitted a proposal in response to the RFP. Brentwood Enterprises Ltd. (“Brentwood”) also responded.

However, by the time the RFP was issued, Brentwood had determined that it lacked certain abilities to bid competitively and submitted a proposal in response to the RFP that was found at trial to be a proposal of a joint enterprise between Brentwood and Emil Anderson Construction Co. (“EAC”). EAC was not included in Brentwood’s “team” for its original response. By partnering with EAC, Brentwood gained a competitive advantage. The Province ultimately accepted the proposal of Brentwood. Tercon sued.

The trial judge found that the Province had breached its “Contract A” with TCL by accepting a bid from an ineligible bidder. The trial judge also found that the Privilege Clause relied upon by the Province did not exclude TCL’s claim for damages because it was not in the contemplation of the parties that the Privilege Clause would extend to protect the Province from a claim arising from what the trial judge found to be unfair dealings with an ineligible bidder. The trial judge awarded TCL $3,293,998 in damages, plus costs.

The BC Court of Appeal allowed the Province’s appeal, ruling unanimously that the Province’s conduct was protected by the Privilege Clause and that it was a bar to TCL’s claim. The Supreme Court of Canada majority, in a five-to-four split decision, substantially agreed with the trial judge and reversed the decision of the BC Court of Appeal.

There are a lot of interesting little things about Tercon but this column is really just about the general impact on the law of procurement. So – leaving academic musings for another day – from a practical perspective, what should those that participate in competitive procurement take from Tercon? If nothing else, I’d suggest the following:

Lessons Learned

• While the party issuing the invitation to tender and reviewing bids is not required to go behind the bid to investigate the basis of the bid, the duty to treat all compliant bidders fairly and to only accept bids that are materially compliant with the invitation to tender, remains the law.

• As long as those seeking bids through competitive procurement processes abide by the terms of their own tender documents, treat compliant bidders fairly, and don’t accept materially non-compliant bids, the courts seem inclined to enforce well-drafted privilege and exclusion of liability clauses and to allow the use of reasonable business judgement. Privilege clauses are a valid and important tool to shape and guide the tendering process.

• As with most things in life and in law – the devil is in the details. In order to maximize the chances that privilege and exclusion of liability clauses will be enforceable, it is imperative that the party seeking bids (and its counsel) give careful thought to the rights and protections that the clause(s) is to address and ensure that a well-crafted clause (or series of clauses) is used.

• Judges, for the most part, want to do what is “right.” If judges think that one of the parties has behaved badly (or “egregiously” in this case), the judge may try to “find the facts” necessary to rule against the perceived wrongdoer. Rightly or wrongly – the Court is going to find the facts and interpret the contractual provisions in accordance with his or her perceptions of the parties’ conduct. Parties should conduct themselves as though a stern grey-haired judge will one day be dissecting their every move and scrap of paper.

Adam Zasada is a senior associate at the Waterloo Region office of Gowling Lafleur Henderson LLP (gowlings) and practices civil litigation with an emphasis on the resolution of construction disputes. To discuss this article, or other construction law issues, please contact Adam at either 519.575.7502 or <adam.zasada@gowlings.com>.