ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 47754/06
DATE: 2013-01-07
BETWEEN:
RANKIN CONSTRUCTION INC.
Plaintiff
- and -
HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO
Defendant
P. Mahoney and M. Armitage, for the Plaintiff
R. Carr and J. Glick, for the Defendant
HEARD: July 16, 17, 18, 19, 20 and August 10, 2012
The Honourable Mr. Justice D.A. BROAD
REASONS FOR JUDGMENT
Background
[1] This action arises out of a tendering process for a contract for the widening of a portion of Highway 406 in the Niagara region of Ontario in 2005. It raises the issue of whether an owner is at liberty to investigate whether a bid submitted in response to a call for tenders is compliant with the tender terms or whether it must evaluate the bid based upon the face of the tender as submitted. It also raises an issue respecting the application of an exculpatory clause in the invitation for tenders purporting to release the owner from liability arising from the tender process.
[2] The Plaintiff (“Rankin”), an experienced contractor with a long track-record of performing large public and private sector projects, was the low bidder, however, its tender was ruled by the Defendant (“Ministry”,“MTO” or the “Crown”), to be non-compliant with the tender documents. The contract was awarded by the MTO to a competitor with the second lowest tender price. Rankin sues the Crown for damages representing its lost profit on the contract on the basis that the Crown breached its obligations to it by improperly ruling its tender to be non-compliant and awarding the contract to a competitor with a higher bid price.
[3] The Crown asserts that it was entitled, and indeed obliged, in order to maintain the integrity of the tender process, to disqualify Rankin’s bid, on the basis that it failed to properly declare the value of the imported steel it proposed to utilize on the project which was a key requirement of the tendering process. It also defends the action on the basis of an exculpatory clause in the Instructions to Bidders by which those participating in the tender process, including Rankin, waived the right to claim damages against it by reason of the acceptance or non-acceptance of any tender.
Issues
The issues for determination are as follows:
Was the MTO entitled to look behind the face of the Rankin tender and to carry out an investigation with respect to the accuracy of the Declaration Value of Imported Steel set forth in it?
Did Rankin’s failure to properly disclose the value of imported steel constitute a material non-compliance with the tender documents, thereby preventing formation of a Contract A (on the Ron Engineering analysis) between Rankin and the Crown?
Under the tender documents, was disallowance of Rankin’s bid a proper method of dealing with the alleged non-compliance?
Was there a ten-day time limit on the Crown’s right to disallow a tender, and if so, did the Crown waive any non-compliance by failing to give timely notice of disallowance of Rankin’s bid?
In the event that the Crown breached its obligations to Rankin, is Rankin’s claim barred by the exculpatory clause in the Instructions to Bidders?
If the Crown is liable, what damages did Rankin suffer?
Facts
[4] The facts are not largely in dispute.
[5] Rankin served a comprehensive Request to Admit both facts and documents. The Crown delivered a Response to Request to Admit, by which it admitted many of the facts and documents set forth in the Request to Admit. However, since the Response to Request to Admit was served beyond the time required by Rule 51 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the Crown was deemed to have admitted the truth of the facts set forth in the Request to Admit under that rule. At the commencement of trial the Crown moved for, and was granted, leave to withdraw four of the deemed admissions, but the balance of the deemed admissions remained intact.
[6] Under the call for tenders for the project, only qualified contractors were permitted to submit bids. Rankin was one of the qualified bidders. The closing date was stated to be October 6, 2005. The contract was to be a unit price contract, however, the tender documents set forth the projected quantities of all of the components, and accordingly, the tenders were to be for fixed prices, comprised of the aggregate of the unit prices for the various components, multiplied by the specified quantities.
[7] The value of imported (non-domestic) steel that bidders proposed to use on the project was a critical factor in determining the low bidder. The tender package contained a document entitled “Price Preference for Canadian Content” (“PPCC”) which set forth a formula for providing a competitive advantage to bidders commensurate with the proportion of Canadian-produced, or domestic, steel which they proposed to use on the project. It did this by requiring each bidder to include in its tender a “Declared Value of Imported Steel” in respect of various listed steel tender items. The “Declared Value of Imported Steel” was subtracted from the Total Tender price and a 10% discount was applied to the difference (representing the total tender price excluding non-domestic steel products) to arrive at an Adjusted Total Tender for each bidder. Effectively, a deduction equal to 10% of the Total Tender, excluding the value of imported steel, was applied to the Total Tender to arrive at an Adjusted Total Tender. The greater the amount of imported steel included in the bid, the less the deduction and hence the higher the Adjusted Total Tender would be. The Adjusted Total Tenders were to be utilized to determine the low bidder.
[8] Rankin’s bid was the lowest with respect to both its Total Tender and its Adjusted Total Tender. Its Total Tender was $20,647,950. Its Adjusted Total Tender was $18,600,155 based on a Declared Value of Imported Steel of $170,000. The $170,000 figure was comprised of one component which Rankin proposed to use and which it had determined was not manufactured or fabricated in Canada, namely reinforcing stainless steel bar. Rankin’s Total Tender and Adjusted Total Tender were $1,947,050 and $1,795,550 less than those, respectively, of the next lowest bidder.
[9] Rankin did not include the cost of H-Piles in its Declared Value of Imported Steel. H-Piles were specified in the tender package to be driven into the ground by a pile driver in order to provide subsurface stability for bridge structures forming part of the project. The H-Piles are in an “H” shape (on cross-section) and were specified to be made of rolled steel. Another type of H-Pile, which was not specified, is constructed of steel plates welded together.
[10] In the course of preparing its bid, Rankin was only able to secure one price for rolled steel H-Piles, from a supplier in Quebec named Skyline PHP Canada Ltd. (“Skyline”). Skyline’s original quote to Rankin did not specify whether the H-Piles were domestic or imported, and when a representative of Rankin enquired of it by telephone, Skyline advised that the H-Piles proposed to be supplied by it would be “domestic.” This led Rankin to not include the cost of the H-Piles, being approximately $500,000, in the Declared Value of Imported Steel on its tender. It was later revealed that the Skyline H-Piles were manufactured in the United States. In response to subsequent inquiries by Rankin, Skyline stated that since there were no manufacturers of rolled steel H-Piles in Canada, the product imported from the U.S. was to be “considered” domestic. Notwithstanding Skyline’s stated position on this, it is common ground between the parties to this action that, regardless of the fact that there may have been no Canadian manufacturers of the product, the H-Piles still fell within the definition of “imported steel” in the PPCC, being “steel manufactured or fabricated outside Canada.”
[11] The Declared Values of Imported Steel of each of the other three competing bidders were considerably higher than that of Rankin, as they each included the cost of the specified H-Piles in the calculation. The Estimator/Project Manager of Rankin who had responsibility for the portion of the bid comprising the H-Piles had no personal knowledge that there were no Canadian manufacturers of rolled H-Piles, and neither did any other relevant person at Rankin, and accordingly Rankin relied on the verbal advice received from its proposed supplier Skyline that the product was “domestic” in preparing its bid.
[12] Following the tender opening, the MTO published a list of the bidders showing Rankin as the low bidder on both the Total Tender and the Total Adjusted Tender. In accordance with the Instructions to Bidders, the three lowest bidders were required to submit additional documentation to the MTO, including a detailed list of its unit prices for the various components of the project. These documents were utilized by the MTO to carry out a pre-award evaluation of the three lowest tenders.
[13] Some time prior to October 11, 2005 the MTO received a complaint from a competing bidder Hard Rock Paving (“Hard Rock”) that Rankin’s bid was too low to do the work on the project. Hard Rock followed up with a letter dated October 12, 2005 asserting that Rankin’s bid was not compliant for failure to include H-Piles in its declared Value of Imported Steel since H-Piles are not manufactured in Canada, and claiming that the contract should be awarded to it as the next lowest bidder. The MTO received a letter dated October 19, 2005 from the Ontario Road Builders’ Association (“ORBA”) to a similar effect, asserting that, if it was found that Rankin’s bid did not properly declare the foreign origin of the H-Piles, its tender should be declared informal, or non-compliant, and the contract awarded to the next lowest bidder. It is noted that Hard Rock was a member of ORBA but Rankin was not.
[14] Malcolm MacLean, the Director of Construction and Operations at the MTO office in St. Catharines, testified that it was the Ministry’s practice to respond to communications from contractors, as well as from ORBA, although infrequent, respecting the tender process. MTO’s process for investigating instances of non-compliance with tender terms was complaint-driven.
[15] Following receipt of Hard Rock’s letter, the manager of the MTO construction office in St. Catharines, Gary Todd, instructed Paul Stosney, the head of the estimating section, to investigate the imported steel declaration in Rankin’s bid. With the exception of one instance in the early 1990’s, the MTO had never previously carried out a review of a bidder’s imported steel declaration, and its policy was not to ask for supporting documentation or other proof behind the declarations of bidders.
[16] Following Mr. Stosney’s investigation, which included an interview with Rankin personnel, and receipt of a letter from Skyline to Rankin stating its position as described above, Mr. Stosney submitted a report to Mr. MacLean recommending that the contract be awarded to Rankin. Mr. Stosney reported directly to Mr. MacLean on the issue because Mr. Todd had declared a conflict respecting any matter involving Hard Rock, due to his son having worked for it during the previous summer.
[17] Mr. MacLean testified that he considered that Mr. Stosney had gone beyond the boundaries of his area of responsibility in the preparation of his report, and in making his recommendation with its supporting rationale. Mr. MacLean therefore returned the report to Mr. Stosney and did not pass it on to Carl Hennum, the Assistant Deputy Minister of the MTO Operations Division, to whom Mr. MacLean reported. Ultimately Mr. Hennum, following consultation with the MTO in-house legal counsel, accepted the recommendation of Mr. MacLean that the Rankin bid should be ruled non-compliant based upon an inaccurate Declaration of Imported Steel.
[18] As a consequence of the rejection of the Rankin bid, the contract was awarded to Hard Rock. Rankin was advised by telephone on October 25, 2005 that its bid had been determined to be non-compliant. This was confirmed by a letter from MTO on the same day. No reason or explanation was offered by MTO to Rankin in the letter and there was no evidence that the reason was communicated in the telephone call. Mr. MacLean testified that he understood from the circumstances, and from subsequent correspondence from Rankin disputing the decision, that Rankin was aware of the reason for the decision to declare its tender non-compliant. It is acknowledged by the Crown that the only alleged non-compliance in the Rankin bid related to the accuracy of the Declared Value of Imported Steel.
[19] Mr. MacLean and Mr. Hennum each testified that the primary consideration behind the Ministry’s decision was the perceived need to maintain fairness among all bidders and the integrity of the tender process. In reference to the discretion clause at para. 11.1 of the Instructions to Bidders, by which the MTO retained the right to reject any or all tenders and to waive irregularities “in the Ministry’s interest”, Mr. MacLean testified that the key interest of the Ministry at the time was the maintenance of the integrity of the bidding process. He considered that a waiver by the Ministry of the non-compliance in Rankin’s bid would not be fair to all bidders. He questioned how confidence in the Ministry’s tender process could be maintained among contractors if the Ministry, having received a complaint about a non-compliant bid, chose to ignore the issue and accept a bid determined to be non-compliant.
[20] Mr. MacLean testified that Rankin never put forward a proposal or plan by which it could perform the contract in compliance with its declaration of imported steel. He testified that had Rankin done so, the MTO would have considered such a plan, and if the plan was deemed feasible or possible, it may have reconsidered its decision not to award the contract to Rankin, even after the communication had been made to Hard Rock that it was the lowest compliant bidder.
[21] Mr. MacLean and Mr. Hennum each admitted on cross-examination that MTO staff were aware at the time of preparation and issuance of the tender documents there were no domestic manufacturers of rolled H-Piles but did not inform the bidding contractors of that fact.
[22] There was evidence that, although there were no domestic manufacturers of rolled steel H-piles, there was a domestic manufacturer of welded H-piles, Algoma Steel. The welded H-piles would have met or exceeded the structural requirements of the design. However, the use of welded H-piles by the successful contractor would have required the issuance of a change order, since the tender documents specified rolled steel H-piles.
Analysis
(Full reasoning paragraphs [23]–[128] reproduced verbatim from the decision.)
Disposition
[129] On the basis of the foregoing, the Plaintiff’s action is dismissed.
[130] The parties may make written submissions with respect to costs. The Defendant’s submissions shall be delivered to the office of the Judges’ Secretaries at St. Catharines within 30 days, and the Plaintiff’s within 45 days, of the of release of these Reasons. The Defendant may deliver Reply submissions within a further 10 days, if so advised.
[131] I wish to commend and thank counsel on both sides for their thorough preparation and helpful submissions.
D.A. Broad J.
Released: January 7, 2013
v. HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO, 2013 ONSC 139
COURT FILE NO.: 47754/06
DATE: 2013-01-07
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
RANKIN CONSTRUCTION INC.
Plaintiff
- and –
HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO
Defendant
REASONS FOR JUDGMENT
D.A. Broad J.
Released: January 7, 2013