Court File and Parties
COURT FILE NO.: 55096/14 DATE: 2017/06/02
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
ASI Group Ltd. Plaintiff J. Gottli, for the Plaintiff
- and -
City of Toronto Defendant M. Wright, for the Defendant
HEARD: April 11 & 12, 2017 The Honourable Justice J.R. Henderson
DECISION ON MOTION
[1] This is a summary judgment motion, pursuant to Rule 20, with respect to the liability issue in this proceeding. The plaintiff, ASI Group Ltd. ("ASI"), and the defendant, City of Toronto ("the City"), agree that the liability issue should be summarily determined by way of this motion.
[2] This case arises out of the City's public Request For Quotations issued on February 5, 2014, ("RFQ#1"), whereby the City requested quotations for diving services at its water treatment facilities for the period ending December 31, 2016.
[3] ASI was the lowest compliant bidder in response to RFQ#1, but the City did not award the diving services contract to ASI. Rather, after the close of bids, the Chief Purchasing Official ("CPO") of the City canceled RFQ#1, and issued a second Request for Quotations on April 8, 2014, ("RFQ#2"), for essentially the same services. ASI bid in response to RFQ#2, but ASI was not awarded the diving services contract as it was not the lowest bidder.
[4] ASI submits that the City breached its duty of fairness to ASI by cancelling RFQ#1 and re-tendering the contract. Therefore, ASI claims that the City is responsible to ASI for damages as a result of its loss of the diving services contract.
[5] In its defence the City alleges that the integrity of the tender process for RFQ#1 had been compromised, and therefore the City properly canceled RFQ#1. Accordingly, the City submits that it has no liability to ASI in respect of RFQ#1.
THE FACTS
[6] On February 5, 2014, the City issued RFQ#1 whereby the City invited quotations for the non-exclusive supply of all labour, equipment and materials necessary to provide diving services as and when required by the City's Water Division.
[7] Section 10.31.1 of RFQ#1 states, in part, that “Bidders must satisfy themselves ... by reviewing available inspection reports or videotapes as to actual and previous conditions and requirements of the work." Section 10.31.2 states, in part, that “Bidders can view and examine all of the maps, plans and drawings ... by contacting ... to arrange a date and time for viewing.”
[8] After RFQ#1 was issued, the City received e-mail requests from two potential bidders, ASI and General Diving Contractors Inc. ("General"), to review the previous diving inspection reports and facility drawings. The City undertook to advise the bidders when these reports and drawings would be available for inspection.
[9] RFQ#1 also provided for a voluntary information meeting to be held on February 19, 2014, at which time potential bidders could attend to familiarize themselves with the project and ask questions of representatives of the City about the full extent of the work required. At least three potential bidders, including ASI and General, attended the voluntary information meeting.
[10] In Addendum No. 1, dated February 24, 2014, and prepared after the voluntary information meeting, it was noted that a potential bidder had asked when the facility drawings would be made available for viewing. The response from the City, set out in Addendum No. 1, was that "The City will issue an Addendum to notify Bidders once the drawings are made available."
[11] It is acknowledged that the previous diving inspection reports and the facility drawings would contain information with respect to conditions at the facilities that were the subject of the RFQ as at the time of the previous diving inspections.
[12] Bidding pursuant to RFQ#1 closed on March 3, 2014. As of the close of bids the City had been unable to locate the previous diving inspection reports or the facility drawings, and accordingly none of said reports or drawings were available for inspection by potential bidders. The City did not issue a further Addendum.
[13] Quotations in response to RFQ#1 were submitted by three bidders, ASI, General, and Galcon Marine Ltd. (“Galcon”). On March 3, 2014, the bids were opened publicly and the quotations from each of the three bidders were revealed. I accept that for each bidder the total quotation and the quotations for each of the four parts of the contract were read aloud.
[14] ASI was the lowest bidder, and General was the highest bidder. The City found that all three bidders complied with RFQ#1. Thereafter, I accept that ASI assumed that it would be awarded the diving services contract. However, a diving services contract was never awarded pursuant to RFQ#1.
[15] On March 4, 2014, General wrote to the City and expressed concern about the bidding process. General raised two issues. General was concerned “for not having been allowed access to the drawings and previous reports.” Further, General wrote, “I believe that the two other bidders … through previous work with (the City) had an unfair advantage in their knowledge of the systems and structures.”
[16] The CPO of the City considered the concerns raised by General, and decided to cancel RFQ#1. On March 24, 2014, the CPO wrote to all three bidders and informed them that RFQ#1 had been canceled “due to the integrity of the call process had been compromised."
[17] Thereafter, the City located the previous diving inspection reports and facility drawings. On April 8, 2014, the City issued RFQ#2, which ultimately closed on June 25, 2014.
[18] There were four bidders in response to RFQ#2, including ASI, General, and Galcon. The lowest bidder was General. In September 2014 General was awarded the diving services contract.
RELEVANT TERMS OF RFQ#1
[19] Article 1, paragraph 1, reads, “The failure of any Bidder to receive or examine any document, form, addendum, or policy shall not relieve the Bidder of any obligation with respect to its Quotation or any purchase order issued based on the Bidder’s Quotation.”
[20] Article 1, paragraph 4, reads, “If a Bidder wishes to suggest a change to any mandatory term or condition set forth in any part of this RFQ it should notify the City in writing not later than three days before the Closing Deadline.”
[21] Article 1, paragraph 10, is a privilege clause, that contains the following terms:
- The City shall not be obliged to accept any Quotation in response to this RFQ.
- The City may modify and/or cancel this RFQ prior to accepting any Quotation.
- Quotations may be accepted or rejected in total or in part.
- The lowest quoted price may not necessarily be accepted by the City.
[22] Section 3.2 of the Quotation Request reads, “Bidders are required to submit written questions and specification concerns to the Official Point of Contact specified in Section 3.1 no later than three Business Days prior to the Closing Deadline.”
[23] Section 8.1 of the Quotation Request reads, “It is the intent of the City to award a Contract to one Bidder based on the Bidder meeting the specifications and requirements of the RFQ and providing the lowest Total Price in Schedule A…”
[24] Section 10.31.1 of the Quotation Request reads, “Bidders must satisfy themselves by personal examination including preliminary diving inspections of the location of any proposed work, and by reviewing available inspection reports or videotapes as to actual and previous conditions and requirements of the work.”
[25] Section 10.31.2 of the Quotation Request reads, “Bidders can view and examine all maps, plans, and drawings maintained on file at Metro Hall … by contacting … to arrange a date and time for viewing.”
ANALYSIS
[26] In the case of R.(Ontario) v. Ron Engineering, [1981] 1 S.C.R. 111, at p. 119, the Supreme Court of Canada characterized the tender process as one that involves two potential contracts. Contract A is created between the bidder and the owner upon the bidder’s submission of a tender in response to the owner’s tender call. Contract B is the construction/services contract itself, which is created upon the acceptance of a tender by the owner.
[27] In the present case, the tender contract, Contract A, arose when ASI submitted its quotation in response to RFQ#1. The City and ASI are bound to the terms of that tender contract.
[28] Article 1, paragraph 10, of RFQ#1 is part of the tender contract. This clause gives the City the right to accept or reject any bids, including ASI's bid, and gives the City the right to cancel the RFQ without awarding the diving services contract, Contract B. This type of clause has been called a "privilege clause".
[29] Moreover, pursuant to subsection 195-8 of the City's Purchasing Bylaw, the CPO has the authority to cancel any call for tenders or quotations where, "In the opinion of the Chief Purchasing Official the integrity of the call process has been compromised."
[30] Therefore, in the present case, I find that in accordance with the privilege clause in RFQ#1 and the provisions of the City's Purchasing Bylaw, the CPO had the general authority to cancel RFQ#1 prior to awarding the diving services contract.
[31] However, the authority of the City to cancel the RFQ without awarding the contract is not absolute. Courts in this country have consistently held that an owner who solicits tenders owes a duty to treat all bidders fairly and equally. Furthermore, the existence of a privilege clause does not eliminate the owner’s duty.
[32] In the case of Martel Building Ltd. v. Canada, 2000 SCC 60, the Supreme Court of Canada confirmed the implied duty of fairness in tender contracts. At para. 84 the Court wrote, "Various appellate courts have found the need to imply a contractual term into Contract A to treat all bidders fairly and equally."
[33] Further, at paras. 88 and 89 the Court wrote:
In the circumstances of this case, we believe that implying a term to be fair and consistent in the assessment of the tender bids is justified based on the presumed intentions of the parties … Implying an obligation to treat all bidders fairly and equally is consistent with the goal of protecting and promoting the integrity of the bidding process, and benefits all participants involved … A privilege clause reserving the right not to accept the lowest or any bids does not exclude the obligation to treat all bidders fairly.
[34] The duty of fairness has been recognized more recently by the Supreme Court of Canada in the case of Bhasin v. Hrynew, 2014 SCC 71, at para. 56. In addition, in Bhasin, the Court acknowledged that principles of good faith apply to contractual relationships. The Court wrote, at para. 63:
The first step is to recognize that there is an organizing principle of good faith that underlies and manifests itself in various more specific doctrines governing contractual performance. That organizing principle is simply that parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily.
[35] Therefore, in accordance with the principles enunciated in Martel and Bhasin, in the present case ASI must prove that the City breached its duty to treat all bidders fairly and equally in order to establish liability on the part of the City. The principle of good faith underlies and manifests itself in the City’s duty of fairness.
[36] As a preliminary issue, counsel for ASI submits that the City had no jurisdiction to cancel RFQ#1 because the CPO based the cancellation on the objections to the process that were raised by General. ASI submits that General had waived its right to make procedural objections by submitting its bid without objections. ASI also submits that General had no standing to object to the process as General’s bid was non-compliant with the terms of RFQ#1. Thus, ASI submits that there was no legal foundation on which to question the integrity of the process.
[37] Regarding waiver, ASI submits that the terms of RFQ#1 required General, or any bidder, to submit any objections to the process at least three days prior to the close of bids. Even though the diving inspection reports and facility drawings had not been produced by the City, General submitted its bid without any further objections. Thus, ASI submits that General has waived its right to raise any procedural objection after the close of the bids.
[38] In my view, ASI cannot succeed on this point. General’s "right" to raise a procedural objection is a narrow right that is restricted to the contractual relationship between General and the City. General’s contractual right to object to the process is not relevant to the contractual relationship between ASI and the City.
[39] The City is charged with the responsibility to act fairly in the tender process. Moreover, the City is the guardian of the integrity of the tender process. If a concern that affects the integrity of the tender process comes to the attention of the City, or is raised by the City itself, the City has an obligation to consider the merit of the concern, and if the concern is legitimate, to consider how it should be rectified.
[40] In the present case, the City received a letter from General that brought two concerns about the tender process to the attention of the City. Regardless of whether General still maintained a contractual right to raise those issues, there is no doubt that the City became informed of procedural concerns. In my view it was not only open to the City to investigate these concerns, but it was the duty of the City to do so.
[41] The same analysis as set out above applies to ASI's submission that General had no standing to raise objections because General's bid was non-compliant. In my opinion whether or not General’s bid was compliant with RFQ#1 is irrelevant to the issues before this court, and I make no finding as to General’s compliance.
[42] Having found that there was no jurisdictional impediment to the cancellation of RFQ#1, the next step in the analysis is to consider whether the City, having been made aware of the procedural concerns, acted fairly and equally with respect to all bidders when it canceled RFQ#1 and re-tendered the contract.
[43] The duty to treat all bidders fairly and equally is infused with the principle that the parties are required to perform the contract in good faith. In the present case this means that the CPO was required to determine whether there was a legitimate concern that affected the integrity of the tender process, and if so, to determine a fair and reasonable remedy.
[44] In the present case, I have no difficulty finding that the unavailability of previous diving inspection reports and the facility drawings was a legitimate concern that affected the integrity of the tender process. I make that finding for several reasons.
[45] First, RFQ#1 provided that the previous diving inspection reports and the facility drawings would be available to the bidders for inspection. Relying upon the terms of the RFQ, two of the bidders requested the opportunity to review the previous diving inspection reports and the facility drawings. In response, the City undertook to provide these reports and drawings. Thus, the failure of the City to provide the reports and drawings undermines the integrity of the process as defined in the contract.
[46] Second, the principal of ASI confirmed on his cross-examination that the water treatment facilities in Toronto were unique. Thus, knowledge of the facilities would be useful to the bidders’ task of making an effective bid. Moreover, it is logical and sensible to conclude that facility drawings and inspection reports regarding the facilities that were the subject of the RFQ would provide some knowledge that could assist the bidders in developing their bids.
[47] Third, I also find that there was a legitimate concern that those bidders who had done work for the City in the past had a competitive advantage over those who had not, and that the competitive advantage would be greater if the facility drawings and inspection reports were not available.
[48] I accept that the principals of Galcon had the most previous experience working with the City, but I also find that ASI had done some work for the City that was restricted to robotics work in the water treatment facilities. Accordingly, I find that because of their prior experience both Galcon and ASI had a competitive advantage over General.
[49] Given these procedural concerns about the tender process, was it fair and reasonable for the City to cancel RFQ#1 and re-tender the project? I acknowledge that the course of action taken by the City caused ASI to lose some of its advantage over General because of the fact that the bids were read aloud. That is, at the close of RFQ#1 all parties were made aware of the quotations from all bidders with respect to all four parts of the contract. This knowledge, no doubt, was useful to the competition when the project was re-tendered.
[50] However, the terms of RFQ#1 included a term that all bids would be read aloud. Therefore, all parties had agreed to that process when they submitted their bids. Further, I find that some of the loss alleged by ASI that was caused by having its bid read aloud is the loss of the competitive advantage that ASI unfairly enjoyed because of ASI’s prior experience with the City.
[51] Overall, in my view, the cancellation of RFQ#1 and the re-tendering of the project made good sense. I note that in the case of Glenview Iron v. Smith Falls (Corporation), 2012 ONSC 5378, Hackland J. found that, given the concerns raised in that case, the re-tendering of the project was a reasonable course of action. At para. 27 Hackland J. wrote, "It has been observed that re-tendering can be seen as protecting the interests of all parties and as protecting the integrity of the tendering process."
[52] For all these reasons, I find that the City had the contractual right to cancel RFQ#1 pursuant to the terms of the tender contract. Further, I find that by canceling RFQ#1 and re-tendering the contract, the City treated the bidders fairly and equally. I find that the City has not breached its duty of fairness. Therefore, there is no liability on the City in this case.
[53] If there are any issues arising out of this decision, including costs, I direct that the party seeking relief shall deliver written submissions to the trial coordinator at St. Catharines within 14 days of the release of this decision with responding submissions to be delivered within 10 days thereafter. If no submissions are received within this timeframe, the parties will be deemed to have settled all of the remaining issues as between themselves.