COURT FILE NO.: CV-20-00644334-00CL

DATE: 20201125

SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: Stericycle ULC, Applicant

AND:

HealthPRO Procurement Services Inc., Provincial Health Services Authority and Daniels Sharpsmart Canada Limited, Respondents

BEFORE: C. Gilmore, J.

COUNSEL: Monique Jilesen and Zachary Rosen, Counsel for the Applicant D. Barry Prentice, Counsel for the Respondent HealthPRO Procurement Services Inc., Julie K. Parla and Andrew Butler for the Respondent Provincial Health Services Authority, and, Randy Sutton and Justine Smith for the Respondent Daniels Sharpsmart Canada Limited.

HEARD: November 20, 2020

ENDORSEMENT

OVERVIEW

[1] The Applicant Stericycle ULC (“Stericycle”) alleges that the Respondent HealthPRO Procurement Services Inc. (“HealthPRO”) and the Respondent Provincial Health Services Authority (“PHSA”) acted in bad faith and in breach of contract by awarding a valuable part of the Contract in question, the Primary Supplier designation, to the Respondent Daniels Sharpsmart Canada Limited (“Daniels”).

[2] In alleging bad faith and breach of contract, Stericycle submits that PHSA and HealthPRO: (a) assisted Daniels by considering information outside of the RFP; (b) permitted Daniels to change the start date of the Contract thereby engaging in bid repair; (c) assisted Daniels in obtaining regulatory authorizations needed for Daniels to provide Services under the Contract; and, (d) relied on an erroneous interpretation of the expired 2013 Contract between Stericycle and HealthPRO to allow Daniels to delay its Start Date.

[3] In the alternative, Stericycle alleges that PHSA irrevocably designated Stericycle as the Primary Supplier under the 2020 Contract by electing to have Stericycle continue to provide 100% of the Services after the expiration of their 2013 Contract on May 31, 2020.

[4] For the reasons set out below, I dismiss the Application.

FACTUAL BACKGROUND

[5] Stericycle has provided biomedical waste management services to HealthPRO member hospitals in British Columbia for over 20 years. Biomedical waste disposal includes the collection, transportation, treatment and disposal of human anatomical, animal, pharmaceutical and other waste. Daniels is a competitor of Stericycle in Canada.

[6] HealthPRO is a Group Contracting Organization which manages procurements and contracts on behalf of its Members. HealthPRO’s Membership is diverse and includes everything from small doctors’ offices and individual pharmacies to large hospitals and provincial health authorities. The Membership is also geographically diverse including both rural and urban facilities across Canada. Services required by Members therefore vary depending on their location, size and volume of waste.

[7] PHSA is a HealthPRO Member and an agent of HealthPRO pursuant to a Participation and Shareholder Agreement. PHSA has a province-wide mandate from British Columbia’s Ministry of Health to provide health-related services. There are over 1,000 medical facilities under the PHSA umbrella in British Columbia including hospitals and other public medical facilities.

[8] HealthPRO negotiates contracts with service providers on behalf of its Members using a two-step process. First, it issues a Request for Qualification (“RFQ”) inviting suppliers to submit particulars of the product or service it proposes to provide under an upcoming Request for Proposal (“RFP”) from HealthPRO. The RFQ process allows HealthPRO to qualify suppliers for the RFP process. Qualified suppliers are notified and invited to provide an RFP.

[9] In 2013, HealthPRO issued an RFP for the provision of hazardous and non-hazardous waste management services to HealthPRO members across Canada including British Columbia. That Contract, which ran from June 1, 2013, to May 31, 2020, was awarded to Stericycle (“the 2013 Contract”).

[10] The 2013 Contract contained the following provision (“the six-month provision”):

AWARDED SUPPLIER: Agrees to hold the then current contract pricing firm for committed members up to a period of six (6) months beyond the expiry date (or any option years exercised) to allow, if required, for the implementation of a new contract to a different supplier.

[11] As such, in the 2013 Contract, Stericycle is required to hold its 2013 pricing for a period of six months following expiration of the 2013 Contract in order to facilitate the implementation of a new contract to a different supplier. I return to this provision later in the Endorsement.

[12] The Contract at the core of this Application arose from an RFQ issued by HealthPRO in March 2019. The RFQ was intended to qualify potential suppliers for RFPs to be issued later in 2020. Daniels submitted an RFQ dated April 15, 2019. Daniels’ RFQ specified that it was in the process of commissioning a waste management facility in British Columbia that would be fully functional by the Contract start date. The RFQ was entitled “Request for Qualification – Waste Disposal Contracts Commencing June 1, 2020.”

[13] On August 19, 2019, Stericycle and Daniels were advised that they met the requirements for the RFQ and were invited to provide an RFP. They were made aware that, unlike the 2013 Contract, HealthPRO intended to award the 2020 contract to more than one supplier without any guarantee of volumes in order to provide for a variety of options to its Members. The RFP of both Stericycle and Daniels offered terms to provide waste disposal services in various provinces, including British Columbia.

[14] In addition, the 2020 Contract was to be implemented in two stages. In Phase 1, HealthPRO Members were asked to commit to the Contract resulting from the RFP. In Phase 2, they could select from the list of awarded suppliers a Primary Supplier and a Secondary Supplier. In November 2019, PHSA committed to the 2020 Contract with HealthPRO agreeing they would select one of the successful bidders under the 2020 RFP as their Primary Supplier.

[15] Under the 2020 RFP, Primary Suppliers were guaranteed at least an 80% volume of business at a specific rate. Secondary Suppliers had no guarantee of volume other than up to 20% of HealthPRO Members’ requirements.

[16] On February 3, 2020, Daniels and Stericycle were advised they had met the criteria of the RFP and had been awarded the 2020 Contract, but they did not know what volume of work they would receive under the Contract. Both were aware that PHSA was the HealthPRO Member that would be deciding which of Daniels or Stericycle would be the Primary Supplier in British Columbia. Stericycle does not contest the HealthPRO procurement process or the process of awarding the 2020 Contracts. Their concern is with post-contract award conduct.

[17] The RFP restricts the type of communications a supplier can have with a HealthPRO Member prior to the Member’s supplier selection. Each of Daniels and Stericycle allege that that the other had communications with PHSA inconsistent with their obligations under the RFP after the Contract was awarded in February 2020. PHSA readily admits that it had communications with both Stericycle’s and Daniels’ post-contract award in order to discuss implementation and operationalization requirements and clarify their respective offerings. PHSA’s position is that it would have been irresponsible for them to do otherwise.

[18] On June 2, 2020, HealthPRO advised Daniels and Stericycle that PHSA had chosen Daniels as its Primary Supplier. PHSA’s selection of a Primary Supplier should have been made sooner but it was preoccupied with British Columbia’s response to the COVID-19 pandemic.

[19] One of Stericycle’s complaints in this Application is that, while Daniels knew the contract start date was June 1, 2020, it was not in a position to provide the services promised in their RFP until the end of 2020. Stericycle has always been in a position to provide those services without any delay or transition period.

[20] Daniels planned to establish facilities in British Columbia but was not in a position to fund or finalize those plans until it was made aware of whether it would be the Primary Supplier. Given that Daniels was not informed of PHSA’s decision as to their Primary Supplier until June 2, 2020, Daniels’ position is that it could not start providing services without some period of transition. Daniels has committed to being able to provide services effective December 1, 2020.

[21] In the meantime, Stericycle has continued to provide 100% of services to PHSA. It has been doing so since June 1, 2020. The Parties disagree on the significance of this continued service. PHSA views this continued provision of services as nothing more than Stericycle fulfilling the transition requirements under the six-month provision. Stericycle interprets the six-month provision as being spent and replaced by PHSA’s election to have Stericycle provide 100% of the services since May 31, 2020.

LEGAL ISSUES

Start Date v. Implementation Date

[22] Stericycle submits that it has a Contract with HealthPRO which requires that the supplier selection process be done fairly. While Stericycle does not contest HealthPRO’s review of Daniels’ bid or the award of the 2020 Contract, it alleges that HealthPRO breached its duty of good faith to Stericycle by choosing a supplier (Daniels) whom it knew could not comply with the Contract. Adding six months to the start date and engaging in discussions to accelerate required government permits had the effect of bid repair which was fundamentally unfair to Stericycle. Stericycle further submits that the selection process must be a fair one regardless of any price differential between the bids.

[23] Stericycle points to the letter from HealthPRO to Daniels dated January 31, 2020, awarding the 2020 Contract. The letter recites the term of the contract as June 1, 2020, to November 30, 2024. There is no reference to an extension of the contract start date to allow for transition and implementation. In any event, Daniels committed to conversion and implementation periods of two to six weeks in their RFP material. They did not mention an inability to provide services by June 1, 2020, until the email from Gordon Snelgrove, Director of Business Development at Daniels, dated February 26, 2020. For the first time, Daniels advised PHSA that they would not be able to start servicing the Contract until the end of 2020.

[24] While counsel for Stericycle agree that PHSA is not a party to the 2020 Contract, they point out that PHSA has the right as an agent to make a supplier selection. This right is delegated to PHSA as a Member of HealthPRO. Therefore, PHSA must be required to engage in a fair selection process.

[25] I do not agree with Stericycle’s position that a provision of services later than June 1, 2020, resulted in a rewriting of the contract for the following reasons:

a. Daniels did not find out they were the Primary Supplier until June 2, 2020. It would be commercially unreasonable for them to have invested large amounts of capital in a new facility and taken on financial risk without any guarantee of being selected as a service provider.

b. The global pandemic meant the PHSA was unable to make its decision as to Primary Supplier until much later than expected. Daniels may well have been in a position to provide services on an earlier date but for the almost five-month gap between the date the Contract was awarded and the date of PHSA’s Primary Supplier selection.

c. I accept that neither the RFP nor the RFQ contained any provisions related to a mandatory implementation date for services nor any requirement that a supplier has established operations in a proposed province as of the 2020 Contract date.

d. HealthPRO was within its rights to accept and rely on Daniels’ representation that it would be service-ready by June 1, 2020, and was not obligated to take further steps to investigate that commitment.

e. Once the 2020 Contract was awarded there was nothing preventing PHSA and HealthPRO from accepting a different start date than the one in Daniels’ RFQ and RFP. I see no reason not to accept Ms. Frey’s evidence that a HealthPRO Member should expect to receive services under the Contract on the implementation date. This is different from the Contract start date which, according to industry standards, is understood to be a “paper date.”[^1] In this case there is no doubt that the Contract start date is June 1, 2020, but the Contract implementation date is intended to be December 1, 2020, or another date chosen by PHSA. I accept the submission of PHSA and HealthPRO that neither of them treated Daniels’ ability to provide services as of June 1, 2020, as a material condition of the 2020 Contract. Finally, Mr. Daniel Simard, Director of National Accounts for Stericycle agreed in cross-examination that HealthPRO Members who enter into a Contract (such as PHSA) can commence the Contract at any time during the currency of the Contract.[^2] In Ontario, for example, 12 HealthPRO members elected to start services with Stericycle as of October 8, 2020.

f. I find that the fact that Daniels did not have certain required permits and licences in place to perform the required services at the time of the bid is irrelevant. The RFP/RFQ terms do not require that such permits or licences be in place. Further, in accordance with my findings in (d) above, HealthPRO did not have an obligation to investigate whether such permits were in place or had been applied for. It was entitled to accept Daniels’ bid at face value as it did with Stericycle’s bid.

g. The 2020 Contract was a national one. The RFP material submitted by Daniels was a commitment to facilities across Canada and not just British Columbia.

[26] In Double N Earthmovers Ltd v. Edmonton (City), 2007 SCC 3, 1 S.C.R. 116 [Double N], the City of Edmonton issued a tender for a contract to supply equipment and operators to remove refuse at a landfill site. The tender document required that the equipment had to be ?? or newer. The successful bidder described one of the pieces of equipment as a “1977 or 1980 Rental Unit”. A rival bidder, Double N, sued for the profits it would have received under the Contract because Double N advised the City that the successful bidder did not own any equipment newer than 1980 before it awarded the Contract. Double N was not successful. The Court held that once a Contract has been awarded to a successful bidder, the owner’s obligations to unsuccessful bidders and its implied obligation to treat bidders fairly is at an end. The Contract between the successful bidder and the owner is a distinct one to which the unsuccessful bidder has no privity.

[27] The conclusions of the Court in Double N apply to this case. There, the Court differentiated between Contract A, the contract governed by tender documents, and Contract B, the contract between the owner and the successful bidder. After the successful bidder is chosen, the terms of Contract A then become the terms of Contract B. Contract B is nonetheless a distinct Contract to which unsuccessful bidders are not privy (para. 71). Any duty owed by HealthPRO to Stericycle under Contract A during the tendering process was therefore extinguished upon the awarding of the 2020 Contract. Furthermore, I agree with PHSA that it does not owe a duty of fairness to Stericycle. HealthPRO gave PHSA authority to enter into contracts as its agent but that does not give it privity with respect to the Contract between HealthPRO and Stericycle.

[28] Further, at para. 42 of Double N, the Court reiterated that “the bidding process represents a commitment to comply with what is bid. We do not construe the tender documents as preventing the City from accepting a promise to provide rental equipment, or indeed, equipment that had not previously been registered with the City.” In this Application, I find that the Daniels bid was a commitment to comply with what was bid, including a promise to have a facility available for waste disposal. This commitment to comply did not include compliance on the date of the contract. Compliance at a future date was also acceptable.

[29] In Tantramar Sanitation & Trucking Ltd. v. Sackville (Town), 2006 NBQB 13, 298 N.B.R. (2d) 365, the Court provided some instructive propositions with respect to the bidding process. There, the incumbent bidder, Tantramar, sued for damages in respect of a tender issued by the Town of Sackville for a five-year contract for the collection and disposal of garbage. The Town awarded the contract to the lower bidder, PBS. A term of the contract required the successful bidder to operate a solid waste transfer station in the Town. PBS did not have a transfer station in operation until nine months after the contract started, in part because of the delay involved in obtaining a transfer station permit. Tantramar alleged that the Town had not acted in good faith in overlooking PBS’ non-compliance with the tender documents and then negotiating with PBS to enter into Contract B without a transfer station.

[30] The Court found that PBS was compliant and that there was no requirement for pre-approval by PBS for a transfer station permit. The nine-month delay in obtaining one was beyond PBS’ control (para. 24). Notably, the Court made the point that the Town had a duty of fairness to Tantramar, but also to its ratepayers. That is, the Town could not be forever locked into a contract with Tantramar just because it already had a transfer station (para. 27). In this Application, HealthPRO and the PHSA could not be forever locked into a contract with Stericycle because of its advantages as incumbent. If that were the case, no entity other than incumbents would be awarded public service contracts. As such, a certain amount of transition time for new suppliers is reasonable as was afforded in Tantramar.

[31] I also agree with the findings in Tantramar with respect to the purpose of public service procurement. HealthPRO’s RFP and RFQ process was intended to permit its members the greatest benefit from collective buying power. The facts in this case reveal that the process worked in that the Daniels bid will result in a significant amount of public health dollars being saved.

[32] The importance of allowing competitors to meaningfully participate in the procurement process was highlighted in Aquatech v. Alberta (Minister of Environment and Parks), 2019 ABQB 62, 86 B.L.R. (5th) 207. In that case, the Alberta Ministry of Environment and Parks (“AEP”) issued a public tender for the operating and servicing of 16 wastewater facilities in the Kananaskis region of Alberta. The incumbent, Aquatech, had held the contract for 16 years. Aquatech claimed that the successful bidder (H20) was non-compliant in that it did not provide the names of five certified operators who would provide the day to day services required.

[33] Aquatech was not successful. The Court made the following relevant statement at para. 64:

Public entities have a responsibility to taxpayers to obtain services at an economical rate. Obtaining an economical rate will often only be possible if there is competition and competing suppliers of service. Aquatech clearly had an advantage in that it had been supplying the services for the previous 16 years. To require other bidders to have employees hired in Alberta with Alberta certification at the time of the Proposal would be commercially unworkable…such a prerequisite would likely eliminate corporations such as H20 who had no prior contacts in Alberta.

[34] Aquatech could not realistically hire the employees with the necessary qualifications (or provide a facility in Abbotsford like Daniels) until it had the assurance of the Contract work. The bid document was an intention to perform as opposed to a document that confirmed an ability to immediately perform the terms of the Contract. That same reasoning applies to the facts before me. If Stericycle’s argument were to succeed, it would significantly hamper the ability of other competitors to meaningfully engage in the procurement process.

Communications with PHSA

[35] In February 2020, after the 2020 Contract had been awarded but before the Supplier Selection had taken place, PHSA reached out separately to Stericycle and Daniels to schedule a call to discuss “how your company offers the best service for B.C.”

[36] In March 2020, the CEO of Daniels, Daniel Kennedy, wrote to PHSA and advised that he had met with the B.C. MOE head of Forest & Hazardous Waste to discuss certain “special circumstances” related to obtaining an authorization for Daniels to operate a Hazardous Waste Management Facility. Mr. Kennedy advised PHSA that such authorization could be obtained on a priority basis so long as the special circumstances were confirmed and communicated to MOE by a recognized government body such as PHSA. Mr. Kennedy then goes on to advise PHSA that Daniels could obtain an emergency MOE authorization if Stericycle abruptly ceased providing services so long as the emergency authorization was confirmed and recognized by a government body such as PHSA.

[37] On March 19, 2020, Gordon Snelgrove from Daniels wrote to HealthPRO to confirm the ability of PHSA to request a six-month extension of the 2013 Contract. Daniels wanted to ensure that PHSA had this information given that it knew it would be unable to implement services until December 2020.

[38] In April 2020, Daniels confirmed to PHSA that it had negotiated purchase of a suitable property in Abbotsford, B.C. once the Contract award was confirmed. Daniels also advised they had negotiated expedited regulatory approvals with the B.C. MOE which they expected to have by August.

[39] On June 2, 2020, the parties were advised that Daniels would be the Primary Supplier under the Contract. On June 18, 2020, the Vice President of the PHSA Supply Chain, Ms. Melinda Mui, wrote a letter to the Section Head of MOE asking it to expedite Daniels’ Application under the Environmental Management Act given the award of the Primary Supplier Contract to Daniels.

[40] On September 25, 2020, Mr. Snelgrove sent an email to PHSA confirming that they could provide the required services to PHSA as of December 1, 2020.

[41] Stericycle argues that Daniels should have been held to their commitment to provide services as of June 1, 2020, and that its negotiations with PHSA including the assistance with MOE approvals was a form of bid repair.

[42] I reject Stericycle’s argument that communication by Daniels with PHSA post January 31, 2020, amounted to bid repair for the following reasons:

a. The communications were operational in nature and did not go to the substantial terms of the 2020 Contract;

b. Stericycle had similar communications with PHSA including communication related to stop charges. Further, Stericycle agreed that when the Supplier Selection was made, it sought a meeting with HealthPRO to offer flexibility vis-à-vis its stop charges in order to persuade PHSA to change its mind about its Primary Supplier selection[^3]. That communication could be characterized as more in the nature of bid repair than any communication by Daniels, given that the information provided by Stericycle to HealthPRO was not in its RFP response.

c. The Communications Agreement in the RFP related to Suppliers. There was no prohibition on PHSA asking for information from Suppliers as the RFP was very general and PHSA necessarily sought implementation information. Stericycle understood that this was permissible communication as well.[^4]

d. The most significant communication between PHSA and the B.C. MOE occurred after the Supplier Selection had been made. Once that selection was made, there was nothing impermissible about PHSA and Daniels working together with MOE towards implementation.

The Election Issue

[43] Stericycle argues that, by having Stericycle provide 100% of services to PHSA since June 1, 2020, PHSA has irrevocably elected Stericycle as its Primary Supplier through its conduct. Stericycle argues that it cannot be subject to two contracts at the same time. It was not obligated to provide services under the 2013 Contract after May 31, 2020, but PHSA and HealthPRO needed and accepted its services, so Stericycle began services under the 2020 Contract. PHSA and HealthPRO cannot insist that Stericycle provide services as Primary Supplier for six months and then hand the 2020 Contract over to Daniels.

[44] PHSA could only choose one Primary Supplier. The option to start with Stericycle as the Primary Supplier and then switch to Daniels when Daniels was ready was not an option. Stericycle argues that Health PRO and PHSA’s objective conduct manifests an intention which binds it to treating Stericycle as the Primary Supplier under the 2020 Contract.[^5]

[45] I do not agree with Stericycle’s interpretation of the six-month provision. The disposal of biomedical waste is complicated. It requires transportation, incineration facilities, autoclaving facilities, the provision and cleaning of receptacles and multiple government permits and licences for transportation, storage and disposition of the waste. Naturally, changing from one supplier to another would require transition time.

[46] This was anticipated and built into the 2013 Contract. Without such a provision, a new supplier would effectively be obligated to begin supplying services on the date the Contract was awarded. This is neither efficient nor realistic.

[47] I also reject Stericycle’s argument that, upon the award of the 2020 Contract, the 2013 Contract was spent. Again, this would give a significant advantage to incumbents who could transition immediately to a new contract. In this case, I infer it could mean that PHSA would be in a position where it could never use a supplier other than Stericycle.

[48] HealthPRO’s insistence that Stericycle provide services under the previously agreed upon six-month provision does not mean that PHSA has now selected Stericycle as its Primary Supplier. That reasoning is somewhat convoluted and would negate the entire purpose of the six-month provision.

ORDERS AND COSTS

[49] I do not find that either PHSA or HealthPRO have breached any Contract or duty of faith to Stericycle. Any communications between Daniels and PHSA were in the nature of negotiations towards the implementation of services, took place after the contract was awarded and cannot be characterized as bid repair.

[50] Given all of the above, the relief sought on this Application is dismissed.

[51] Stericycle is obliged to perform services under the six-month provision of the 2013 Contract until November 30, 2020, if requested by HealthPRO and PHSA. Thereafter, the 2020 Contract will be implemented with Daniels as the Primary Supplier and Stericycle as the Secondary Supplier as selected by PHSA.

[52] The parties may provide written submissions on costs of no more than five double-spaced pages (exclusive of any Offers to Settle or Bill of Costs) on a seven-day turnaround starting with Daniels, PHSA and HealthPRO providing their submissions within seven days of the release of this Endorsement. Costs submissions may be sent to me directly in PDF format copying all counsel. If no costs submissions are received within 35 days of the release of this Endorsement, costs will be deemed to be settled.

[53] I urge the Respondents in this case to collaborate on their costs submissions given that some of their materials and submissions were duplicative.

C. Gilmore, J.

Date: November 25, 2020

[^1]: Cross-examination of Kendra Frey, November 4, 2020, Q 309. [^2]: Cross-examination of Daniel Simard, November 4, 2020, Q 97 [^3]: Cross-examination of Justin Simard, November 4, 2020, Q 604-613. [^4]: Cross-examination of Justin Simard, November 4, 2020, Q358-359. [^5]: Owners, Strata Plan LMS 3905 v. Crystal Square Parking Corp., 2020 SCC 29 at paras 37, 49-50.