It's as simple as A, B, see?

There is a necessary but entirely uneasy fit between procurement law (government contracting) and the private law of contract. In the evolutionary emergence of government contracting, they share a common ancestor, or two, but care must be taken not to conflate the two . They are different in important and fundamental ways, too many and subtle to be canvassed in a blawg post.

For instance, in the Guam Procurement Process Primer, I take great pains to try to reconcile the meaning of "award" in the context of traditional contract formation law. It's an uneasy fit, perhaps more full of rationalization than design.

An award in the procurement context is both the end game of the solicitation process and the new beginning of a relationship that then becomes more cognizable in contract law. It is a moment, or moments, when the courtship gives way to the marriage, de facto or de jure.

I've concluded, rightly or wrongly, an award is that point in time, evidenced by acts and omissions of the parties, when negotiation is complete and acceptance finalized. That has never been a bright line in contract law, as the many cases over the centuries have made clear, but one that is hornbook orthodoxy.

Why should it be any clearer in procurement law? It is simply a construct, one constructed bespoke from the circumstances, every time. Somewhat like trying to determine the instant of death, or birth, or other things transitional that are better described, if clumsily defined, by comparison of the "before" picture with the "after".

An example of the struggle to put theoretical form to the award process is illustrated by the procurement bulletin published by Mr. Paul Emanuelli in the Canadian Daily Commercial News online publication, wherein he paints the transitional process as actually two separate contracting events: A, the "contract" of the solicitation process, and "B" the contract resulting from the solicitation process that executes what it is that was sought in the solicitation.

That is probably not a very artful way of expressing what he was trying to say, so here it is, in excerpted and re-ordered in parts, for you to determine. You ought to read the whole article, however, and not take my take at face value.

Ontario court rules against contractor who made mistake in bid on Toronto bus garage construction project

In Toronto Transit Commission v. Gottardo Construction Ltd., the defendant bidder attempted to rely on its own mistake as the basis for avoiding liability after it failed to honour its tender.

The tender call rules required [successful] bidders to provide additional documentation on demand within two days. This post-bidding process gave rise to confusion.

The trial judge determined that because the tender instructions provided that the TTC could demand the production of certain documents after the opening of the tenders, Contract A would not be formed until sometime after these additional documents were demanded and provided.

The reasons, however, do not address the critical issue as set out by the Supreme Court of Canada in M.J.B. Enterprises Ltd.: when did the parties in fact intend to initiate contractual relations? Rather, the trial judge appears to have confused the creation of Contract A and the process of analysis that leads to the acceptance of the tender and the formation of Contract B.

The Ontario Superior Court of Justice found that the tender was incapable of acceptance and that the bidder was therefore not liable for failing to honour its tender. In coming to this conclusion, the Superior Court found that the bidder had failed to fulfil the post-bidding follow-up steps required by the tender call rules. The bidder was therefore able to rely on its non-compliance as the basis for not honouring its tender.

Acceptance or rejection of the bid is not what leads to the creation of Contract A. Acceptance or rejection is the end point of the tender process. Once the tender is accepted, the parties enter into the construction contract referred to as Contract B. The fact that certain steps are taken and certain documents are to be produced by the tenderer after the submission and opening of tenders will not delay the formation of Contract A when the clear intent of the parties is to be bound as of the opening of the tenders.

Accordingly, the Court of Appeal concluded that Contract A had crystallized and that the tender became legally binding when the tenders were opened after the tender submission deadline. The Court of Appeal therefore found the bidder liable for $434,000 for failing to honour its bid.

This "two contract" theory is one of the unique features of Canadian procurement law, according to the following highly informative Blakes law firm article of date September 23, 2011 written by Judy Wilson and Joel Richler.

Canadian Procurement Law – The Basics

What is somewhat unique to Canadian law is that competitive procurement processes create two contracts: (i) the bidding contract which sets out the “rules” that apply up until the completion of the competitive procurement process; and (ii) the substantive contract entered into between the procuring authority and the successful bidders.

The first, and seminal, case is The Queen (Ont.) v. Ron Engineering & Construction (Eastern) Ltd., where the SCC first articulated the “Contract A”/“Contract B” analysis. Contract “A” is the contract that is made when a bidder submits a bid in response to an invitation to tender (or similar document). Contract “B” is the agreement that will be formed between the procuring authority and the winning bidder.

In M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., the SCC clarified that Contract “A” can only be formed between a procuring authority and compliant bidders, that is, a procuring authority is contractually obliged through Contract A to accept only compliant bids, and only compliant bidders have legal remedies arising from the procurement process as against a procurement authority. At the same time, the SCC recognized and accepted that procuring authorities are entitled to consider “nuanced” views of price, and are therefore not bound as a matter of principle to accept only the lowest of compliant bids.

The third case, Martel Building Ltd. v. Canada, affirms that there is a duty owed to treat all compliant bidders fairly and equally, but always with regard to the terms of “Contract A” as set out in the competitive procurement documents (in this case, a tender call). At the same time, the SCC held that competitive procurement requirements aren’t negotiable, that procuring authorities have the right to reserve privileges and impose stipulations and that there is no duty of care owed in respect of the preparation of competitive procurement documents.

For some time, a reading of these SCC cases, and the many cases decided in trial and appeal courts throughout Canada since Ron Engineering, suggested three somewhat competing principles.

First, the law imposes obligations on both the procuring authorities and the bidders. Procuring authorities must, at all times, adhere to the terms and conditions of Contract A and cannot accept any non-compliant bids, no matter how attractive they may be. As well, procuring authorities must act towards all compliant bidders fairly and in good faith, particularly during the evaluation of any bidder’s submission. Also, procuring authorities cannot make their ultimate decisions to award or reject submissions based on criteria that are not disclosed in the terms and conditions of the procurement documents. Bidders, for their part, cannot revoke or supplement their submissions, unless permitted to do so by the terms and conditions of Contract A.

Second, the law does permit procuring authorities to create the terms and conditions of Contract “A” as they see fit. Thus, privilege clauses – clauses which provide the procuring authority with discretionary rights – are recognized as fully enforceable and, if properly drafted, allow procuring authorities to reserve to themselves the right to award contracts to bids that may not be for the lowest price, or not to award contracts at all. As well, procuring authorities are free to impose any number of criteria on bidders such as: prior similar work experience; the absence of claims or prior litigation; local contracting; scheduling criteria; composition of construction teams; and so on.

Third, and perhaps somewhat contradictory of the second principle, while the list of requirements and criteria imposed on bidders may be extensive, it will always be open to the courts to impose limitations where the discretion retained by the procuring authority is extreme. The courts have made it clear that maintaining the integrity of competitive procurement processes was a fundamental goal of procurement law in Canada. For some time, practitioners believed this could mean that, no matter how broadly drafted, there would be a point at which a court would say that a competitive procurement process was by design unfair, or that an “unfair” privilege clause (or another type of clause) would not be enforceable by a procuring authority. The view was that public policy concerns would come into play and the court would refuse to enforce an explicit Contract A provision on the basis that it created “unfair” consequences in the competitive procurement process. It was long suspected that the SCC would not allow procuring authorities to have “carte blanche” in the drafting of their competitive procurement documents.

These views were tested in the recent Tercon Contractors Ltd. v. British Columbia (Transportation and Highways) case, in which the SCC refused to enforce a waiver clause with respect to damages arising out of a breach of Contract A. This case required the SCC to face the competing tension between the implied obligation of fairness in procurement and the principle that courts should enforce valid contractual terms. It appears that in a conceptual battle between the right to contract and public policy to protect the integrity of fairness in competitive procurement processes, the “fairness” obligation has prevailed. There were two other important issues dealt with or alluded to in Tercon. First, the SCC left open the door for negotiation within a competitive procurement process, subject to disclosure and a prohibition against changing the fundamental nature of Contract B. Second, the SCC made a brief reference to other administrative law remedies available to a disgruntled bidder, thereby reinforcing the idea that judicial review was an available course of action to challenge public sector procurement processes.

Two other key cases have been decided by the SCC recently and are worth mentioning. In Design Services Ltd. v. Canada, the SCC refused to recognize a new cause of action for “negligent procurement”, and in Double N Earthmovers Ltd. v. Edmonton (City), the SCC held that a procuring authority is permitted to renegotiate a contract on which a competitive procurement process was based after Contract B is signed.

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However the process is theorized, the point is, if the solicitation requires a bidder or tenderer or offeror to perform its contract in certain manner, and it fails or refuses to do so, it is in some kind of strife, whether as a default of the solicitation or of the obligations of the "contract" consummated in contract by offering a bid. Whether the theory is implied contract, contractual reliance or quasi-contract or "two-contract", it is undisputed that one party, the government, has gone to great lengths to engage a willing offeror in reliance on that offeror's implicit(actually, usually explicit under solicitation documents) agreement to perform if awarded the fruit of the selection process.

That is why there are bid bonds. The failure to enter into the contract the solicitation required is a breach of procurement law. Let the contract theorists find a way to reconcile that with their models if they feel the need. In my view, contract law has almost always been a deduction from case results, and not the other way around.