April 25, 2012

Nova Scotia court rules against province where government awards construction contract against staff advice

Bid Protest Bulletin | Paul Emanuelli

A fairly run process is key to the integrity of the tendering system. In a formal binding bidding process, owners are required to conduct a fair competition and fair evaluation process.

This duty includes the requirement to conduct a transparent evaluation process consistent with the rules that were pre-established in the tender call and to avoid arbitrarily changing those pre-established rules when making contract award decisions.

For example, in its decision in Zutphen Brothers Construction Ltd. v. Nova Scotia (Attorney General), the Nova Scotia Supreme Court found that the government unfairly evaluated the plaintiff’s tender when it failed to apply the evaluation criteria stated in the tender call. The case involved a project for the construction of a bridge in Cape Breton. Originally Nova Scotia wanted to limit the materials to pre-stressed concrete but, as the court noted:

…the steel industry lobbied the Department to permit them to bid on the final phase of the construction and eventually it was agreed that parties be permitted to tender on a steel alternative. In the tender documents were special provisions: Barra Strait Crossing, Phase III, Contract 91-001, which indicates “Bidders on this contract are hereby advised that they will be permitted to submit an alternate bid based on a structural steel type of superstructure if they so desire”. The last portion of that information to bidders states: “To be acceptable a structural steel alternative must show a substantial saving over the precast, prestressed concrete design.”

Against staff advice, Nova Scotia eventually awarded the contract to a bidder who submitted a $7.3 million bid for a structural steel alternative. In the opinion of the engineer advising the Deputy Minister, the $151,000 savings of the structural steel bid over the best concrete bid was insufficient to represent a substantial savings in light of the higher future maintenance costs. However, the Deputy Minister ultimately wrote the Minister stating that the steel alternative represented a substantial savings and recommending a contract award to that low bid. The court noted that the Deputy Minister’s conclusion in the recommending memo was not supported by any analysis and did not mention the contrary staff recommendations:

It is to be noted here that the Minister’s evidence on discovery was that there was no analysis attached to the memo and the Minister did not know that the staff, from the senior members down through, were opposed to the awarding of the contract for a structural steel alternative.

The court therefore concluded that the contract was improperly awarded and that the integrity of the bidding process had been violated:

…the Province did not realize a substantial savings…[t]he Deputy Minister ignored all recommendations from his department and, in fact, decided arbitrarily in the face of all advice to award the contract to Maritime Steel and, subsequently, did not apprise his Minister fully of the situation. The integrity of the bidding system was violated.

As this case illustrates, when contract award decisions are challenged, an owner may be required to establish that its evaluation was conducted on the basis of an accurate application of the facts to the pre-established criteria. Any internal decisions to overrule the evaluation team’s recommendations, particularly expert recommendations, should be made with caution since the failure to support such decisions with a reasonable justification can ultimately compromise the fairness of the process. In this case, the owner’s arbitrary contract award process resulted in a successful lost profit claim by the prejudiced plaintiff bidder.

The duty to conduct a fair evaluation process will continue to be a risk factor for owners who engage in improper evaluation and award decisions.

Paul Emanuelli's procurement law practice focuses on all aspects of the tendering cycle including bid dispute resolution. This article is extracted from Emanuelli’s Government Procurement textbook published by LexisNexis Butterworths. Reach Paul at paul.emanuelli@procurementoffice.ca.

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