February 17, 2010

Tendering law

B.C. government breached own contract on highway project, court rules

RICHARD GILBERT

staff writer

A Kelowna-based civil construction contractor won its case in the Supreme Court of Canada against the Province of B.C. which breached its own tender contract on a highway project.

The court recently released its judgment in an appeal case between Tercon Contractors Ltd. and the B.C. Ministry of Transportation and Highways (MOT).

The main issue of the case was whether the province can protect itself from claims by an unsuccessful bidder, by including a broad “exclusion of liability” in its tender documents.

“A lot of people were asking: can you ever draft a clause like this that bullet proofs you from liability?” said Glen Boswall, a partner in Clark Wilson’s Construction Group.

“The court is saying you can draft a contract anyway you want. We (the court) are not going to tell you, you can’t draft a comprehensive limitation of liability.”

The nine justices agreed upon the approach to interpreting contractual liability, but the court was deeply divided in its decision.

Five justices ruled to allow Tercon’s claim and four ruled against it.

“All the justices agree you can have an exclusion clause and on how to analyze the clause,” said Boswall.

“But, they are not in agreement on how to read or interpret the clause.”

The B.C. Construction Association (BCCA) is concerned that the Supreme Court decision has left the door open for the legal community to develop clearer and more concise language for exclusion clauses.

“The reality is that the MOT language in the original Tercon contract has filtered all the way down to the school board level,” said Manley McLachlan, president of the BCCA.

“The B.C. Appeal Court decision basically gave the green light for public agencies to adopt this type of language.”

Tercon won the original case in 2006, in which it sued the government in B.C. Supreme Court and was awarded $3.3 million in damages.

When the B.C. Court of Appeal reversed the lower court decision in 2007, Tercon took the case to the Supreme Court of Canada.

In this latest case, the court ruled the ministry breached the provisions of its bid contract with Tercon, when it accepted and awarded a bid to a party, which was not eligible to be part of the tender process.

“Our stance is that we challenge the applicability of broadly worded exclusion clauses in relation to this particular decision,” said McLachlan.

“We think its time for the provincial government to remove the exclusion clause from contract documents immediately.”

The ruling of the trial judge was upheld by the Supreme Court, who said the province acted egregiously by ensuring that the true bidder wasn’t disclosed.

This breach was an attack on the underlying premise of the tendering process, which was set out in detail in the contract.

The original trial judge ruled this behaviour was an affront to the integrity and business efficacy of the tendering process.

The Ministry of Transportation and Highways issued a request for expressions of interest in 2000, for designing and building a $35 million highway in northwestern B.C.

Under the terms of the Request for Proposals (RFP), six original proponents, including Tercon Contractors and Brentwood Enterprises Ltd, were eligible to submit a proposal.

The RFP, which was formally issued in January 2001, included a clause excluding all claims for damages as a result of participating in this RFP.

Brentwood lacked expertise in drilling and blasting, so the company entered into a pre-bidding agreement with Emil Anderson Construction Co to undertake the work as a joint venture.

Emil Anderson wasn’t a qualified bidder, but this arrangement allowed Brentwood to prepare a more competitive proposal.

Brentwood and Tercon were the two short-listed proponents and the province selected Brentwood for the project.

Under these circumstances, the majority of the justices found that the exclusion clause was inapplicable and reinstated the $3 million judgment in Tercon’s favour from the original trial.

Roy Nieuwenburg, chair of Clark Wilson’s Construction Group said this type of problem can be avoided by putting a clause in the contract that allows the owner to accept any parties that are sufficiently associated with the prequalified entity.

The provincial ministry of transport would not comment on the implications of the decision, but said it has ended the practice of exclusion clauses.

“This is an event that started more than 10 years ago, and since then the MOT no longer has the practice of exclusion,” said MOT director of communications Dave Crebo.

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