unsuccessful incumbent challenges loss of contract

A recent decision of the Alberta Court of Queen’s Bench reinforces the importance of a clear delineation between mandatory and desirable requirements in a Request for Proposal. It also reviews the standard applied by the court during a Judicial Review, as well as the impact of specific discretion clauses in procurement.

Background

Aquatech operated water and wastewater facilities for the Alberta government in the Kananaskis region for sixteen years and submitted a response to an RFP for the same services for a further five years. Aquatech applied for judicial review of the government’s decision to issue the contract to a competitor, H20 Innovations, not then operating such facilities in Alberta.

Aquatech’s primary argument was that H20 had submitted a non-compliant bid as it had not identified five certified operators capable of performing the day to day operations of the facilities. An attachment to the RFP entitled “Mandatory Requirements and Desirable Provisions – Proposed Resources” (found at page 9 of the decision) set out requirements in table form. Under the column headed “Mandatory Requirements”, five in house resources with specific certification were identified. Names, experience, resumes, and employees of the proponent were to be included in other columns in the attachment, without reference to whether these were mandatory or desirable components. H20 explained in detail how it would staff and manage the facilities’ operation, but did not provide specific names.

Court Decision

In Aquatech v. Alberta (Minister of Environment and Parks) 2019 ABQB 62, the court reviewed the entire RFP and used principles of contract interpretation to conclude that the government acted reasonably in accepting H20’s proposal; the RFP did not require that a proponent identify the five resources, only that it would have the resources when the services were provided.

Legal Principles

The decision touches on a number of legal principles that are relevant to procurement professionals: the availability of judicial review, contract interpretation, reliance on a discretion clause, and duty of fairness owed to proponents.

Judicial Review v. Breach of Contract A

Why did Aquatech choose judicial review, rather than sue for breach of Contract A – which originates in R. v. Ron Engineering 1981 CanLii 17? The choice is explained by the remedies sought. Aquatech asked the court to strike down the contract award, or to order a further bidding process – remedies not available to a plaintiff in a Contract A claim. As Aquatech and H20 were the only two shortlisted bidders, had Aquatech been successful, it would have secured the contract, or had an opportunity to bid again.

Not all government tenders are reviewable by courts. In this case, the court confirmed that judicial review was available because the government’s responsibilities for water and waste water were public, the RFP incorporated internal trade agreements, and the procured services were regulated and important to the public.

Deference to Decision-Maker

The court applied the reasonableness standard in deciding the main argument. This standard, from Dunsmuir v. New Brunswick 2008 SCC 9, means that a court defers to a decision-maker if the process followed was justified, intelligible and transparent and produced an acceptable or defensible result.

The court considered surrounding circumstances (H20 not currently operating in Alberta; Aquatech holding the current contract), commercial reality, business acumen, and the terms of the entire RFP. As H20 was not then operating within Alberta, an interpretation of the RFP that required H20 to contract with five resources and provide their names for the bid made no commercial sense.
Other RFP provisions referred to the same attachment and distinguished between mandatory and desirable – undermining Aquatech’s argument that all requirements listed in attachment #2 were mandatory.

Ordering the government to accept a higher bid due to a requirement that could be rectified easily upon award would result in less benefit to the government and its taxpayers. The court also found the statement in the RFP that “failure to satisfy any term, condition or mandatory requirement of this RFP may result in rejection of the Proposal” significant, as it gave sufficient discretion to the government to award a contract even if a mandatory requirement were not met.

Discretion Clause and Duty of Procedural Fairness

The court included two additional rulings which, although not necessary to the decision, are still of interest to procurement practitioners.

The RFP included a discretion clause that allowed the government to waive a minor or inconsequential irregularity or non-compliance. This decision affirms that whether an irregularity is minor or inconsequential is based on conditions of tender, matters that affect fairness to other bidders, and the effect on the price and work in relation to the overall bid price. Had it been necessary, the court found that the government could rely on the discretion clause in accepting H20’s bid, as the alleged defect amounted to a ‘minor or inconsequential irregularity’.

The court also confirmed that the duty of procedural fairness is an implied term in competitive contracting law, and was met in this case.

What Does This Case Add to Procurement Law?

This case illustrates that courts will strive for a commercially reasonable result, rather than invalidate a procurement that was properly conducted, especially when done by a public organization.

Practically, however, the addition of a heading “Desirable” in the attachment to the RFP would have answered Aquatech’s main argument, and made the extensive contract interpretation unnecessary, or at least briefer.

This case is a reminder that it is always best practice to indicate clearly whether a requirement in an RFP is mandatory or desirable, and to ensure consistency of such wording throughout the document (including any attachments). It also highlights the complexities of drafting an RFx process when there is a strong incumbent vendor who already has the resources or other infrastructure in place. Work with SMEs in the early planning phase to anticipate and address these issues to mitigate the risk of challenge.

Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case.  For any particular legal problem, seek advice directly from your lawyer or in-house counsel.  All dates, contact information and website addresses were current at the time of original publication.

Disclaimer: The views and opinions expressed in this article are those of the Subject Matter Experts and do not necessarily reflect the official policy or position of The Procurement School.