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PurchasingB2B

A new frontier

In keeping with British Columbia’s long history of being at the forefront of high-profile tendering disputes, the BC Supreme Court’s recent decision in Metercor Inc v. City of Kamloops represents a new frontier in legal risk for public institutions.


October 25, 2011
by Rosslyn Young

Purchasingb2b: September 2011

In keeping with British Columbia’s long history of being at the forefront of high-profile tendering disputes, the BC Supreme Court’s recent decision in Metercor Inc v. City of Kamloops represents a new frontier in legal risk for public institutions. Rather than applying the traditional law of tendering with its corresponding “duty of fairness” and lost profit awards, the court applied the administrative law principle of “reasonableness”, struck down the City’s bid process and ordered that the City conduct a new evaluation. While the immediate impact of this decision may have only been felt in the BC interior, its long-term impact is likely to echo coast-to-coast across the public procurement landscape for years to come.

By way of background, the City entered into a small-scale pilot project with Neptune Technology Group Canada (Neptune) to install and test new water meter technology. Following the successful pilot project, the municipality decided to tender the installation of water meters for all its residents. The City divided its evaluation process into two stages: the first stage consisted of a review of proponents’ technical requirements while the second stage consisted of a review of proposed pricing. In order to reach the second stage of the process, proponents had to obtain a minimum threshold score on the technical criteria. This methodology, which is often referred to as the “two-envelope system”, is widely used by public sector entities for complex tendering processes. Following the evaluation of proposals, the City awarded the contract to Neptune, which was the only proponent to meet the technical threshold and therefore have its pricing evaluated.

One of the unsuccessful proponents, Metercor Inc (Metercor), took issue with the City’s decision to award the contract to Neptune, alleging some of the specifications employed in the RFP gave unfair advantage to Neptune since they were the only supplier able to satisfy those criteria. Because the RFP operated outside of Contract A and no tendering contract was created, Metercor was unable to bring a claim for breach of contract. Instead, it chose to bring a petition for judicial review, an administrative law remedy under which the courts can review government decisions. Based on the Supreme Court of Canada’s 2008 decision in Dunsmuir v. New Brunswick, there are two standards of review available to the courts when reviewing government decisions: reasonableness and correctness. Further, in contrast to the lost profit damages available under contract-based tendering law claims, the remedies available on judicial review focus on whether the government’s decision is legally valid, or whether it should be reconsidered or struck down.

The judge in the City of Kamloops decision reviewed the RFP process and found that Metercor’s claims of preferential treatment for Neptune were unfounded. The judge concluded that the City was free to conduct its own evaluation and that the process had been transparent for all proponents. The judge also held that the City’s purchasing decisions should be given deference and should be assessed on the reasonableness standard, as opposed to a more intrusive correctness standard. However, notwithstanding the more deferential standard of review, the judge took issue with the City’s use of the two-envelope system, finding that the use of a technical threshold analysis prior to the consideration of price could produce absurd results. Accordingly, the judge ordered that the matter be sent back to the City’s water meter committee for reconsideration.

This decision represents a new frontier for judicial scrutiny of public sector purchasing decisions. The court concluded that the City’s decision should be afforded significant deference and that the “reasonableness inquiry is not simply the substitution of the opinion of the judge for that of the decision-maker.” But the court nevertheless found the City’s use of the two-stage procurement process was unreasonable since it resulted in the City not considering the pricing of several proponents. Although the two-envelope system is widely employed by public sector entities across Canada, the court seized on the fact that the City had never employed the system as part of its rationale and therefore ordered a re-evaluation.

When compared to contract-based tendering law claims, judicial reviews are widely unexplored territory unique to the public procurement arena. It is difficult to predict the level of deference other courts will afford procurement decisions in the future. Accordingly, to better withstand legal challenge, public sector entities should—regardless of the procurement format they employ—ensure their procurement processes are transparent and fair, and that their evaluation methodologies are reasonable and defensible.                     b2b

Rosslyn Young is a commercial lawyer whose practice focuses on public procurement. She can be reached at rosslyn.young@procurementoffice.ca.