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Procurement law Q&A with lawyer Michael Large

In this Q&A, procurement lawyer Michael Large discusses some of the main issues affecting Canadian procurement practitioners today.


March 11, 2015
by Michael Large

 

Michael Large

Q: Is there a recent court case that’s of particular relevance to procurement professionals that comes to mind? Why is this case relevant?

The case that really grabbed my attention last year was a judicial review decision called Rapiscan v. Canada (2014, FCJ). Rapiscan, an X-ray equipment vendor, challenged an award decision by the Canadian Air Transport Security Authority, and Rapiscan won. I served as in-house Counsel at CATSA from 2004 to 2007, far enough in the past that the loss had nothing to do with me. What a relief. But that’s not why the case is relevant to procurement professionals. Judicial review is a different kind of courtroom attack than a lawsuit, and I bet many procurement professionals haven’t heard of it.

In short, lawsuits focus on compensation; judicial reviews focus on good governance. Courts are generally reluctant to seriously entertain judicial reviews of public sector purchasing decisions, preferring to see aggrieved bidders pursue damages through lawsuits like breach of contract.

In this particular purchasing scenario, CATSA had decided to explicitly avoid Contract A in its RFX. The Federal Court decided that intervention through judicial review was justified in spite of the commercial context, in part because Rapiscan’s Contract A remedies were eliminated or compromised. The Court also decided that CATSA’s award decision was unreasonable and unfair. The unfairness decision was based on many factors, including statutory duties, internal deception, no evaluation criteria, no performance requirements — and no Contract A. To sum up, avoiding Contract A influenced the judge’s conclusions that CATSA’s process was unlawful, and that judicial review was justified.

To be fair, the Court commented that the kind of internal deception demonstrated in this case would be enough to justify judicial review, even if Contract A was created.[1] Nevertheless, CATSA’s decision to avoid Contract A was clearly relevant to the Court. The potential for CATSA to escape legal accountability caused the Court much consternation, and drew much criticism.[2] For example, the Court stated that CATSA’s ‘no Contract A’ approach indicated its intent to avoid a truly fair and competitive process, and contributed to a ‘catch-22 of unfairness.’[3]

With more public sector owners moving away from Contract A, more bidders may feel compelled to pursue judicial review. More judges may feel compelled to consider the ‘reasonableness’ of award decisions by way of judicial review, in the absence of Contract A remedies. So, even without Contract A, we may continue to see close judicial scrutiny of RFX documents, evaluation decisions, and purchasing policies and procedures. Award decisions might be delayed, reversed, and declared unfair by the Courts. Time and money might be spent by owners on counter-measures. Settlement cheques might change hands, simply to make these ugly disputes disappear. I see plenty of procurement implications here.

The good news is that an award for damages is a remedy not available to bidders through judicial review. That’s one reason why this kind of attack is less popular than lawsuits for breach of Contract A. A breach of contract decision may say “pay up”; in contrast, a judicial review decision may say “shape up”. Admittedly, it’s tough to find the fun in either outcome. But forced to choose, I’d pick a slap-on-the-wrist through judicial review over a multi-million-dollar lawsuit. For that reason and many others, I continue to recommend against Contract A in many procurement contexts, despite the reasoning in Rapiscan. Yet, the reasoning in Rapiscan adds a degree of risk and complexity to ‘no Contract A’ decision-making.

Q: Do you see any trends in procurement-related law as we go into 2015? 
I foresee fewer Contract As created, and more creative counter-moves. In other words, as more owners aim to avoid creating Contract A in their procurement processes, more bidders will reach for alternative attacks, inside and outside the courtroom. Judicial review is just one option. We may also see more success with bidder lawsuits based on negligence arguments, including negligent misrepresentation and ‘independent statutory liability of public authorities’. These ‘tort’ claims may find new purchase in procurement contexts, precisely because they don’t rely on the creation of Contract A.

Outside the courtroom, some powerful vendors might lobby owners to restore Contract A, and threaten not to bid without it. In some scenarios, we may see fewer bids, less competition, lower quality, and higher prices. We may see more letters to the Editor, and more complaints to political masters.

But primarily, I see more judicial reviews in our collective future. Admittedly, damages are not available if a judicial review goes the distance. But will owners want judicial reviews to go the distance? Or, if an aggrieved bidder puts forward persuasive arguments in an application for judicial review, will the owner try to buy forgiveness? What’s the price of forgiveness? An aggrieved bidder may consider the costs of preparing a proposal, plus a ‘grief premium’, as an appropriate settlement figure.

Q: What are the risks of a poorly crafted RFX document? From a legal perspective, what’s the importance of being specific and using specific language?
In every Court decision I’ve ever read regarding a procurement process, the judge always reads the RFX. Typically, the words written into that document matter an awful lot to judicial outcomes. At the risk of stating the obvious, Contract A is a contract, and procurement law is a sub-species of contract law. When an owner crafts a contract, the owner writes rules, it writes ‘law’. Provided that certain (generous) limits are respected, a judge will aim to enforce a contract as written, including the terms of any Contract A.

To be more specific, if your RFX creates Contract A, then the mandatory requirements, evaluation criteria, and award methodology you create form a rulebook you must follow. Naturally, owners should make that rulebook clear and specific, for their own benefit as they move through their own procurement processes. Clarity and precision will also help reduce risks like bidder misunderstandings and courtroom reinterpretations. Even if Contract A is not created in a particular RFX, the words in that document will set bidder expectations. If those expectations are not met, then discomfort and disputes can flare up.

We don’t get to read much about crystal-clear RFX documents in Court decisions, because those RFXs don’t leave much room for dispute. In short, I see clear clauses as litigation repellant; “curious clauses” invite courtroom clashes. Drafting with a view to minimizing disputes can reduce a range of associated risks, including angry complaints, nasty headlines, needless do-overs, lost bidders, and costly lawsuits.

Consider the split-decision in Tercon (2010, SCC). I’ve heard it said that the outcome of this Supreme Court of Canada case (5 judges-to-4 in favour of the bidder) means that an owner can’t count on limitation of liability clauses. Not exactly. To me, Tercon means that an owner can’t count on limitation of liability clauses, to the extent that they are half-baked or otherwise under-cooked. Slap-dash drafting is much easier for bidders to attack, and judges to debate, than clauses carefully crafted.

One of the great benefits of going RFX, from an owner’s perspective, is that the owner sets the terms. To the extent that circumstances permit, owners should make the most of that opportunity. In Tercon, for example, the majority of the Supreme Court offered fairly clear advice on clearer drafting.[4] A few clarifying words to assist the interpretation of the exclusion of liability clause attacked in Tercon would have supported an owner-friendly outcome.[5] The Supremes have spoken: clarity counts!

Q: Do procurement professionals face more guidelines, regulations, rules, etc (in other words, red tape) when drafting documents? If so, how can they deal with this to simplify the process and reduce risk?
I generally don’t see purchasing processes getting any simpler for procurement professionals. Whenever something goes wrong in the evaluation room, for example, an adaptive response is to draft new provisions into templates, policies and procedures. Of course, as a lawyer, I see the upside: an ounce of prevention. But the trade-off, in the long-run, is a ton of complication. To me, using checklists is one small way that procurement professionals can boil away some complexity, and reduce the risk of missing something important. It can also be helpful to engage legal counsel from time to time, to keep your templates, policies and procedures clear, consistent, and cutting-edge.

Michael Large is a practising lawyer who has advised both buyers and bidders on a wide variety of solicitation templates and procurement projects. Most notably, he served as Assistant General Counsel to the Canadian Air Transport Security Authority, in Ottawa. The content of this article regarding the Rapiscan decision does not include any confidential information of CATSA, and is limited to the findings of the Federal Court and other public information. Michael can be reached at his procurement-focused practice, called Law@Large, at mikelarge@law-at-large.com.

 

[1] At paragraph 126.

[2] As shown in paragraphs 5, 53-54, 79-80, 108, 112, 117, 119-125.

[3] At paragraphs 80 & 124.

[4] At paragraph 73.

[5] At paragraphs 74-75, & 77.