Key Takeaways
The limitation period for procurement law claims based on the duty of fairness starts to run from the time the claimant had the requisite knowledge of the material facts to ground a plausible inference of liability for a breach of the duty of fairness claim. This only requires that the claimant knew or ought to have known of the alleged unfairness, there is no need to have seen the details of documents which evidence the unfairness.
Subcontractors and suppliers are not parties to the contract between a purchasing entity and bidders during the tender progress (“Contract A”) so there is no duty of fairness owed by a purchaser to a bidder’s subcontractor or supplier.
Background
Canada Forgings Inc. (“CanForge”), the claimant/appellant, produces custom steel forgings including end fitting forgings for the nuclear industry. Atomic Energy of Canada Limited (“AECL”), the defendant/respondent, designs and refurbishes CANDU nuclear reactors[1] around the world.
CanForge’s claim arose out of its perception that AECL was purposely ignoring it as a supplier of forgings for the nuclear industry and that AECL was denigrating CanForge’s products to others.
There were two potential refurbishment projects in the planning stages in early 2004, one by Bruce Nuclear in Ontario (“Bruce”), and another in Point Lepreau, New Brunswick. AECL hoped to secure contracts for both.
In 2004, AECL was retained by the CANDU Owners Group (“COG”)[2] to prepare an industry capacity assessment report to determine current capabilities to undertake multiple refurbishment projects, if called upon. To produce that report, AECL contacted three machine shops to inquire about their rates and timeframes for supplying materials. Those machine shops were Precision Nuclear Inc. (“Precision”), Donlee Precision (“Donlee”), and Invar. AECL eventually contracted with Invar.
CanForge learned of the potential refurbishment work, and in July 2004, CanForge sent quotations for end fitting forgings to Precision, Donlee and Invar. Donlee had requested a quotation from CanForge, but the quotations to Precision and Invar were unsolicited.
CanForge’s main competitor for this supply was another end fitting forgings producer, Patriot Force Co. (“Patriot”). Invar’s evidence was that Patriot was Invar’s sole supplier and Invar was satisfied with Patriot’s pricing and workmanship. Even though CanForge’s unsolicited quote was $50 cheaper, Invar did not think the price difference warranted looking into changing suppliers. Only Precision included CanForge as a supplier in its bid.
In September 2004, in anticipation of a contract for Bruce, AECL issued a call for tenders to the three machine shops, Invar, Precision and Donlee. As part of their bid, these machine shops were to obtain pricing from their own chosen subcontractors and suppliers. Before the bid deadline, CanForge sent fresh quotes to Donlee and Precision but not Invar, while Patriot sent quotes to all three machine shops. Importantly, AECL did not issue any tender for end fitting forgings to CanForge or Patriot.
Invar, whose bid included Patriot as a supplier but not CanForge, had the lowest technically compliant bid; Precision, whose bid carried both CanForge and Patriot, was technically non-compliant because Precision was not yet qualified to manufacture end fittings; and Donlee’s bid was roughly $5 million more expensive than Invar’s. AECL therefore selected Invar.
However, by April 2005, the expiration date of the submitted tenders, AECL had not awarded anyone a contract for end fittings because it had not finalized its contract with Bruce. In fall 2005, the contract was still not finalized, but without disclosing that Invar was its presumptive choice, AECL sought confirmation from Invar that it would hold its price. Also, to ensure a timely supply of materials, AECL issued a letter of intent to Patriot. That letter of intent included an indemnification to Patriot to cover its out-of-pocket expenses should it ultimately not receive a purchase order from any machine shop for the Bruce project.
In late 2005, the scope of the Bruce project was reduced, and this was communicated to Invar, not Donlee or Precision, by an “addendum” which referenced the original tender. CanForge argued that this was an extension of the expired tender process. AECL’s evidence was that the term “addendum” was only used at the request of AECL’s engineering department to update the technical specifications.
Invar was finally officially awarded the Bruce contract in December 2005, and Invar issued a purchase order to Patriot for the end fitting forgings.
CanForge commenced an action against AECL in 2005 on several grounds but not including a procurement law claim. In April 2009, CanForge amended its claim to include a procurement claim that AECL had breached its duty of fairness.
Limitation Issue
The trial judge had held that CanForge’s duty of fairness procurement claim was statute barred. The Court of Appeal agreed.
The courts held that the procurement claim was discoverable by CanForge prior to April 2007, i.e., two years before CanForge brought it. A key piece of evidence was a letter written by CanForge’s lawyer in December 2005 which complained that AECL had negotiated a deal directly with CanForge’s competitor, Patriot, agreeing to pay a price higher than CanForge’s price. There had also been a meeting, a subsequent phone call, and CanForge’s original statement of claim, which all showed that CanForge had the requisite knowledge of the alleged unfairness. CanForge argued that document discovery was not until late 2007 and CanForge only gave its lawyers a copy of the letter of intent in 2008. However, the court held that CanForge knew or ought to have known they had a procurement claim before they read the full letter of intent.
Even though the limitations issue disposed of the appeal, the Court went on to explain why it would uphold the trial judge’s reasons on the procurement law question.
A Refresher on the Basics of Procurement Law
The Court of Appeal summarized the basics of procurement law as follows:
“When a business wishes to procure services, and issues a ‘request for proposal’, or “RFP”, inviting suppliers to bid for a contract, the law divides the procurement process into two separate contracts: “Contract A” and “Contract B”. Contract A is the agreement entered into when a bidder submits a compliant bid in response to an invitation to tender. It imposes certain obligations on the procuring authority about how bidders will be treated. Contract B is the agreement between the procuring authority and the winning bidder.[3]
“…Contract A can only be formed between a procuring authority and compliant bidders; in other words, a procuring authority is contractually obliged, by Contract A, to accept only compliant bids and, more importantly for present purposes, only compliant bidders have legal remedies arising from the procurement process as against the procurement authority. Whether Contract A is formed depends on the parties’ intentions to create a legal relationship through a call for tenders and the submission of a compliant bid.”[4]
The Court’s Decision on the Procurement Law Issue
The Court of Appeal pointed out that CanForge incorrectly framed the issue as whether AECL complied with its obligations under Contract A. That was not the issue. The issue was whether Contract A had been created in the first place between AECL and CanForge. It had not. Therefore, AECL had no obligations to CanForge.
[1] CANDU (CANada Deuterium Uranium) is a unique nuclear reactor system developed in Canada.
[2] The CANDU Owners Group (COG) is a private, not-for-profit corporation funded voluntarily by CANDU operating utilities worldwide.
[3] Canada Forgings at para 38, referencing The Queen (Ontario) v. Ron Engineering & Construction (Eastern) Ltd., [1981] 1 S.C.R. 111.
[4] Canada Forgings at para 38, referencing M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619.