Test your understanding of fairness in this recent case from Nova Scotia.

In 2012, the Halifax Regional Municipality (HRM) issued an RFP for the purchase and redevelopment of a surplus elementary school property. Jono Developments Ltd. and several community groups submitted proposals. There is evidence that the HRM closely followed the terms of the evaluation process laid out in the RFP, which allocated 20 percent of the weighting to the financial offer. Following evaluations, the HRM approved sale of the property to Jono.

Around the time the sale to Jono was approved, the community groups discovered that the HRM had passed a “Policy and Procedure for Disposal of Surplus Schools” in 2000. Among other steps, the HRM was required under the policy to first assess and evaluate any proposals from community groups or grant applications and, if none were received or none were supported by the Community Grants and Partnering Program under the HRM, then the HRM was to take steps to seek Council approval to put the property on the market.

Compelling evidence was presented that the HRM had not tested the policy since its inception, and in fact was not aware that it even existed until challenged by the community groups following the approval of the sale to Jono. When the HRM became aware of the policy, which clearly had not been followed in this instance (or in any of the previous disposals of 18 other surplus school properties), the HRM rescinded its decision to sell to Jono, made a motion to rescind the policy and, then, passed a third motion to sell the property to Jono.

The HRM was also enabled under its Municipal Charter to “sell property at market value when the property is no longer required.” The appraised value of the property was listed in the RFP as $4.3 million, based on a valuation report that provided three scenarios:

• Market value of property as is: $1 million
• Prospective market value – maintain old school/redevelop remainder: $3 million
• Prospective market value – demolish all buildings and redevelop: $4.3 million

Jono had submitted an unconditional financial offer of $3 million for the property “as is,” to be increased by increments of $75,000 over the highest bid to a maximum of $4 million. In other words, Jono offered to pay $3 million if there were no competing bids, and up to $4 million if there were. Jono also provided a slightly higher option that was conditional on certain development approvals. 2 Several community groups also submitted proposals, each offering a purchase price of less than $3 million. The HRM approved the $3 million offer from Jono. As shown by the HRM’s evaluation process, Jono had received the highest score in the RFP process, in part because of its financial proposal.  

• Pursuant to a Judicial Review application by the community groups, in 2012, the N.S. Supreme Court set aside the sale to Jono on the basis that the HRM had breached its duty of fairness to the community groups by not following its own policy, and further, that the HRM’s interpretation of “market value” was unreasonable, so the HRM had breached the Charter by selling the property below market value. The Court also ordered Jono to pay a portion of the costs awarded. Jono appealed the decision, and the matter was heard by the N.S. Court of Appeal in May 2014.
• In the HRM’s view, “market value” is the price the market will offer, so it therefore believed that it was complying with the Charter. 

What would you decide in this case?

Reprinted from The Legal Edge Issue 112, October – December 2015

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.

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FREQUENTLY ASKED QUESTIONS

Public-Sector Entities Sharing Bid Information, and When Does Contract A End?

Through our Signature Seminars, eSeminars, Public Sector Procurement Program (PSPP) and other courses, our NECI instructors regularly answer questions about procurement-related issues. Here are two recent questions.

What is the current thinking about public-sector entities sharing bid information? We are in the MASH sector (municipalities, academic institutions, school boards, and health and social service providers) and taking advantage of more and more provincial government tender contracts that are now available to us. We are conscious about bid-shopping, and always advise our users that once we go to RFx, we can’t go back to the government agreements. As the MASH and government collaborations increase, and we handle our own RFx’s, some government parties are curious about our experience in going to market, for when they go back out. We are cautious about the free flow of information, particularly from MASH to government, given that the current direction is the other way around. RFx strategies and the like don’t raise much concern, but sharing results makes us hesitate.

Generally speaking, bid-shopping has to do with using already submitted bid pricing as a negotiating tool with other suppliers. Typically, this relates to cancelling a tender process after closing, and then either going back out to market with the same scope, or using the pricing submitted in negotiations for a direct award of the work. Having said that, we know that the public sector is a lightning rod for challenges, and that the legal definitions of such terms are shaped, over time, by the various allegations that come before the courts.

Obtaining information on the lump-sum price of similar contracts with other public organizations is common practice, and indeed, it is public record, so probably couldn’t be considered improper. Going beyond that, however, and obtaining other pricing that perhaps did not result in an award, might be riskier territory. Using the lump-sum award pricing when shaping internal budgets is common, but if, for example, you were to use that information as justification for cancelling a tender process already underway, we could see some potential issues.

It would be prudent for you to raise this issue and get some legal advice on the implications. As always, this is not legal advice, just our take on the question, as educators. We have not heard this issue from any other organization, but as you say, the practice of sharing information among public-sector entities is becoming more common. While that is a good thing, you are entirely correct to be a little uncomfortable with the practice until you receive a legal opinion on how far you should go. The last thing you want, of course, is for the courts to make that determination for you.

At what point in the competitive bidding process does Contract A end? 

Great question! From a legal perspective, Contract A expires when Contract B (the Performance Contract) is signed with the successful respondent. If there is unfairness, of course there can be a challenge after Contract B is signed, but the alleged unfairness must have taken place during the competition before Contract B was signed.

Do you have procurement-related questions that might be of broad interest (or additions to/rebuttals of our answers)? We invite you to send them to our Legal Editor and Publisher, Maureen Sullivan ([email protected]). We will publish questions of a general nature that we think are relevant and timely. We cannot address specific legal questions, provide legal advice, or guarantee that your question will be published.

Reprinted from The Legal Edge Issue 111, July – September 2015

In February 2010, the Regional Municipality of Niagara created a shortlist of general contractors through a formal Request for Prequalification (RFQ) process, in accordance with its Purchasing Policies and Procedures Bylaw. The shortlisting process was for work related to two renovation projects at the Niagara District Airport: the “Groundside” project and the “Airside” project. 

Weinmann Electric Ltd. acted as the electrical subcontractor for Dufferin Construction Company, the successful bidder on the Groundside project, which commenced in June 2010.         

By way of letter dated April 21, 2010, the Region informed each of the five prequalified general contractors, including Dufferin, that they were eligible to submit written tender bids for the Airside project. On the advice of its consultant, the Region decided to specify minimum qualifications for the electrical subcontractors on the Airside project, due to the nature and complexity of the airfield lighting requirements.             

In the April 21, 2010 letter, the Region advised the general contractors bidding on the Airside project that “… electrical subcontractors must have successfully completed at least two airfield lighting projects in Canada with a value of at least $750,000 each.” In the same letter, the Region set out the names of the four electrical contractors that its consultant had said would meet the minimum qualifications, with a stipulation that other subcontractors would be considered, provided they met the minimum qualifications. The requirement for minimum qualifications was subsequently incorporated into the tender document for the Airside project by addendum, without mention of the four named companies.             

Although Weinmann was clearly a well-established electrical contractor, it was not one of the named companies, and did not meet the minimum qualification requirements, as its experience with airfield lighting work was limited. Weinmann contacted representatives of the Region and, through discussions, it became clear that Weinmann might have been able to meet the minimum requirements by partnering with another electrical contractor with suitable experience. On August 3, 2010, before such partnering arrangements could be formalized, and shortly before tender bids for the Airside project were due, the Region informed the bidders that they “may carry Weinmann as the airfield lighting/electric subcontractor for [their tender bids] pending receipt of the requested backup information.”      

Dufferin’s bid for the Airside project named Weinmann as the electrical subcontractor, incorporating Weinmann’s pricing for that aspect of the work. By letter dated August 11, 2010, the Region requested, among other things, the documentation with respect to Weinmann’s qualification as the proposed subcontractor. Although Weinmann did provide the backup documentation to Dufferin on August 13, Dufferin by that point had decided to use another electrical subcontractor on the project, in part due to its concerns about whether Weinmann could meet the requirements, and in part due to concerns about the possibility that Weinmann would be overextended by taking on the Airside project. 

Weinmann initiated litigation and sought damages from the Region, alleging that it lost the Airside electrical subcontracting job because of the unlawful actions of the Region. The Region’s bylaws prescribe the procedure for conducting prequalification processes, including prequalification of any subcontractors. Weinmann alleged that the Region had failed to follow the bylaw by not preparing and advertising a prequalification process for the electrical subcontractors on the Airside project – despite naming four “prequalified” companies in the letter of April 21. The Region denied that any prequalification was done for the electrical subcontractors, so there could have been no breach of the bylaw in question.             

The matter was complicated by the fact that an email from the Region’s consultant referred to the “prequalified list of electrical subcontractors,” although the issue was clarified by a subsequent letter confirming that other subcontractors could qualify by meeting the stipulated minimum requirements.             

What would you decide in this case?

Answer 

In Weinmann Electric Ltd. v. The Regional Municipality of Niagara, 2016 ONSC 13, the Ontario Supreme Court of Justice concluded that the conduct of the Region was not intended to produce, and did not produce, an exclusive shortlist of electrical subcontractors. The April 21 letter was clear that other subcontractors would be considered if they could meet the requirements. The letter simply included a non-exclusive list of suggested electrical subcontractors, which the Court found to be entirely reasonable, given the non-routine nature of the project. This conclusion was supported by the fact that the tender document for the Airside project did not list these suggested subcontractors; rather, it specified the minimum requirements that had to be met by any electrical subcontractor to be used.             

In concluding that the Region did not conduct a prequalification process for electrical subcontractors, the Court found that there could have been no breach of the cited bylaw. The Court also dismissed general allegations of breach of the duty of fairness. In the words of the Court, “If there has been no breach of the By-Law, and no other unlawful act, there can be no breach of a duty of fairness.”             

In the alternative, the Court found that, even if the Region had conducted a prequalification process and had breached the bylaw in doing so, Weinmann failed to prove that it had suffered any damages as a result. A plaintiff must prove more than an unlawful act in order to recover damages: it must also prove, on the balance of probabilities, that it has suffered a loss as a consequence of the unlawful act. In this case, if the Region had conducted a prequalification process, Weinmann would not have met the requirements, and therefore would not have made the shortlist, rendering it ineligible for the subcontract work in any event.       

Coupled with the vague calculation of the damages alleged by Weinmann – including the fact that the impact on profit margins of having to partner with another company for the electrical work was not reflected – the Court had no hesitation in dismissing Weinmann’s claim, leaving the parties to agree on the amount of costs payable by Weinmann.

Issue 113 | JAN – MAR 2016

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.

Does your organization hold software licences? This recent case from Quebec is a cautionary tale about ensuring that you include accurate wording about the scope of any licence, and consider and address the issue of revocability. Can the licence be revoked? If so, under what circumstances?     

In 1984, then-student Elizabeth Posada developed a DOS computer program called Ceres to allow users, such as university students or business executives, to vary certain inputs to produce reports and learn business concepts. In December 1984, Posada incorporated a company called Planification-organisation-publications Systèmes (POPS) Ltée, of which she is the sole officer and shareholder.           

In 2007, Posada joined long-standing friends Philippe Chapuis and Benoît Bazoge as a shareholder and employee of their company, 9054-8181 Québec Inc. (IDP). The three had been doctoral students together and all had used Ceres while they were professors or lecturers at the Université du Québec à Montréal (UQAM). (In 1989, for $2,000, Benoît Bazoge had purchased a user’s licence for Ceres on behalf of UQAM. Philippe Chapuis had done the same on behalf of the École Supérieure de Commerce in Tours in 1990.)           

When Posada joined IDP in 2007, she effectively ceased POPS’ commercial operations, and even gave IDP the right to use the POPS trade name. Posada was hired to develop the adaptations of and enhancements to Ceres that IDP wanted. She was responsible for completing work on the software called Omega – the Windows version of Ceres – on which she, Chapuis and Bazoge had collaborated since 1998, and for developing the software that would become known as Epsilon and Comex. These two were scaled-down versions of Omega.           

In October 2008, Posada resigned as a shareholder of IDP because of a dispute over compensation, and left the company. She demanded that IDP stop using Ceres, Epsilon and Comex. IDP refused, and POPS sued IDP. The case went to the Federal Court in April 2009.           

In its April 2013 judgment, the Federal Court found that copyright subsisted in the Ceres software products and subsequent versions, POPS was at least one of the rightful owners of that copyright, IDP had at least an implied licence to use the products (including access to the source code and future adaptations that IDP might develop), POPS was not entitled to revoke that licence, and IDP had not infringed POPS’ copyright, so was not liable for any damages.           

POPS appealed the judgment, arguing, among other things, that Chief Justice Crampton had erred in his decision about the revocability of IDP’s licence, as well as about the scope of it, claiming that, following Posada’s departure, IDP did not have rights to the software, all future adaptations, and the source code – including the right to modify the code.           

See below to discover how the Federal Court of Appeal untangled this case.

Answer

The Federal Court of Appeal decision in Planification-organisation-publications Systèmes (POPS) Ltée v. 9054-8181 Québec Inc., 2014 FCA 185, which ultimately found for IDP, reminds us again that litigation is a poor substitute for clear and unequivocal language in contracts and agreements. Perhaps a more subtle lesson is to maintain a firm focus on legal rights and responsibilities, even – and some would argue, especially – when entering into business arrangements with ‘friends’. Expect the unexpected and plan for the end of the relationship, as you would for any contract.           

Posada made several claims. Among them, she claimed that the trial Court had failed to apply the correct principles of law in determining the scope of the software licence, and that, with respect to IDP’s access to the source code, the trial Court had acted ultra petita, meaning that the Court granted more than IDP had asked for (it had not in fact asked for access to the source code, or the right to modify it). With respect to the revocability of the licence, Posada argued that the trial Court had made several errors in law – including not taking a systematic approach from English case law – and that it was not reasonable or fair for IDP to hold a non-revocable licence after Posada and IDP went their separate ways, since (Posada claimed) the licence had been conditional on IDP and Posada working together.           

The Court found that IDP had indeed never asked for access to the source code or for the right to modify it in the future, so it limited IDP’s software licence to all versions of Ceres, Omega, Epsilon and Comex that existed at the end of the IDP/Posada collaboration, without IDP access to the source code.           

With respect to the revocability of the licence, the Court rejected Posada’s argument that the trial Court should have followed English case law. The appeal Court instead used the ‘intention of the parties’ test that is the standard of review under Canadian law. The appeal Court found that the trial Judge had not erred in this, so reaffirmed the trial decision that the licence was non-revocable. Further, the Court found that a non-revocable licence was reasonable and fair, given Bazoge’s and Chapuis’ early purchase of licences to use Ceres, and their later investments of money and staff resources to develop the software. In the Court’s opinion, and in the absence of explicit language to the contrary in the agreement, the licence was not therefore conditional on IDP and Posada working together.           

Although the Court held that IDP was the primarily successful party, each party was responsible for its own costs. The appeal was dismissed, except for a revision to the wording of the trial Court’s decision with respect to the scope of the licence, and specifically to the source code. 

Reprinted from The Legal Edge Issue 109, January – March 2015