Tercon Contractors Ltd vs. British Columbia ( Ministry of Transportation and Highways)

If it can be said there is any good that has come from the infamous and inexhaustible BC Rail debacle, it would be that it opened my eyes to much of what goes on with the tendering process within many ministries of the B.C. government.

In particular, tendering irregularities, for lack of a better word. Irregularities and mysteries as to how public contracts are awarded to the companies who submit bids for them, big or small.

 I’ve blogged several times about the sea to sky highway ( or the Sea to Sly Highway, as I refer to it), and the Port Mann bridge project, both with regards to the contractors and how  or why those bids were awarded.  I’ve been told by many professionals within the  BC road construction industry that there are serious questions many contractors have regarding  the entire tendering process, whether it be the P-3 model, or what was traditionally an open bid and award process for public projects. Throughout the conversations I’ve had, one thing became glaringly clear :  something is wrong with the tendering and bidding process for public projects in BC.

And nowhere is this more substantially shown than in a lawsuit that has been quietly going on since 2004 , when  a  road construction company said enough is enough, and took the Province of British Columbia to court :  Tercon Contractors Ltd. vs British Columbia ( Ministry of Transportation) .

I say quietly only in reference to the  mainstream media, of course, because I could find naught about it in the news most people read, but law journals, legal publications and construction companies everywhere in Canada have been buzzing about it for years. The implications of the pending outcome of this case are serious for the construction industry across Canada, as well as for how governments conduct the bidding process.

It is a long case, but easily understand to most and there are certain to be arguments made for those legally inclined among you, but let me take you through the gist of it.

The  B.C. Ministry of Transportation and Highways put forth a request for  Expressions of Interest to construct  a 25 kilometre strip of highway in northern BC, in 2001. 6 companies responded to that request, and were evaluated for eligibility through the ministry’s process.

 The Ministry then issued a Request for Proposals, of which only the shortlisted companies that met the eligibility requirements would be allowed to submit proposals. Tercon  and another company, Brentwood Enterprises, both made the shortlist of  companies that met the eligibility requirements.

At some point prior to the submission of the RFP, Brentwood –  who had become eligible based on their company alone –  took steps to enter into a joint venture with another company that had not undergone the eligibility review of the initial process, and the ministry was made aware of this prior to their submission.  Now, this is where it gets sticky.

This excerpt from a case-law comment provides the easiest explanation of what happened then:

Through a series of correspondence and discussions, both pre- and post-RFP closing, the Ministry was alerted to the fact that the Brentwood proposal was, in essence, a joint venture submission on behalf of Brentwood and Emil Anderson.

However, in an attempt to submit a compliant proposal, the Brentwood/Emil Anderson proposal was submitted solely under Brentwood’s name.

  When the Ministry conducted its evaluation of all proposals, the “Brentwood” proposal received the highest rating. Recognizing the potential problem with the Brentwood submission, the Ministry sought legal advice as to how it might accept the Brentwood proposal despite the fact that it was essentially not a submission by a firm short-listed as a result of the RFEI evaluation.

In addition, the Ministry actually amended draft copies of evaluation reports to hide the fact that the Brentwood proposal was truly a submission from a joint venture and amended the terms of the construction contract (“Contract B”) to identify Emil Anderson as a “major member of theContractor’s construction team.” 

Ultimately, the Ministry awarded the construction contract to Brentwood and Tercon sued for breach of Contract A.

The judge found in favor of Tercon and awarded the company $ 3,293.998.00 in damages. She had this to say in her summary, which can be read in the following PDF file  : tercon reasons for judgement 2006 

 The Ministry acted egregiously when it knew or should have known that the Brentwood bid was not compliant and then acted to incorporate EAC indirectly in contract B whilst ensuring that this fact was not disclosed. These circumstances do not lead this court to give aid to the defendant by holding the plaintiff to this clause.

 Of course, the ministry appealed, and the judgement was overturned because the appeal judges felt the exclusion clause built into the contract spelled out the terms concisely and without mistake.

 In their eyes, despite the ministry’s involvement in accepting an ineligible bidder, and disguising that fact from other bidders and their own documents,  the clause excluded the ministry from any actions brought forth by other bidders, as Tercon took to do.  That case summary can be read HERE.

Again, the full implications of the case have yet to hit home, because Tercon took leave to appeal to the Supreme Court, who heard the case early last year : http://www.scc-csc.gc.ca/case-dossier/cms-sgd/sum-som-eng.aspx?cas=32460

The Supreme court has yet to rule on this case, although the fact that they are taking so long  would seem to suggest a favorable rule towards Tercon, as relayed by some construction lawyers across Canada. Clearly, there stands at risk  the entire integrity of the bidding system, which appears to be horribly breached.

Should the Supreme court rule against Tercon, we can expect what many categorize as the currently unfair and irregular tendering process to continue, with the resulting  consequences.  As stated in this case comment on the BC appeal:

For many years, Canadian courts have recognized the need to protect the integrity of the tender process. Our courts have often acted boldly to ensure fairness in the tender process, but our courts are ultimately constrained by the law of contract in affording relief to aggrieved bidders.

Where owners have acted unfairly, courts have often decided that the bid contract (created when a compliant bid is submitted) contains implied terms prohibiting that unfairness. When owners have responded by including, in the next call for tenders, express terms which give them wide latitude in the way bidders can be treated, the courts have attempted to interpret those express terms in ways which preserve the integrity of the tender process.

This contest between owners and the courts has resulted in tender packages containing terms which are more and more explicit in favor of owners, and which have recently created much difficulty for our courts in trying to maintain the integrity of the tender process.

~snip~

Owners need to understand that if they include tender terms that allow them, with impunity, to treat bidders unfairly, they may see fewer bids, intentionally non-compliant bids, and higher bids.

 If the Instructions contain terms which allow owners to treat bidders in a way not normally expected (for example, allowing owners to accept non-compliant bids, allowing owners to negotiate with bidders after the close of tenders or prohibiting any claims by bidders for anything related to the tender process), then potential bidders may decide against bidding, may submit an intentionally non-compliant bid (revocable at any time) or bid higher than they normally would.

 

I would be terribly remiss to fail and remind you that  Judith Reid was the transportation minister at the time this project was being bid on. Kevin Falcon took over the Ministry of Transportation in January of 2004, where he remained until last year. I wonder what either would have to say should the Supreme court rules in favor of Tercon and the $3 million dollar judgement ordered to be paid out by the Provincial Government ?

  

$3 million of taxpayers money, at that. 

 

But there is more. Although the bulk of complaints about the government procurement process have occurred in recent years, tendering irregularities  go back  further than that. In the 1990’s, Tercon took the provincial government to court in a wrongful award suit, and won damages as well.  Details are in this PDF document : tercon reasons for judgement north island highway

The government appealed and  was unsuccessful in their appeal . The judgement was upheld, and it is believed that this initial case paved the road for the case Tercon is currently awaiting ruling on from the Supreme court

 Whether  the actions of the government are due to honest mistake, ignorance, incompetence or  corruption in either of these cases, is completely open to interpretation, and I will let you decide for yourself what you believe after reading the links and documents within this post.

 Clearly, something is grievously wrong with how things are operating within public process in British Columbia, and  the question must be asked, why does it continue unabated?

My curiosities for this type of ad hoc policy began when the Port Mann bridge bidder lost their financing and the province still awarded them the contract- simply making the project a public one, rather than a P-3. 

 Even to a layperson with little knowledge of tendering, bids and contract law, it would seem odd. One would think that if the successful bidder could no longer meet the specifications and requirements  of the bid,  in particular, an inability to provide the financing demanded by the province, that the deal would be null and void and the contract would be awarded to the next lowest bidder who met the qualifications. 

It just makes sense – or at least it does to me.

 But then I became really piqued by all the emails I began receiving from very knowledgable people in the industry, who said this kind of thing happens all the time, even with public projects. I posted an excerpt from one of those emails in this post here, highlighted in yellow. I suggest you read it if you have not, because it spells out the issue with the Port Mann failed P3 proposal so concisely.

Many in the BC construction industry have been complaining for years about what they call the lack of checks and balances in public project procurement. This article from 2008, written by Steve Weatherbe,  highlights a concern held throughout much of the industry at that time. Here is  an excerpt:

Then there is the whole public procurement picture in the province, formerly done according to the traditional open and transparent bidding process. This has gone by the boards, says Knappett, since the Liberals disbanded the Capital Division of the Finance Ministry, which had enforced these practices on various spending authorities such as school and hospital boards.

Now a method called “construction management” has replaced the traditional method where the projector commissions a design and puts out tenders based on it, awarding the low bid. Now the projector seeks a contract manager based an ad-hoc points system which according to Knappett is often tailored to favour a company already doing business with the projector. School boards, universities and hospital boards on Vancouver Island are now using this method for contracts too small for P3s.

Greg Baynton, president of the Vancouver Island Construction Association, says the industry has been trying for five years to get the Liberal government to discuss the issue. His view is that the government has hitched its fortune to the P3 star in reaction to the 100-per-cent cost overrun of the Vancouver convention centre.

But the overrun was not an indictment of the traditional tendering system, he says. “They had such a sense of urgency about the convention centre they removed the checks and balances.” The originally projected cost of the centre, moreover, was concocted out of thin air. No design had been done first upon which to base an estimate.

~snip~

“What happens when contracts aren’t tendered openly and the results aren’t transparent?” asks Knappett. History provides the answer in one word, he says: “corruption.”

It’s 2010 now, and nothing has changed since the publication of that article. At the time, then finance minister Carole Taylor had this to say about P-3’s and other public project procurement issues :

Finance Minister Carole Taylor told the Business Examiner that, local contractors are often let in on the big P3 projects as sub-contractors.

“They are a huge success,” she said. “There are over 20 now and all are on budget.” She cited the huge overrun with Vancouver’s convention centre as an example of what can happen without P3s.

“When we can transfer that kind of risk to P3s, we do.”

Taylor further contended that Partnerships BC is not necessarily involved in P3s: the independent spending authorities can negotiate these on their own.

As for procurement by these authorities of projects not destined for P3s, Taylor said the provincial government was looking into the construction industry’s complaints about inconsistency.

Today, the complaints remain regarding the entire tender and bid process in British Columbia. But isn’t it refreshing to hear that the person being billed as a shoe-in for premier loves the concept of P-3’s?

Another thought that occurred to me while looking over all of this, is why hasn’t someone taken this up with the competition bureau? If they can address bid-rigging, they should be able to address these procurement irregularities, because the effect is essentially the same. Collusion, and deception, resulting in the same companies getting all the jobs – over and over again. Seems to be an unfair market practice if you ask me.

  Should the Supreme court find in favor of the Province of British Columbia in the Tercon case, construction companies and contractors  can look forward to more unease when submitting bids to the ministry.  A ruling of this nature would be saying in essence, that it is perfectly legal  for the province to treat bidders however they wish to – with unfair practices, or  even with the use of deception, as long as the exclusion clause is there.  To say that this opens the door to intentionally non-compliant bids is an understatement.

My hope it that the court sees fit to uphold the integrity of the bidding process,  and rule in favor of Tercon, so that contractors can feel safe to bid in good faith without worrying whether or not the province is making deals on the side.

To do anything other, is to condone corruption within government by our highest court- a concept I find disturbing, to say the least.