Background

In 2000, the Province of British Columbia’s Ministry of Transportation and Highways (the “Province”) issued a request for expressions of interest (the “RFEI”) relating to the design and build of a highway, with the intention of identifying three qualified contractors to bid on the project. The Province received six expressions of interest (“EOIs”), and on January 15, 2001, the Province issued a request for proposals relating solely to the construction of the highway (the “RFP”) only to the six contractors that had made submissions in response to the RFEI. Both Tercon Contractors Ltd. (“Tercon”) and Brentwood Enterprises Ltd. (“Brentwood”) received a copy of the RFP, and each submitted a proposal in response to the RFP. Brentwood’s proposal was selected by the Province.

Tercon brought an action objecting to the selection of Brentwood’s proposal and claiming that Brentwood’s proposal should have been disqualified because Brentwood partnered with Emil Anderson Construction Co. (“EAC”), a company that was not one of the six eligible contractors. The pre-bidding agreement between Brentwood and EAC provided that if the Brentwood proposal were selected the parties would enter into a joint venture agreement.

At trial before the Supreme Court of British Columbia, Tercon was awarded approximately $3.5 million in damages and prejudgment interest by Dillion J. 2 The trial judge’s decision was reversed by the British Columbia Court of Appeals3. Tercon appealed to the Supreme Court of Canada.

At the Supreme Court, the reasons for judgment of the majority were delivered by Cromwell J. (LeBel, Deschamps, Fish and Charron JJ. concurring), and the dissenting reasons of the minority were delivered by Binnie J. (McLachlin C.J. and Abella and Rothstein JJ. concurring).4

Issue – Did the Province breach its duties by selecting a proposal submitted jointly by two proponents, of whom only one was a qualified proponent?

Under the terms of the RFP, only the six groups who had made submissions under the RFEI were eligible to submit a proposal in response to the RFP.

When the Province was entering into the contract with Brentwood, the Province was aware that Brentwood and EAC intended their relationship to be a joint venture rather than a relationship between a prime contractor and subcontractor, and the Province took steps to make sure that its contract was with Brentwood alone. Brentwood and EAC revised their pre-bidding agreement to reflect this change, but the pre-bidding agreement continued to state that the work would be performed equally by Brentwood and EAC and that they would share equally in the profits.

The majority of the Supreme Court concluded that the Province had breached its duty of good faith to Tercon and the express terms of the RFP by selecting the Brentwood proposal and by entering into an agreement with Brentwood when the Province was aware that the Brentwood bid was being submitted by a joint venture that was not eligible to be a proponent. The majority of the Supreme Court also noted that the Province “took active steps to obscure the reality of the situation.”5

Lesson Learned

The failure of an issuer to abide by its common law duties (such as the duty to act in good faith) and any express obligations set out in its request for proposals when making decisions about whether or not to disqualify a proponent’s proposal may result in the issuer being exposed to claims for damages.