In May 2015, following a comprehensive review of the Condominium Act, the Ontario government introduced Bill 106, the Protecting Condominium Owners Act (the “Act”). In the debates that followed in the legislature, a number of MPPs highlighted, as a key feature of the Act, the fact that it puts into place:
appropriate financial controls … when condo corporations spend the owners’ money. … If passed, the legislation would strengthen financial management requirements for condo corporations and help prevent fraud and mismanagement. For example, it would forbid condo corporations from finalizing some contracts until they had fulfilled certain procurement rules, ensuring better management in the interests of condo owners.
Other MPPs characterized the intent of the legislation as ensuring: (i) procurement (tendering) decisions “are made in an accountable and transparent way to the owners”; and (ii) “fairness and transparency” in the procurement process.
The Act received Royal Assent on December 3, 2015. It includes a new Section 39.1 (which is not yet in force):
39.1 A corporation shall not enter into a prescribed contract or transaction unless the procurement process and other contracts or arrangements that the corporation entered into in relation to the contract or transaction meet the prescribed requirements.
A few months later, the Toronto Star and The Globe and Mail reported that Canada’s Competition Bureau had obtained a court order compelling more than 100 condominium boards to hand over records as part of the Bureau’s investigation into “allegations of bid-rigging and conspiracy involving the multimillion-dollar condo renovation industry.”
The Competition Bureau’s investigation suggests there may be good reason to introduce some form of “ground rules” for tendering in the condominium sector. There is no question that the condominium renovation industry has grown and that renovation projects can significantly deplete a corporation’s reserve fund. At the same time, only a few corporations have taken steps to establish and develop appropriate tender documents that safeguard the owners’ interests. In most cases, the tender process is still the “wild west”, and many corporations tender projects and sign contracts with little attention paid to their legal obligations or risks.
The proposed new Section 39.1 of the Condominium Act deals with the issue by forbidding condominium corporations from entering into a “prescribed contract or transaction” unless the tender process and other contracts or arrangements “meet the prescribed requirements.”
What are the “prescribed contract[s] and transaction[s]”? What are the “prescribed requirements”? We do not yet know – and as they say, the “devil is in the details” or, in this case, in the regulations still to be issued under the Act (the “Regulations”). However, we can make an educated guess by looking at what the government did with tendering in the broader public sector.
In October 2010, the Office of the Auditor General of Ontario issued a Special Report, which highlighted concerns related to procurement activities of hospitals (and other public sector organizations). It resulted in the introduction of new legislation, the Broader Public Sector Accountability Act, 2010 (“BPSAA”), which was described in the legislature as “raising the bar for accountability and transparency for the broader public sector.” The government also issued a “Procurement Directive”, the purpose of which was to ensure that goods and services are acquired “through a process that is open, fair and transparent.”
Note the use of the words “accountability,” “transparency” and “fairness” – the same words used to describe the amendments relating to procurement by condominium corporations under the new Section 39.1.
The legislature’s goals in enacting the amendments with respect to tendering are very similar to its goals in enacting the BPSAA: ensure accountability, fairness and transparency in the tender process. Therefore, it would not be surprising if the Regulations were similar to the requirements under the Procurement Directive.
Under the Procurement Directive, there are 25 “Mandatory Requirements,” which must be implemented and incorporated into an organization’s tender process. It would not be surprising to find some of these requirements in the Regulations, such as:
- a dollar threshold for projects (e.g., $100,000), above which the prescribed procurement rules would have to be followed;
- a formal contractor prequalification process;
- a minimum response time for the submission of bids and for issuing addenda;
- the inclusion and clear description of evaluation criteria for awarding contracts in the tender documents, along with the weight allocated to each criterion;
- the disclosure of evaluation methodology and process for awarding a contract;
- a contractor debriefing process; and
- a bid dispute resolution procedure.
The enactment of Section 39.1 of the Act, along with the new Regulations, will lead to changes in how condominium corporations procure goods and services. For some, it will be a steep learning curve. So, what can a property manager or a member of the corporation’s board of directors do to prepare? First, make sure you use a Miller Thomson lawyer whose expertise is in procurement/tendering and construction law. Second, arrange for that lawyer to present a primer on tendering to the board and management and, once the Regulations are issued, to prepare a template set of tender and contract documents that comply with the Regulations. Third, keep calm, because we’ll help you get through it.