March 15, 2010

Column | Manley McLachlan

Weighing in on the Tercon Contractors appeal decision

Egregious behavior - an affront to the integrity and business efficacy of the tendering process was cited by the Supreme Court of Canada in its reasons for judgment in the Tercon Contractors Ltd. appeal.

It referred to the actions of the BC Ministry of Transportation and Highways, during the tendering phase of a public construction project. The case involved a request for proposals (RFP) for the construction of a highway and only six, previously qualified, bidders were allowed to submit a bid.

Despite clearly laid out rules, the ministry allowed and ultimately awarded the contract to a bidder that wasn’t one of those six.

The ministry planned to rely on its cleverly drafted exclusion clause to escape liability. It almost worked, but fortunately it did not.

In a five to four decision, the court decided in favour of Tercon. The case is important for the construction industry. 

Construction lawyers are already busy commenting and forming arguments for and against future exclusion clauses. 

A significant amount of billable hours will go into creating the next great, bullet-proof, exclusion clause for use by anyone with the deep pockets.

They’re too brilliant for me. I’m not a lawyer and I wouldn’t presume to try to interpret the finer points of law in the case. 

What I do know, however, is there are some fundamental truths to the public construction tendering process that we would all be wise to pay attention to if we want to promote B.C.’s economy and protect the tax-payers.

As a prairie boy, raised on common sense, here is my take on it.

No matter how sophisticated a contractor might be, they won’t equal the power wielded by government.

However, while government can easily afford to hire lawyers to draft amazingly clear and concise exclusion clauses that might save them from losing a few lawsuits—should they? 

Furthermore, why is it important to have a public procurement process that is fair, open and transparent?

I suggest that there are at least three answers to that question and they involve a healthy competitive marketplace, taxpayer dollars and squeaky clean elected officials.

Maintaining a competitive marketplace is essential to our economy. 

The construction industry, in particular, thrives on competition. An unfair procurement process will sour relations in areas where competition is sought, as a means to partnership.  

Without clean and fair tendering, contractors won’t feel comfortable bidding on public work, especially smaller contractors (about 90 per cent of the industry in B.C.), who likely don’t have access to sophisticated legal advice. 

Fewer bidders mean higher prices. 

Lack of opportunity to compete leads to a contraction and the potential loss of small to medium sized companies, who are huge contributors to employment and training.

Construction is a cornerstone of our economy and running a robust and fair tendering process is the key to maintaining a strong sector.

Public agencies operate on taxpayers’ dollars, so we all have a vested interest in the best price through healthy competition.  

It is also in the public’s best interest to avoid unnecessary litigation, and that risk is dealt with in a manner to best protect the public. 

There is a need to be transparent about the tendering, evaluation and awarding processes and to stick to fair dealing so that no one can shout ‘foul’.

Litigation is disruptive and expensive for all concerned.

It is worth remembering that people only challenge if they are unhappy, not only with the outcome, but with the process itself.

If procurement is well run, fair, clean and efficient, then most bidders will be satisfied and taxpayers won’t be on the hook for extra costs.

Finally, politicians would do well to remember the old adage that those who ignore history are doomed to repeat it.

Capital expenditure by governments is fertile ground for corruption and examples can be found around the world.

Real or even perceived backroom dealing in the tendering process can lose the confidence of the electorate.

A truly open and transparent process is essential to ensuring taint-free reputations.   

Construction litigation isn’t going to disappear any time soon.

However, we should at least insist that public officials do their best to avoid expensive lawsuits and support a competitive marketplace. Fair and open deals are not too much to ask for.

Manley McLachlan is the president of the B.C. Construction Association. Send comments or questions to editor@journalofcommerce.com

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