BC Excavator's Court Case Takes A Dig At Municipal Procurement Policies Undermined By The CFTA & CETA

Is the use of reprisal clauses (also called litigation exclusion provisions) in municipal procurement policies and tender documents about to hit rock bottom? In December 2017, what may become the first case in a Canadian common law jurisdiction to determine whether a reprisal clause is unenforceable on constitutional or public policy grounds was given the green light to proceed by the British Columbia Supreme Court.1 A 2001 decision of the Quebec Court of Appeal has already found that a reprisal clause contravened the principle of the rule of law and was contrary to public order.2 Regardless of the outcome of the ongoing BC case, most municipal reprisal clauses appear to be incompatible with new procurement obligations imposed on Canadian municipalities by the Canadian Free Trade Agreement ("CFTA") and the Comprehensive Economic and Trade Agreement ("CETA") between Canada and the European Union.

A brief primer on reprisal clauses

Reprisal clauses exclude, or permit the exclusion of, suppliers from bidding on or being awarded municipal procurement projects if the supplier is, or was recently, engaged in litigation with the municipality. Historically, these clauses are rooted in the procurement of construction services,3 but they apply broadly to all suppliers of goods and services to municipalities that employ such clauses.

Reprisal clauses come in all shapes and sizes and are typically codified in a municipality's procurement policy or purchasing by-law. Some examples include:

The City of Burlington

By-law number 19-2014, the city's corporate reference for business practices related to procurement and other commercial activities by the city:

40.0 Litigation and Bidders

The City shall not consider any Bids submitted by a Bidder that is in Active or Pending Litigation against the City. Potential Bidders who are involved with the City in Litigation matters can represent a compromised effort and a higher likelihood of future problems and liability. For these reasons such Vendors will be disqualified. The City of London (Ontario)

Procurement of Goods and Services Policy:

19.6 Exclusion of Bidders in Litigation and disputes or appeals of contract awards

The City may, in its absolute sole discretion, reject a bid submitted if the bidder, or any officer or Managing Director of the bidder is or has been engaged, either directly or indirectly through another Corporation or personally, in a legal action against the City, its elected or appointed officers and employees in relation to: any other contract or services; or, any matter arising from the City's exercise of its powers, duties, or functions; or, a dispute and/or an appeal of contract awards as per section 2.9 In determining whether or not to reject a bid under this clause, the City will consider whether the litigation is likely to affect the bidder's ability to work with the City, its consultants and representatives, and whether the City's experience with the bidder indicates that the City is likely to incur increased staff and legal costs in the administration of the contract if it is awarded to the bidder. The City of Ottawa

Purchasing By-law:

47. LITIGATION EXCLUSION PROVISION

The City, acting through the City Treasurer in consultation with the City Clerk and Solicitor, may in its absolute discretion after considering the criteria outlined in subsection (2), reject a quotation, tender, or proposal submitted by a bidder if the City is engaged in legal action against the bidder, or, if the bidder or any officer or director of the bidder is engaged, either directly or indirectly through a corporation or personally, in a legal action against the City, its elected representatives, appointed officers, or employees, in relation to: any other related contract or services; or 36 any matter arising from the City's exercise of its powers, duties, or functions. (2014-443) In determining whether or not to reject a quotation, tender or proposal under this clause, the City Treasurer and the City Clerk and Solicitor will consider; whether the litigation is likely to adversely affect the bidder's ability to work with the City, its consultants and representatives; or, whether the City's experience with the bidder indicates that the City is likely to incur increased staff and legal costs in the administration of the contract if it is awarded to the bidder; or, whether the bidder has been convicted of a criminal act against the City or one of its local boards or corporations; or, whether the bidder has failed to satisfy an outstanding debt to the City or one of its local boards or corporations; or, there are reasonable grounds to believe it would not be in the best interests of the City to enter into a contract with the bidder. Supply Branch is to advise Council by way of a memorandum when the City Treasurer intends to exercise his or her discretion to reject a quotation, tender, or proposal in accordance with subsection (1). (2014-443). The City of Toronto

Toronto Municipal Code, Chapter 195, Purchasing:

§ 195-13.13. Suppliers in debt or in litigation with the City.

The Treasurer, in their absolute discretion, may disqualify suppliers, or their affiliated persons, who are indebted to the City or engaged in ongoing litigation for damages related to a contract awarded by the City. In determining whether to disqualify a supplier or their affiliated persons under this Article, the Treasurer may consider the following non-exclusive factors, in consultation with the City Solicitor: The supplier's history of making frivolous or vexatious claims, exaggerated damages claims, or other litigious conduct that has or may result in unnecessary additional administrative costs...