02 April 2007
Key Points:
This decision sheds some light on the circumstances when a court might be prepared to find that a duty of care exists to non-bidding consortium members during the tendering phase of a project.
The Canadian case of Design Services Ltd v Canada (2005) FC (Canada) 890 held that, in certain circumstances, an owner may owe a duty of care to a non-bidding consortium member for decisions on a tender.
In this case, non-bidding members of a consortium sought to recover their costs or fees and a share in the profits of the project which they claimed they lost when the owner breached its duty of care by awarding the contract to a non-compliant bidder. Justice Mosley found that the relationship (although not contractual) was sufficiently proximate to establish a duty of care.
The facts of the case arose out of a tender for the construction of a naval reserve building. The owner and defendant, the Public Works and Government Services Canada ("PWGSC"), conducted a tender for the construction of a naval reserve building.
The general contractor, Olympic Constructions Limited ("Olympic") submitted a bid and participated in the two-stage tendering process. Olympic and its design-build team worked together in preparing Olympic’s bid. Olympic’s design-build team ("Design-Build Team") was not an official party to Olympic’s bid.
The plaintiffs were the members of Olympic’s Design-Build Team. The Design-Build Team included an architectural practice, a structural consultant, an electrical contractor, a civil contractor, a mechanical contractor and a structural trade contractor. Olympic was not a party to the action brought by the Design-Build Team.
During tendering Olympic’s Design-Build Team was pre-approved by PWGSC. However, PWGSC ultimately decided to award the contract to a non-complaint bidder, Westeinde. The Court accepted that PWGSC conceded that Westeinde’s bid was non-compliant and that Olympic should have been awarded the contract. PWGSC conceded that it breached its duty of fairness by awarding the contract to a non-compliant bidder and in failing to award the contract to Olympic.
Legal issues
In this context, the main issue before the court was whether the Design-Build Team could successfully claim against PWGSC, in contract, tort, or both, to recover its costs or fees and the lost opportunity to share in the profits of the project, which the Design-Build Team argued it would have shared had PWGSC not breached its duty of care when it awarded the contract to Westinde.
The Design-Build Team argued that:
PWGSC contended that it was Olympic, not the Design-Build Team, who submitted the formal proposal. The Design Build Team had no legal status in the process. If Olympic and the Design-Build Team wanted to submit a proposal as a "team", the option was available to them to submit a SOQ and RFP reply as joint venturers.
Was there a breach of contract as between the Design-Build Team and PWGSC? No.
It was held that the Design-Build Team could not claim, in contract, from the breach of the tendering contract between PWGSC and Olympic.
The tendering contract was a contract between PWGSC and Olympic under which PWGSC owed a duty to treat Olympic fairly throughout the bidding process. The Design-Build Team was not owed a duty as was not a party to that contract. It could have (but did not) arranged its affairs so it was a party to the contract.
The court found there was no evidence that the members of the Design-Build Team had constituted themselves as an incorporated joint venture, a partnership or by contract agreed to combine their resources in furtherance of the enterprise. There was no agreement to share overall profits and losses. It was Olympic which was bound by the terms of the RFP until the contract award was decided.
Only Olympic was required to demonstrate capability to perform the work. All documentation was submitted to PWGSC in Olympic’s name.
Was there a duty of care in tort? Yes.
On the facts, the court found that it was PWGSC’s close involvement with the Design-Build Team during the tendering process which meant PWGSC owed the Design-Build Team a duty of care in tort not to award the contract to a non-compliant bidder.
The court recognised that the Design-Build Team’s claim did not fit within already established exceptions to the common law rule against recovery for pure economic loss. Justice Mosley referred to the test established by the House of Lords in Anns v Merton London Borough Council [1978] AC 728 as the framework for establishing new grounds for tort liability for economic loss.
The court accepted the Design-Build Team’s argument that it was reasonably foreseeable in the circumstances of the case that PWGSC’s negligence in issuing the contract to a non-compliant bidder would result in financial loss to the Design-Build Team. However, mere foreseeability was not considered enough to establish a prima facie duty of care.
It was recognised that the relationship of joint venture between a claimant and the property owner was a pre-established category where proximity was established. The court concluded that when a case falls within that situation or an analogous one and reasonable foreseeability is established, a prima facie duty of care may be established.
PWGSC’s requirements during the pre-qualification and tendering process, and what the court determined was PWGSC’s intent to create a form of "partnership", created a relationship between PWGSC and Olympic which was sufficiently proximite. The circumstances were sufficiently narrow that to hold PWGSC liable to the Design-Build Team would not result in indeterminate liability.
Notwithstanding that the Court of Appeal overturned part of the Federal Court decision by finding that the relationship between PWGSC and the Design-Build Team was not sufficiently proximate, this decision sheds some light on the circumstances when a court might be prepared to find that a duty of care exists to non-bidding consortium members during the tendering phase of a project.
For further information, please contact Doug Jones AM RFD.
