tendering and construction law update

Tendering and Construction Law Update

Local Government Administration Association Workshop

Calgary: May 31, 2006

Presented by Joanne Klauer and Paul Stocco

A. Are You Getting the “Ron” Around

1. The A’s and B’s of Tendering

2. Reading Between the Lines

3. Applying “Unfair” Terms Fairly

4. Return to the Dark Ages

A. Are You Getting the “Ron” Around

5. Preferred Contractors

6. Oops, I Did It Again

7. Ten Tendering Tidbits

B. RFP’s: Bidding Goodbye to Traditional Tendering

1. Hallmarks of RFP’s

2. Judicial Treatment of RFP’s

C. Construction Contract Conundrums

1. Written Contacts

2. Scope of Work/Change Orders

3. Penalty/Bonus Clauses

4. Force Majeure Clauses

C. Construction Contract Conundrums

5. Default and Termination

6. Dispute Resolution

7. Limits on Liability and Limitation Periods

D. Performance Bond Anxiety

1. Insurance and Bonds

2. Four Types of Bonds

3. Limits and Exclusions

4. More Than Sticks and Bricks?

E. Tendering “AIT” What It Used To Be

1. What is the AIT

2. Annex 502.4

3. What’s included and what’s not

4. Prohibited practices

5. Dealing with disputes

F. MUNICIPAL PURCHASING POLICIES

1. Expenditure Requirements of the MGA2. Budgets3. Emergency Expenditures4. Checklist for Municipal Purchasing Policy5. Delegating Purchasing Authority6. Set Monetary Guidelines

F. MUNICIPAL PURCHASING POLICIES

7. Establish Purchasing Procedure

8. General Considerations

9. Ongoing

Questions

At any time or at the end

A. Are You Getting the “Ron” Around

1. The A’s and B’s of Tendering

Ron Engineering

Contract Aa tendering contract is created when a bidder

submits a bid in response to a tender call

1. The A’s and B’s of Tendering

Hallmarks of Contract A

the bid is irrevocable once it is submittedterms of the tender call are very importantowner can include any terms it wants

Hallmarks of Contract A(cont’d)

terms of the tender call dictate which tenders can be accepted

if bidder fails to comply, the bid is deemed non-compliant

bidders need not bid if they find the terms are too onerous

Hallmarks of Contract A(cont’d)

no bid shopping or negotiation is allowed after the tender closing

integrity of the tendering process must be protected to the extent that the law of contract allows

1. The A’s and B’s of Tendering

Contract B

the actual construction contract

awarded to bidder that best responds to requirements of tender call

2. Reading Between the Lines MJB and Martel

implied obligations on an owner

implied obligations can be read into Contract A based on custom and usage

2. Reading Between the Linesduty of fair and equal treatment

only compliant tenders can be accepted

implied duties can only be defined with due regard to express terms of tender call

damages for breaching this duty include loss of profit and costs of preparing the tender

3. Applying “Unfair” Terms Fairly Graham Industrial, Kinetic, Chandos, Double N,

NAC conflict between implied duties and express

terms duty of fairness and equal treatment vs. ability of

an owner to define the terms for the tender call can an owner’s privilege clause be used to

accept non-compliant bids?

3. Applying “Unfair” Terms Fairly

• Law in British Columbia is unclear!

• Graham Industrial says that owner can’t

• Kinetic says that owner can

3. Applying “Unfair” Terms Fairly• In Alberta, the law says “yes, but….”

No inviolable rule against parties agreeing to let owner accept a non-compliant bid

All depends on the specific wording of the privilege clause

Courts will read a privilege clause narrowly

Duty of fairness still very important

Protection of the tendering process is still very important

4. Return to the Dark Ages

• Have owners created a tendering system with no rules at all?

• Or is it just the natural evolution in the tendering process?

• Will the market find its own equilibrium?

4. Return to the Dark Ages

Suggestions:

• Privilege clause to permit material and immaterial non-compliance

• Specific evaluation criteria• Limitation on damages clause

5. Preferred Contractors

The cases of:

Tarmac Canada (Ontario)

Sound Contracting (BC) and

Cox Brothers (Alta.)

6. Oops, I Did It Again

The cases of: Gottardo Construction and Derby Holdings

7. Ten Tendering Tidbits

1. Closing Time

2. Reference all plans, specifications, and addenda

3. Include tender form and draft contract

4. Privilege clause

5. Evaluation criteria

7. Ten Tendering Tidbits

6. AIT requirements

7. Bid bond and consent of surety

8. No negotiation after tender close

9. Beware non-compliant tenders

10. Tenders exceeding budget

A. Are You Getting the “Ron” Around

Questions

B. RFP’s: Bidding Goodbye to Traditional Tendering

1. Hallmarks of RFP’s

• Tender and RFP at ends of the procurement spectrum

• Some overlap• “Labels don’t count”• But proper terminology is important!

1. Hallmarks of RFP’s

• Negotiation is the key!• Parties are free to withdraw• Flexibility vs. Irrevocable tender

1. Hallmarks of RFP’s

• Owner’s information package provided to firms that are pre-qualified by RFEI

• RFP sets out general requirements of the owner’s concept

• Details are left to the proponent

1. Hallmarks of RFP’s

• Draft construction contract or other agreement is the subject of negotiation

• RFP contains a privilege clause and evaluation clause

• Owner picks who it will negotiate with

1. Hallmarks of RFP’s

• One proposal per party• Minimum requirements• Proposal must remain open for a period of

time• Security deposit is optional• Closing date for proposals

2. Judicial Treatment of RFP’s

• The cases of: Mellco (Manitoba) and Buttcon (Ontario)

B. RFP’s: Bidding Goodbye to Traditional Tendering

QUESTIONS

C. Construction Contract

Conundrums

1. Written Contracts

• Eliminate disagreements over parties’ responsibilities• Preferred over oral contracts• Creates record of a construction project

eg. site instructions, meeting minutes, inspections, daily reports, schedule changes

1. Written Contracts

• Importance of paper trail • If it is important enough to say, then it is important

enough to put in writing!

2. Scope of Work/Change Orders

• Largest area of dispute on construction project

a. Owner’s perspective on change orders:• Drawings should be complete• Contractor makes $ on changes

2. Scope of Work/Change Orders• Not willing to pay for extras at end especially if

project over budget!

b. Contactor’s perspective on change orders:• Should not bear risk of poorly drafted plans and

specs• Financing of changes until the end of the job

2. Scope of Work/Change Ordersc. Solutions:

• Don’t leave resolution of change orders to end of project!

• “Extra set of eyes” at the start• Requirement for written authorization• Dispute resolution mechanism

3. Penalty/Bonus Clauses

a. Penalty Clauses• Clause can’t really impose a penalty for delayed

completion• Must be reasonable• Must bear some relation to actual costs incurred

due to delay

3. Penalty/Bonus Clauses

• Concurrent delay• Owner caused delay

b. Bonus clauses• Similar to penalty clauses• Savings shared on sliding scale

4. Force Majeure

• Party is relieved of contractual obligations in whole or in part

• Specified event triggers clause• Event is beyond party’s control• No measure could have avoided the event

4. Force Majeure

• Onus on party relying on clause• How long are contractual obligations suspended?• What about direct losses/damages?• What about consequential losses/damages?

5. Default and Termination

• Notice of default• Particulars required• Notice of termination• Remedies upon termination

6. Dispute Resolution

a. Mediation• Good faith negotiations• Full and frank disclosure• Works if parties want it to work• Not required to attend

6. Dispute Resolution

b. Arbitration• More formal than mediation• Hire a “private judge”• Binding on parties• Limited appeal rights

7. Limits on Liability and Limitation Periods

• Beware liability limited to maximum amount• Contractual time limit for advancing a claim• Exclusions for certain risks• Court has final say on enforceability

7. Limits on Liability and Limitation Periods

• Alberta Limitations Act limits right of action to 2 years

C. Construction Contract Conundrums

Questions

D. Performance Bond Anxiety

1. Insurance and BondsInsurance

i. Property damage • Designed to protect against damage to property on

site: Builders Risk or All Risk• Limited to property used in the course of

construction

1. Insurance and Bonds

ii. Liability • Protects parties involved in construction when their

work does damage to another party not connected to project

• Commercial General Liability

2. Four Types of Bonds

Bonds• Bid bond• Performance bond• Labour and Material payment bond• Lien bond

3. Limits and Exclusions

• Beware exclusions and notice provisions!

4. More Than Sticks and Bricks?

Whitby Landmark says yes

Lac La Ronge says no

D. Performance Bond Anxiety

Questions

Contact Information:

Paul V. Stocco

Brownlee LLP

pstocco@brownleelaw.com

(780) 497-4884 (b)

(780) 424-3254 (fax)

E. Tendering AIT What It Used To Be

1. What is the AIT

• An intergovernmental agreement signed by the federal and provincial, and territorial governments in 1995

• Designed to facilitate free trade within Canada

• Applies to various sectors of the economy including MASH sector

2. Annex 502.4

A. GENERAL

• MASH sector includes municipalities and any organizations owned or controlled by a municipality

• Threshold requirements are:$100,000 for goods and services and $250,000 for construction goods and services

2. Annex 502.4

• If procurement is below threshold limits, entities are encouraged to observe the spirit of the AIT!

3. What’s included and what’s not

A. FAIR ACQUISITION PROCESS

• Applies to all types of procurement: RFF, tender, RFQ, quotes, etc.

• Electronic advertising

• Required information for advertising

• Non-discriminatory practices

3. What’s included and what’s not

B. EXCLUSIONS

• Annex 502.4L

C. EXCEPTIONS

• For exceptional circumstances only

• Regional economic development

• Sole sourcing

4. Prohibited practices – Appendix B

• Local registration requirement

• Biasing of specifications

• Favouring local content

• Price discounts

• Requirement to use local supplies, labour, etc.

5. Dealing with Disputes

A. Non-judicial complaint process

B. Complaint to contact point

C. Formal panel

E. TENDERING AIT WHAT IT USED TO BE

QUESTIONS

F. MUNICIPAL PURCHASING POLICIES

1. Expenditure Requirements of the MGA

In accordance with Section 248 of the MGA, municipalities can only make expenditures that are:

included in an operating budget, interim operating budget, or capital budget;

for an emergency; legally required to be paid; or otherwise authorized by Council.

Pursuant to Section 248 of the MGA, it is mandatory for Council to establish procedures to authorize and verify expenditures that are not included in a budget.

2. Budgets

Wherever possible, include expenditures in a budget to ensure compliance with Section 248.

3. Emergency Expenditures

Include an emergency contingency fund in the annual budget.

Define emergency a situation in which the municipality must expend money in

order to protect people or property and which there is inadequate time for Council to give its prior authorization for the expenditure.

Delegate power to an officer to declare when an emergency has taken place and to make expenditures pending ratification by Council.

Emergency Expenditures Cont’d

Impose a duty on that person to report to Council within a reasonable time after making the emergency expenditure.

Define the required contents of the report: ie. nature of the threat posed by the emergency, the reasons the delegated officer believed there was inadequate time for Council to give prior authorization, the nature and amounts of each expenditure.

4. Checklist For Municipal Purchasing Policy

Preliminary considerations: Review capital and operating budgets to determine areas in

which purchasing is undertaken, the usual dollar amount of purchases, and the type of purchases (ie. what type of goods and services).

Confirm who in the organization is responsible for purchasing. Identify what type of approval is required for that individual to make a purchase.

Review relevant bylaws, policies and procedures already in place that impact purchasing, i.e. unbudgeted expenditure policy, RFP and tendering policies/procedures, etc. and identify what works, what doesn’t work, and where the gaps are.

Identify what purchasing processes are currently being utilized, i.e. RFP or tendering? What process are being used in what

circumstances?

Checklist cont’d

Policy / Purpose statement:

In order to ensure compliance with Section 248 of the MGA, AIT and other relevant legislation.

Specify other purposes and goals

maintain financial flexibility, viability and efficiency;

fairness and equal application of the policy;

Checklist cont’d

Formulate goals for the purchasing policy, i.e. ensure compliance with MGA, AIT requirements and provide for uniform and transparent purchasing process.

Consult with affected personnel to identify any areas of concern and obtain feedback on current purchasing procedures.

Checklist cont’d

Checklist cont’d

openness, transparency and accountability in purchasing

identify when it’s appropriate to undertake “sole sourcing” of a supplier, as opposed to a competitive process

identify whether or not preference will be given to local suppliers or contractors.

5. Delegating Purchasing Authority

Delegating Purchasing Authority:

Council may delegate its authority to make an expenditure.

Delegation provisions should include:

to whom – e.g. staff members in each department;

how delegation to be exercised – e.g. in writing;

to whom written authority is to be provided – e.g. CAO, Director of Finance, Accounts Payable;

person(s) responsible for supervising and approving purchasing activities to ensure compliance with legislation, policies, process, ethics.

Set limits that reflect certain authorization boundaries such as the higher the level of expenditure, the higher the level of purchasing authority required to authorize the expenditure. For the highest levels of spending, prior specific approval by Council may be required regardless if amount is included in annual

budget.

Delegating Purchasing Authority cont’d

Include provision for removing or amending the purchasing authority of any individual.

Delegating Purchasing Authority cont’d

6. Set Monetary Guidelines

Set Monetary Guidelines:

Set levels of purchasing, depending on monetary value – e.g. $500 or less; $500 to $5,000; $5,000 to $10,000, etc.

Include rules for how to calculate dollar value.

For each level of spending, outline the applicable purchasing authority, delegation provisions (see above) and purchasing procedure (see below).

Ensure that AIT provisions are reflected in the monetary guidelines: i.e. AIT requirements apply to MASH procurement contracts for goods and services which are $100,000.00 or greater or $250,000.00 for construction.

Set Monetary Guidelines cont’d

7. Establish Purchasing Procedure

Establish Purchasing Procedure:

Requirements for making purchase – e.g. whether by telephone, in person, by competitive process, etc. (for example, verbal quotations for low level purchases, written quotations for mid-level purchases; and formalized competitive process for high-level purchases).

Whether quotations required, and if so, how many and in what form.

Whether purchase order required, and if so, process for completing, processing, and record-keeping.

When a competitive process is required, identify the policy for each process (request for proposal, request for quotation, tender).

When payment for goods and services will be made – e.g. when the municipality is satisfied that meet specifications.

What warranty and guarantee periods must be supplied by the provider.

Establish Purchasing Procedure cont’d

8. General Considerations

General Considerations:

Must comply with all applicable legislation, including MGA, Agreement on Internal Trade, Freedom of Information and Protection of Privacy Act.

Must be consistent with other municipal policies and procedures.

Purchasing policy must be adopted by bylaw or resolution (MGA, s. 180).

General Considerations cont’d

Periodic reporting of expenditures to Council.

Policy should be broad enough to provide the flexibility required to meet Council’s day-to-day needs, yet be detailed enough to provide adequate controls on expenditures.

Should be clear, understandable and unambiguous.

9. Ongoing

Ongoing:

Periodically review the policy to determine whether it is achieving the municipality’s goals.

Identify the areas that have not worked or presented problems.

Determine what revisions are required and implement where necessary.

F. MUNICIPAL PURCHASING POLICIES

QUESTIONS

Contact Information:

Joanne M. Klauer

Brownlee LLP

jklauer@brownleelaw.com

(403) 260-5303 (b)

(403) 232-8408 (fax)