Tendering and Construction Law Update Local Government Administration Association Workshop Calgary:

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Tendering and Construction Law UpdateLocal
Government Administration Association
WorkshopCalgary May 31, 2006Presented by
Joanne Klauer and Paul Stocco
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A. Are You Getting the Ron Around

• The As and Bs of Tendering
• Reading Between the Lines
• Applying Unfair Terms Fairly
• Return to the Dark Ages

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A. Are You Getting the Ron Around

• 5. Preferred Contractors
• 6. Oops, I Did It Again
• 7. Ten Tendering Tidbits

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B. RFPs Bidding Goodbye to Traditional Tendering

• Hallmarks of RFPs
• Judicial Treatment of RFPs

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C. Construction Contract Conundrums

• Written Contacts
• Scope of Work/Change Orders
• Penalty/Bonus Clauses
• Force Majeure Clauses

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C. Construction Contract Conundrums

• 5. Default and Termination
• 6. Dispute Resolution
• 7. Limits on Liability and Limitation Periods

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D. Performance Bond Anxiety

• Insurance and Bonds
• Four Types of Bonds
• Limits and Exclusions
• More Than Sticks and Bricks?

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E. Tendering AIT What It Used To Be

• What is the AIT
• Annex 502.4
• Whats included and whats not
• Prohibited practices
• Dealing with disputes

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F. MUNICIPAL PURCHASING POLICIES

• Expenditure Requirements of the MGA
• Budgets
• Emergency Expenditures
• Checklist for Municipal Purchasing Policy
• Delegating Purchasing Authority
• Set Monetary Guidelines

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F. MUNICIPAL PURCHASING POLICIES

• Establish Purchasing Procedure
• General Considerations
• Ongoing

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Questions

• At any time or at the end

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• A. Are You Getting the Ron Around

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1. The As and Bs of Tendering

• Ron Engineering
• Contract A
• a tendering contract is created when a bidder
  submits a bid in response to a tender call

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1. The As and Bs of Tendering

• Hallmarks of Contract A
• the bid is irrevocable once it is submitted
• terms of the tender call are very important
• owner can include any terms it wants

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Hallmarks of Contract A(contd)

• 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

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Hallmarks of Contract A(contd)

• 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

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1. The As and Bs of Tendering

• Contract B
• the actual construction contract
• awarded to bidder that best responds to
  requirements of tender call

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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

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2. Reading Between the Lines

• duty 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

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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 owners privilege clause be used to accept
  non-compliant bids?

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3. Applying Unfair Terms Fairly

• Law in British Columbia is unclear!
• Graham Industrial says that owner cant
• Kinetic says that owner can

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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

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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?

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4. Return to the Dark Ages

• Suggestions
• Privilege clause to permit material and
  immaterial non-compliance
• Specific evaluation criteria
• Limitation on damages clause

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5. Preferred Contractors

• The cases of
• Tarmac Canada (Ontario)
• Sound Contracting (BC) and
• Cox Brothers (Alta.)

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6. Oops, I Did It Again

• The cases of Gottardo Construction and Derby
  Holdings

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7. Ten Tendering Tidbits

• Closing Time
• Reference all plans, specifications, and addenda
• Include tender form and draft contract
• Privilege clause
• Evaluation criteria

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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

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A. Are You Getting the Ron Around

• Questions

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B. RFPs Bidding Goodbye to Traditional
Tendering
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1. Hallmarks of RFPs

• Tender and RFP at ends of the procurement
  spectrum
• Some overlap
• Labels dont count
• But proper terminology is important!

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1. Hallmarks of RFPs

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

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1. Hallmarks of RFPs

• Owners information package provided to firms
  that are pre-qualified by RFEI
• RFP sets out general requirements of the owners
  concept
• Details are left to the proponent

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1. Hallmarks of RFPs

• 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

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1. Hallmarks of RFPs

• One proposal per party
• Minimum requirements
• Proposal must remain open for a period of time
• Security deposit is optional
• Closing date for proposals

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2. Judicial Treatment of RFPs

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

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B. RFPs Bidding Goodbye to Traditional
Tendering

• QUESTIONS

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• C. Construction Contract Conundrums

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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

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1. Written Contracts

• Importance of paper trail
• If it is important enough to say, then it is
  important enough to put in writing!

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2. Scope of Work/Change Orders

• Largest area of dispute on construction project
• a. Owners perspective on change orders
• Drawings should be complete
• Contractor makes on changes

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2. Scope of Work/Change Orders

• Not willing to pay for extras at end especially
  if project over budget!
• b. Contactors perspective on change orders
• Should not bear risk of poorly drafted plans and
  specs
• Financing of changes until the end of the job

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2. Scope of Work/Change Orders

• c. Solutions
• Dont leave resolution of change orders to end of
  project!
• Extra set of eyes at the start
• Requirement for written authorization
• Dispute resolution mechanism

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3. Penalty/Bonus Clauses

• a. Penalty Clauses
• Clause cant really impose a penalty for delayed
  completion
• Must be reasonable
• Must bear some relation to actual costs incurred
  due to delay

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3. Penalty/Bonus Clauses

• Concurrent delay
• Owner caused delay
• b. Bonus clauses
• Similar to penalty clauses
• Savings shared on sliding scale

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4. Force Majeure

• Party is relieved of contractual obligations in
  whole or in part
• Specified event triggers clause
• Event is beyond partys control
• No measure could have avoided the event

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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?

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5. Default and Termination

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

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6. Dispute Resolution

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

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6. Dispute Resolution

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

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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

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7. Limits on Liability and Limitation Periods

• Alberta Limitations Act limits right of action to
  2 years

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C. Construction Contract Conundrums

• Questions

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• D. Performance Bond Anxiety

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1. Insurance and Bonds

• Insurance
• 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

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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

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2. Four Types of Bonds

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

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3. Limits and Exclusions

• Beware exclusions and notice provisions!

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4. More Than Sticks and Bricks?

• Whitby Landmark says yes
• Lac La Ronge says no

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D. Performance Bond Anxiety

• Questions

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Contact Information

• Paul V. Stocco
• Brownlee LLP
• pstocco_at_brownleelaw.com
• [phone] (b)
• [phone] (fax)

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E. Tendering AIT What It Used To Be
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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

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2. Annex 502.4

• A. GENERAL
• MASH sector includes municipalities and any
  organizations owned or controlled by a
  municipality
• Threshold requirements are100,000 for goods and
  services and 250,000 for construction goods and
  services

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2. Annex 502.4

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

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3. Whats included and whats not

• FAIR ACQUISITION PROCESS
• Applies to all types of procurement RFF, tender,
  RFQ, quotes, etc.
• Electronic advertising
• Required information for advertising
• Non-discriminatory practices

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3. Whats included and whats not

• EXCLUSIONS
• Annex 502.4L
• EXCEPTIONS
• For exceptional circumstances only
• Regional economic development
• Sole sourcing

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4. Prohibited practices Appendix B

• Local registration requirement
• Biasing of specifications
• Favouring local content
• Price discounts
• Requirement to use local supplies, labour, etc.

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5. Dealing with Disputes

• Non-judicial complaint process
• Complaint to contact point
• Formal panel

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E. TENDERING AIT WHAT IT USED TO BE

• QUESTIONS

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F. MUNICIPAL PURCHASING POLICIES
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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.

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2. Budgets

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

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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.

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Emergency Expenditures Contd

• 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.

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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.

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Checklist contd

• 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 doesnt 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?

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Checklist contd

• 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

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Checklist contd

• 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.

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Checklist contd

• openness, transparency and accountability in
  purchasing
• identify when its 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.

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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

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Delegating Purchasing Authority contd

• 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.

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Delegating Purchasing Authority contd

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

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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).

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Set Monetary Guidelines contd

• 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.

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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.

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Establish Purchasing Procedure contd

• 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.

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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).

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General Considerations contd

• Periodic reporting of expenditures to Council.
• Policy should be broad enough to provide the
  flexibility required to meet Councils day-to-day
  needs, yet be detailed enough to provide adequate
  controls on expenditures.
• Should be clear, understandable and unambiguous.

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9. Ongoing

• Ongoing
• Periodically review the policy to determine
  whether it is achieving the municipalitys goals.
  
• Identify the areas that have not worked or
  presented problems.
• Determine what revisions are required and
  implement where necessary.

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F. MUNICIPAL PURCHASING POLICIES

• QUESTIONS

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Contact Information

• Joanne M. Klauer
• Brownlee LLP
• jklauer_at_brownleelaw.com
• [phone] (b)
• [phone] (fax)