Fair, but how fair? Do purchasers owe a duty of fairness to a bidder’s suppliers and subcontractors?

The Court of Appeal for Ontario recently addressed the duty of fairness in procurement in the case of Canada Forgings Inc. v Atomic Energy of Canada Limited, 2024 ONCA 677.

Background

Canada Forgings Inc. ("CanForge"), a manufacturer of custom steel forgings for the nuclear industry, sued Atomic Energy of Canada Limited ("AECL") alleging that AECL had unfairly excluded it from a procurement process related to the refurbishment of the Bruce Nuclear Generating Station. CanForge argued that AECL had favored its competitor, Patriot Force Co. ("Patriot").

AECL solicited tenders from three machine shops capable of manufacturing end fitting components for the nuclear industry: Precision Nuclear Inc. (“PNI”), Donlee Precision (“Donlee”), and Linamar Holdings Inc. (“Invar”). Prior to the close of tenders, CanForge submitted fresh quotes to Donlee and PNI, but not Invar. CanForge’s competitor, Patriot, sent quotes to all three machine shops.

All three machine shops submitted bids to AECL. Invar and Donlee listed only Patriot as their forgings supplier, while PNI included both Patriot and CanForge. When reviewing the bids, AECL determined that PNI’s bid (i.e. the only bid to carry both Patriot and CanForge) was non-compliant. The contract was ultimately awarded to Invar (who did not carry CanForge in it is bid), who issued a purchase order to Patriot for the end fitting forgings.

In the lawsuit, CanForge argued that AECL did not treat CanForge fairly because AECL steered the end fitting forgings work away from CanForge and toward Patriot.

Legal Question: Does a purchaser owe a duty of fairness to a supplier carried in a bidder’s bid?

As a matter of procurement law, a purchaser owes a duty of fairness to bidders who submit compliant bids. Since CanForge did not itself submit a bid to AECL, but was instead carried as a supplier in PNI’s bid, the court had to consider whether AECL owed this duty of fairness to CanForge.

When a bidder submits a compliant bid in response to a call for tenders, this forms a binding procurement contract between the bidder and the purchaser. The purchaser must adhere to the procurement contract when determining the award of the ultimate contract for the work, including the obligation to treat all compliant bidders fairly.

The court found that the submission of a compliant bid only creates a procurement contract between the bidder and the purchaser, but does not create a contract between the bidder’s suppliers and the purchaser. Since there is no contract between the bidder’s supplier and the purchaser, the purchaser does not owe a duty of fairness to the bidder’s supplier.

Both the trial court and the Court of Appeal dismissed CanForge’s claim that AECL breached the duty of fairness. CanForge sought leave to appeal to the Supreme Court of Canada, which dismissed CanForge’s request.

Key Takeaway

A purchaser in a procurement context does not owe a duty of fairness to the subcontractors or suppliers carried in a bidder’s bid.

This article is information and not legal advice. If you have any questions about your rights and obligations under the Construction Act, please contact a member of Construct Legal.