Dan Leduc of Ogilvy Renault in Ottawa February 22, 2010.Blair Gable
Until seven years ago, the remote Nisga'a fishing village of Kincolith in northern B.C. could only be reached by float plane or boat - a harrowing, and often impossible, trip in the winter.
Storms would cut off the 200 residents from the outside world for weeks. The electricity, which arrived only in the late 1970s, could black out for as long as a month, until the weather eased enough to allow helicopters to fly crews to downed power lines.
This all changed in 2003 with a 29-kilometre, two-lane road called the Nisga'a Highway. Now, instead of a two-hour boat ride from the Nisga'a capital village of New Aiyansh, Kincolith is a winding 90-minute drive, through the snowy mountains of the Nass Valley.
In courtrooms thousands of kilometres away, however, this remote road has been the subject of a nine-year legal battle, fought long after the asphalt cooled.
A construction company that lost a bid to build the $35-million road in 2001 took the B.C. government to court.
The fight ended earlier this month with a Supreme Court of Canada decision in favour of the company, Kamloops-based Tercon Contractors Ltd. And the much-anticipated ruling, say lawyers who work on contract tenders, could prompt many more similar lawsuits from failed bidders for government contracts.
Dan Leduc, a partner with Ogilvy Renault LLP in Ottawa who advises construction firms that bid on government contracts but was not involved in the B.C. case, is among those saying that spurned bidders may start suing in even greater numbers.
Mr. Leduc, who used to act for the City of Ottawa, said he was flooded with cases from spurned bidders after the Supreme Court weighed in on a similar case in 1999 against a Crown corporation that builds infrastructure on military bases. "After that, there was an exponential increase in lawsuits on tenders," he recalled. "All of sudden, I had so many tender cases. The city of Ottawa does over 3,000 tenders a year … for people supplying toilet paper, building bridges, trucks."
This latest case has been watched closely for the same reasons. It hinges on two provisions that the B.C. government included in its 2001 request for proposals (RFP) to build the highway. One clause deemed joint ventures ineligible for the contract. The other was an "exclusion clause" meant to force bidders to relinquish any right to sue if they did not win the contract.
When the highway project's winner turned out to be a joint venture, Tercon sued the government, despite the exclusion clause. The Supreme Court of Canada ruled on Feb. 12 that the clause in question did not protect the B.C. government from the consequences of disregarding its own rules.
While the case worked its way through the courts, exclusion clauses started to become a standard feature of many RFPs, said Michael Mitchell of McCarthy Tètrault LLP in Vancouver, who was not involved in the Tercon case. Lawyers even called them "Tercon clauses."
The ruling may not spell the end of the Tercon clause, however, as the Supreme Court ruling actually doesn't strike down such clauses entirely. It simply overruled the exclusion clause based on the facts in this particular case.
The decision may prompt lawyers for governments issuing RFPs to draft longer, more detailed exclusion clauses in an attempt to make them airtight against a future Tercon-like challenge.
"It's kind of the reason for many legal documents, to the layperson, to be longer than they ever needed to be," Mr. Mitchell noted.
On the other hand, he said governments may also face pressure not to insist on exclusion clauses, since they appear designed to allow them to break rules. And, Mr. Mitchell said, some would-be bidders might simply start refusing to participate in RFPs with restrictive Tercon clauses, choosing to "send a message to governments [that]this is not fair ball."
Governments might even give up Tercon clauses entirely, he added. "I suspect some public institutions will not go ahead with exclusion clauses. And this could be the end of them."
Glenn Walsh, who was chairman of Tercon when the lawsuit was filed, said that while he feels "vindicated" by the top court's ruling, it didn't go far enough. He argues that exclusion clauses should be banned.
"We were poorly treated, and the court has agreed there was some underhandedness by the ministry, if you put it that way," Mr. Walsh said. "I think it's unfortunate, though, that the court went on to accept the validity of the exclusion clauses."
The B.C. government, sharply criticized in the original trial judge's ruling, had little to say about the Supreme Court decision. B.C. Transportation and Infrastructure Minister Shirley Bond said officials are reviewing the ruling. "The contract matter that was the subject of the legal proceedings occurred nearly a decade ago and the ministry's procurement policies have been updated since that time," she said in an e-mail.