Mega Mistakes: Public Policy and Procurement in Yukon

In Mega Reporting Inc. v. Yukon (Government of),¹ the Yukon Court of Appeal upheld a waiver of liability in the Yukon Territorial Government (“YTG”) procurement process despite the lower court’s concerns regarding public policy and fairness in the process.² In 2013, YTG issued a Request for Proposals (“RFP”) for a one-year contract to provide court reporting and transcription services to reduce costs.³ Mega Reporting (“Mega”), a small Yukon business, was one of two bidders that entered the two-stage RFP process that was adjudicated by a YTG committee (“Yukon”).⁴ In stage one, Yukon examined each bidder's experience and performance using a technical evaluation.⁵ In stage two, Yukon assessed each bid that met the minimum technical requirements by price. While the committee was not obliged to accept the lowest price, Yukon would not consider the price at all if the bidder did not pass stage one. Mega did not pass at the technical stage and subsequently its lower bid was not considered.⁶

The bidding process was governed by the Contracting and Procurement Regulation⁷ and the Contracting and Procurement Directive (“Directive”), which is a publication of the Management Board, a Cabinet committee,⁸ that is issued pursuant to s. 4 of the Yukon Financial Administration Act.⁹ Mega argued that the committee failed to follow the Directive, which sets out various principles for public procurement, including commitments to fairness, openness, transparency, and accountability.¹⁰ Mega contended that Yukon failed to act in a manner consistent with the protection of the public interest, namely in ensuring procurement transparency and value for money for the public.¹¹ Additionally, the public interest, fairness, accountability, and transparent bidding principles were reiterated in a public covering letter from the Deputy Minister for Highways and Public Works as part of a consolidated publication of the Regulation and the Directive.¹²

Mega met with YTG procurement officials to receive feedback on its bid and learned that they lost points for criteria that were not disclosed in the YTG RFP.¹³ The official’s notes did not indicate the actual score given to Mega or how the proposal was scored.¹⁴ There was no proof of YTG record keeping and no obvious evidentiary indication that the Mega bid was given adequate consideration.¹⁵ Mega sued YTG alleging that it breached its duty to fairly review their proposal, claiming the process used violated “Yukon's admitted obligation to conduct a fair, accountable, and transparent bidding process.”¹⁶

The Yukon waiver, also known as the exclusion clause in the RFP, would waive the YTG’s liability for costs associated with unfairness in the bidding process.¹⁷ The language of an exclusion clause will determine whether it applies to bar a particular action and exclusions of liability should thus be drafted with clear and unambiguous language. In Mega YKSC, Justice Bielby held that the exclusion clause should not apply where to do so would annul the effect of the procurement principles in the Directive and undermine the integrity of the tendering process.¹⁸ This was consistent with the result reached in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways).¹⁹ The Yukon Supreme Court was asked if the government could contract out of the duty of fairness through a waiver of liability clause, or, if such an exclusion clause was contrary to public policy and thus potentially unenforceable. Bielby J. ruled in favour of Mega,²⁰ focusing her decision on the substantial expenditure of public funds as the public policy interest engaged.²¹ She also considered the Canadian International Trade Tribunal decision Almon Equipment Ltd. v. Canada (Department of Public Works and Government Services):²²

Government procurement involves the expenditure of large amounts of public funds. As observed in Almon at para 28, “[t]he credibility and integrity of the competitive procurement system rest, in large part, not only on bids being properly assessed against the prescribed evaluation criteria in actual fact but also on the supplier community’s perception that bid evaluations have been conducted in a fair and transparent manner.” The public, therefore, has an overriding interest in making sure that its funds are being expended in such a manner as to ensure the competent provision of adequate goods and services at a reasonable price.²³

Bielby J. held that to uphold the YTG liability waiver would allow “Yukon to say one thing and then to do the opposite,”²⁴ presenting itself as fair, transparent, and accountable but failing to put these principles into effect.²⁵

Bielby J. noted that although public interest demands a right to enter contracts freely, that interest is offset by the principles of YTG’s own Directive, especially where a large amount of public money is spent.²⁶ Justice Binnie in Tercon,²⁷ dissenting on other issues, detailed a three-pronged test in which each prong must exist for a waiver to operate. Bielby J., in application of the third prong of the test, found that public policy reasons existed that should lead the Court to refuse to enforce the waiver of liability and those reasons outweighed the very strong public interest in the enforcement of contracts.²⁸

Chief Justice Bauman writing for the Court of Appeal rejected Bielby J.’s reasoning. While there may be a public policy interest in ensuring fair procurement to encourage more competition in bidding and maximize value for public money, Bauman C.J.B.C. held that it was not “substantially incontestable” that such an interest should override the ability of YTG to protect itself from liability, suggesting if YTG is not getting value for money it can change the clause, or the public can hold the government accountable at the ballot box.²⁹ Providing that the applicability of the clause is clear, Tercon directs that courts have only a narrow jurisdiction to override contractual terms freely negotiated by parties.

Conduct approaching serious criminality or egregious fraud are but examples of well-accepted and “substantially incontestable” considerations of public policy that may override the countervailing public policy that favours freedom of contract. Where this type of misconduct is reflected in the breach of contract, all of the circumstances should be examined very carefully by the court. Such misconduct may disable the defendant from hiding behind the exclusion clause. But a plaintiff who seeks to avoid the effect of an exclusion clause must identify the overriding public policy that it says outweighs the public interest in the enforcement of the contract.³⁰

Arguably, what substantiates public policy concerns in one jurisdiction may not in another.

YTG has been consistently scrutinized by the public for failing to meet the needs of the Yukon Territory taxpayers and economic interests. As a result, the Yukon Procurement Advisory Panel was formed in November 2015 to consult with local businesses and make recommendations about ways to make it simpler to sell goods and services to YTG.³¹ The Panel’s initial focus was on examining concerns about inconsistent procurement practices among YTG departments and ineffective mechanisms for raising and addressing supplier complaints about the tendering process. The Panel was charged with making recommendations “to reconcile vendor concerns with best practices and the Government of Yukon’s procurement environment” and to explore whether further research or investigation of best practices was required.³²

Granted, policy arguments that may invalidate exclusion clauses or waivers of liability in public procurement must be thoroughly investigated to maintain efficacy and efficiency and prevent a potential floodgate of unsuccessful and aggrieved bidders litigating tenders. However, the difficulty with accepting the high threshold established by the Court of Appeal’s decision in the Yukon Territory is that it largely ignores the ongoing public disparagement of YTG procurement.

The Court of Appeal’s acceptance of such procedural unfairness, and the rejection of a lower territorial business bid in favour of a costlier bid³³ from the Ontario business StenoTran is concerning,³⁴ particularly in the context of the Yukon Territory’s small population and tax base. It may have a disincentivizing, chilling effect on the Territory’s economy over time. YTG has been heavily criticized for their lack of transparent procurement processes to the point that they have begun publicly evaluating their own procurement program.

The question remains: What conduct will rise to the level of substantially incontestable in Yukon Territory? As courts continue to uphold waivers of liability and exclusion clauses regardless of extrinsic evidence that indicates a problematic pattern of mismanagement in YTG’s own current procurement processes, the threshold of egregious or fraudulent conduct necessary to trigger the rejection of such a waiver of liability is currently speculative. The Court of Appeal decision should concern Yukon small businesses, taxpayers, and potential investors participating in the procurement economy.

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^* JD Candidate (University of Saskatchewan).

¹ 2018 YKCA 10, 428 DLR (4th) 619 [Mega YKCA].

² Mega Reporting Inc v Yukon (Government of), 2017 YKSC 69 at paras 39-41 [Mega YKSC].

³ Mega YKCA, supra note 1 at paras 2-3.

⁴ Ibid at para 8.

⁵ Ibid at para 4.

⁶ Ibid at para 8.

⁷ YOIC 2013/19 [Regulation].

⁸ Mega YKCA, supra note 1 at para 22.

⁹ RSY 2002, c 87.

¹⁰ Mega YKCA, supra note 1 at para 5.

¹¹ Ibid at para 23.

¹² Ibid at para 6.

¹³ Ibid at paras 10–13.

¹⁴ Ibid at para 13.

¹⁵ Ibid at paras 12–14.

¹⁶ Mega YKSC, supra note 2 at para 8.

¹⁷ Mega YKCA, supra note 1 at 7.

¹⁸ Mega YKSC, supra note 2 at para 39.

¹⁹ Mega YKCA, supra note 1 at para 17, citing 2010 SCC 4, [2010] 1 SCR 69 [Tercon].

²⁰ Mega YKSC, supra note 2 at para 41.

²¹ Ibid at para 36.

²² [2011] CITT No 18 [Almon].

²³ Mega YKSC, supra note 2 at para 36.

²⁴ Ibid at para 40.

²⁵ Ibid.

²⁶ Ibid.

²⁷ Tercon, supra note 19 at paras 62, 121-123.

²⁸ Mega YKSC, supra note 2 at para 33.

²⁹ Mega YKCA, supra note 1 at paras 35, 39, and 50.

³⁰ Tercon, supra note 17 at para 120.

³¹ Yukon, Department of Highways and Public Works, “Yukon Procurement Advisory Panel Report” (15 April 2016) at 2, online (pdf): <www.hpw.gov.yk.ca/pdf/RevisedAdvisory_Panel_Report_and_Yukon_Local_Preference_Report_webfile.pdf>, archived: <https://perma.cc/N58L-5U3J>.

³² Ibid at 4.

³³ Mega YKSC, supra note 2 at para 42.

³⁴ Yukon Government, Department of Justice, “Court Transcripts” (last modified 14 August 2014), online: <https://web.archive.org/web/20141120173157/http://www.justice.gov.yk.ca/prog/cs/1028.html>, archived: <https://perma.cc/4HBK-NCD7>.