The good faith framework: A notion with blurry outiline limitations

INTRODUCTION

The purpose of the rules governing public calls for tenders is to ensure the fairness of the contract award process according to the theory of contracts A and B1. Two objectives are involved here: 1) fairness between bidders and 2) the best management of public funds by the award of contract B to the lowest compliant bidder.

A more pragmatic principle, good faith, is linked to the principle of fairness. This general principle is also a rule for which a penalty may be imposed for an infringement. In the context of public calls for tenders, even though it is presumed, good faith is sometimes done away with by blatant bad faith or more implicitly, by the client’s passive behaviour, seeking to take advantage from the mistake made by the bidder to the public contract.

In the decision Services Ricova Inc. v. Ville de Montréal2, the service provider complained about having made a good faith mistake in its bid and wanted to terminate the contract. The Superior Court made an exhaustive analysis of the three facets of good faith during every step of the contractual relationship: the award, the performance and the termination of a public contract. What follows is a summary of the decision regarding good faith at the time of the contract award.

1. THE THREE FACETS OF GOOD FAITH

The first facet of good faith is like a reflection in a mirror. Good faith is defined by the contrary. Good faith is shown when bad faith is absent. Accordingly, a party acts in good faith if there is no evidence of its malicious intention. It is the behaviour of a party saying that he acted in good faith which is scrutinized under the magnifying glass.

The second facet involves assessing the knowledge of the person said to be in bad faith, if that person had any knowledge or not, or if his behaviour is illegal or illegitimate. This analysis deals with the reasonable subjectivity of the client.

Lastly, good faith can be seen as that of a reasonably prudent and diligent person. This is objective good faith defined in the absolute. Here, the intention and subjective perception of the client regarding his own behaviour are not criteria to be used. Instead, the question arises about what the social or moral standard requirements are and what a prudent and diligent client would have done regarding a mistake made by the lowest compliant bidder.

Basically, behaving in good faith, is not only being preoccupied by someone else’s interest. It is not prioritizing only the interest of the other contracting party. Being in good faith is, a minimum, not abusively causing prejudice. Being in good faith, doing a balancing act between the interest of one and another, may seem precarious.

2. THE FACTS AND THE DECISION

The limits of good faith being determined, let’s have a look at the decision Services Ricova Inc.3. The City of Montreal (“City”) published a public call for tenders for the collection and carriage of recyclable material. Three days following the beginning of the call for tenders, the contract documents were corrected by Addendum No. 1. The annual tonnage of recyclable materials and the number of trucks required were erroneous and needed to be almost doubled.

The service supplier, Services Ricova Inc. (“Ricova”), filed its bid (contract A). On opening the bids, Ricova’s was the lowest, being half the cost of the second lowest bidder. The Commission permanente sur l’examen des contrats (Contract Review Standing Committee) (the “Committee”) reached the conclusion that the call for tenders was valid. The City awarded the contract to Ricova (contract B).

Ricova realized its mistake right from the beginning of the performance of the contract but did not notify the City right away. Ricova was unable to reach an agreement with the City to modify the price under the contract. The company lost money and was given numerous penalties right from the beginning of the contract. The contract was subsequently terminated.

Ricova admitted that it had not considered Addendum No. 1 when pricing its bid, which is an inexcusable error. Because this was a lump-sum contract, Ricova had to respect its obligations, even at a loss. The Court examined the City’s behaviour to determine if it had acted in bad faith, transforming an inexcusable error into an excusable error and accordingly modifying Ricova’s obligations.

Despite the considerable difference between the price of the two lowest bidders, the Court reached the conclusion that the City and the Committee were well founded in considering that Ricova’s price was deliberately aggressive and competitive, even if Ricova should have been asked more questions.

According to the Court, when the contract was awarded, in other words, when contract B was entered into, it was not clear that Ricova had made a mistake in the calculation of its bid.

The City did not try to take advantage of Ricova’s mistake, of which it did not have any knowledge at that time.

3. THE RULES TO BE APPLIED

In order to delimit the framework to apply the notion of good faith, from the call for tenders period until the bids are opened, the Superior Court applied the following principles4:

  • Having made an inexcusable error, a bidder is required to respect its offer of service, even if it is definitely disadvantageous.
  • A bidder’s inexcusable error may become excusable when the client is deceitful or infringes its obligation of good faith.
  • This would be the case where the client accepts a bid knowing that it contains an error, or if that client does not intend on awarding the contract to the bidder and accepts it only to have the bidder support the difference between the price submitted and the cost of the contract which it intends to award to a third party.
  • The mere difference in price between the first and second bidders is not sufficient to reach the conclusion that the bidder made a mistake.
  • For a client to realize that there is an error, it must be obvious on reading the bids.
  • The requirement of good faith does not oblige a client to report an error of which it has no knowledge.
  • The issue of the assessment of the good faith of the parties arises when contract B is awarded, when this second contract is entered into.

Accordingly, regarding the award of public contracts, a client cannot rip the benefit of an undue advantage cause by the mistake of lowest compliant bidder. Even an inexcusable error in the assessment of the cost of a bid may lead to the cancellation or termination of “contract B” depending on the behaviour of the parties when the contract was awarded. On the other hand, the burden to be discharged to show the bad faith of a client, even without going so far as to establish deceit, is quite heavy, and a complete and thorough evidence is required.


1 The Queen (Ont.) v. Ron Engineering, 1981 CanLII 17 (SCC).

2 2024 QCCS 80.

3 2024 QCCS 80.

4 2024 QCCS 80, par. 109.

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