[ql06] CONTRACTS: Tenders (a la Cornwall v Purolator)
- From: "Ken Campbell -- LAW'06" <2kc16@xxxxxxxxxxxxxxxx>
- To: <ql06@xxxxxxxxxxxxx>
- Date: Sun, 28 Sep 2003 06:04:38 -0400
Great piece on Ont. and the nature of municipal tenders and the "rule of
law" in accepting tenders (versus payola or nepotism).
Reminds me of the Cornwall v Purolator case we covered in Sara's
CONTRACT class Friday last. Cornwall Construction would have loved to
have someone bending the rules for them, too. "They were only 17 minutes
late..."
Ken.
--
Wit is cultured insolence.
-- Aristotle
--- cut here ---
Vaughan tenders spur controversy
Contractors allege rules bent by city
Two projects focus of court battles
PHINJO GOMBU AND JOHN DUNCANSON
STAFF REPORTERS
TORONTO STAR
September 20 2003
In the high-stakes world of bidding for construction contracts, rules
matter.
Multi-million-dollar projects can be won or lost if the bids are
minutes, even seconds, late. The lowest bidder is supposed to win. When
the rules are bent or broken, lawsuits fly.
That is the case in Vaughan, where two related companies have won major
contracts from the burgeoning city north of Toronto. In three separate
instances, Maystar General Contractors Inc. and its affiliate, Kapp
Contracting Inc., both based in Vaughan, beat out their competitors for
contracts worth a total of $50 million.
The projects awarded by Canada's fastest growing municipality ? which
has issued nearly $1 billion worth of building permits in each of the
past four years ? have been mired in controversy, with accusations by
others in the building industry that strict tender rules weren't
followed by city hall. In one case, the city accepted a late bid by
Maystar. In another, it awarded Kapp a contract even though it wasn't
the lowest bidder.
"(The rules) are as sacrosanct as you can get in our industry," said
Clive Thurston, president of the Ontario General Contractors
Association, which has been trying to get a meeting with the City of
Vaughan to review its tender practices.
"If the rules are not followed, it destroys the entire integrity of the
system."
The two companies are part of a group of construction-related firms
based in Vaughan.
They are predominantly owned or operated by local builders Joe Maio and
Claudio Memme. Last year, Maio was appointed an honorary "goodwill
ambassador" by the City of Vaughan to help drum up business and boost
its corporate image.
The projects include a $5.6 million community centre in Maple, a $4.7
million road reconstruction project, and a $39 million joint school and
community centre complex.
The city has been taken to court over two of the projects, and a third,
the Maple community centre, has prompted allegations that Vaughan
finance commissioner Clayton Harris pressured the director of
purchasing, George Wilson, into allowing Maystar to enter a late bid.
While two confidential sources close to the dispute say Vaughan Mayor
Michael Di Biase advised the commissioner to accept the bid, both Di
Biase and Harris deny it. Harris also denies pressuring anyone, and says
he alone decided to allow the late bid.
Says Di Biase, "It's not our job as members of council to get involved.
The safest way is to stay away."
Nonetheless, leaders in the contracting industry, including the
2,000-member Toronto Construction Association, say the problems with the
tenders raise serious questions about the integrity of Vaughan's bidding
process.
Maio, whose companies have done work for the city in the past, said
there has been no favouritism in the awarding of contracts to his
business.
"We've been disqualified several times, (and) we've been awarded
contracts. It's the city or the municipality or the school board or
region who decides who gets the tenders ..." he said.
"We only do the work when it's awarded to us. We don't make the decision
who gets the work and who doesn't."
Memme did not return calls to the Star.
On the walls of the Toronto Construction Association boardroom in
Richmond Hill is a yellowing document dating back to 1867, when a group
of builders laid down rules on how tenders should be conducted.
The rules haven't changed much ? just the complexity of the legal
interpretations and challenges that lawyers for contractors regularly
use in court.
Months of planning for the projects boil down to the last few hectic
moments before the usual afternoon deadline, when the tender documents
must be signed, sealed and delivered.
Company negotiations to save money go down to the wire.
One mistake ? especially breaking the clearly stipulated rules ? can
mean instant disqualification.
On Feb. 18, Vaughan was to award the $39 million Vellore Village complex
tender. There was heightened tension at city hall. Even Mayor Di Biase
was on hand to witness both the closing and awarding of the bid.
The contract, a joint effort with the York Region Catholic school board,
was for the building of a community centre, swimming pool, secondary
school and other facilities on Weston Rd. to serve the ever-growing
community of Vellore Village, one of the biggest residential projects
under way in Vaughan.
In keeping with industry practice, the forms carried by each company's
bid-runner were "signed and sealed" with the corporate seals of the
companies. Left empty and to be filled in at the last minute were four
lines for quotes that would add up to the final bid price.
Once the bid-runners received their final instructions by phone, they
filled in the dollar amounts. Company owners stayed at their head
offices, on speakerphones, while their representatives gathered in a
room near the municipality's purchasing office.
There were four bidders.
Aquicon Construction's representative that day was Valerie Aquino, who
wrote in a dollar amount as instructed from head office but was then
told to change it. She did so, and as with any legal document,
initialled the change.
When the bids were eventually opened, Maystar was the lowest with $38
million.
All the losers went home figuring that was it.
It was only later when Frank Aquino, one of the owners of Aquicon
Construction, phoned the purchasing department to talk about the bid
that he was told the city had checked all the quotes and found Maystar's
calculations were wrong. He was the lowest bidder, Aquino said he was
told.
But the elation lasted only seconds because he was then informed that
the city had disqualified him on grounds that the changes made by his
representative broke one of the nine rules that determine
disqualifications. The bad news was in the mail.
City officials cited rule number 5, which states, "All strike-outs,
erasures or overwriting must be initialled by an authorized person
executing the bid." Valerie Aquino was not considered "authorized" to
initial the changes because she was not listed on the company's bid
documents as a signing officer.
Maystar, which was the second lowest bidder, had therefore won by
default.
Aquicon, backed by the Ontario General Contractors Association and the
Toronto Contractors Association, took the city to court in March to try
to overturn the decision, arguing the initialling of the change was
widely accepted industry practice.
Work on Vellore Village was stalled until the matter was heard, on an
urgent basis, by Superior Court Justice Madam Sarah Pepall in late
April.
Court documents, depositions and affidavits revealed a process riddled
with flaws, posing more questions than answers.
It was here that purchasing director George Wilson testified in pretrial
proceedings that Maystar, too, had violated one of the rules that govern
who gets disqualified: handing in photocopies rather than the original
bid form.
Maio, during the same proceedings, said he didn't see the difference
between a photocopy and an original. Besides, he said, an employee of
his, on the night before the bids were to be submitted, had phoned
Marlon Kallideen, the executive director of buildings and facilities for
the city, and was told it was okay to use photocopies.
In an interview recently, Maio said, in his mind, the issue of whether
his company violated tender rules with the photocopy form still "is not
clear."
------------------------------------------------------------------------
--------
A 1999 Supreme Court ruling states that cities do not have the right to
reject a low bid outright
------------------------------------------------------------------------
--------
While Pepall ruled in May that Aquicon technically violated the tender
rules, she questioned why that particular rule was even in place.
"I fail to see any meaningful distinction between a requirement that
permits an agent to fill in blanks on a signed and sealed form but which
prohibits amendments affected by the same person," she wrote.
Pepall also pointedly said that in dismissing Aquicon's application, she
was making no findings on whether the other bids were compliant. It
wasn't her role. The judge left it up to the city to deal with the mess.
The matter ended up at a meeting behind closed doors on May 12.
Councillors were briefed by lawyers about "irregularities" in the bid
process identified in court. Because of the problems, they were given
various options by staff, including retendering the contract or awarding
it to Maystar. Council voted to give it to Maystar.
The mayor and several councillors were asked by the Star what they knew
about the bids when they voted. They said they didn't know or were only
vaguely aware of the problems but didn't think they were a big deal.
On July 10, councillors and school board officials attended a
groundbreaking ceremony for the Vellore Village complex, and
construction started under the Maystar banner.
It was during the court case over the Vellore Village project that
revelations emerged regarding an earlier contract awarded to Maystar:
the Maple community centre, located on Keele St. just north of Major
Mackenzie Dr.
That saga began on Feb. 14 of this year when representatives for several
general contractors gathered in a crowded portable adjacent to city
hall, armed with multiple cellphones, carrying bid forms signed by their
bosses.
The electronic clock that time-stamps the arrival of bid documents for
Vaughan is unforgiving. The bid for the Maple contract was to close "no
later than 3:00:00 p.m."
Maystar's paperwork was time-stamped 17 seconds late.
Seventeen seconds may not seem like a long time, but in the world of
tendering it's an eternity.
"One second is late. That's the way the industry understands it," said
the Toronto Construction Association's Temple Harris.
Thurston of the Ontario General Contractors Association, referring to a
defining 1998 court case involving a Hamilton Catholic school board
tender, put it another way: "The courts have already decided that if you
are even one second late, you are toast."
Purchasing director Wilson, a long-time veteran of the tender process,
was ready to disqualify Maystar. Also, one of the other bidders had
already complained.
But in a startling admission made under oath in the Vellore lawsuit two
months later, Wilson ? the man policing the bid ? testified he opened
the bid that day "under duress" following instructions by his boss,
Clayton Harris.
As a rule, late bids are returned unopened, and opening a bid signifies
the municipality is accepting it.
Harris, interviewed by the Star, said the bid was opened because he felt
the safest route would be to allow it, then deal with the allegations
afterwards.
No contract was awarded because of the controversy that day.
Atlas Corp., the second lowest bidder after Maystar, protested by firing
off a letter demanding that it be given the contract.
Company co-owner Adam Salehi knew full well the rules of the game. He
lost a chance to compete for a $16 million job in Whitby because his
company was late by two minutes.
Three days after the Maple bids were opened, the matter ended up behind
closed doors at a council meeting on Feb. 17. Wilson convinced council
to reject Maystar's bid, arguing he wanted to protect the integrity of
the bidding process. But neither did they award the bid to Atlas, the
next lowest bidder, as is the normal practice. It was during that same
meeting that questions were asked regarding Harris' decision to allow
the late bid and two sources say it came out that Di Biase had wanted
the bid opened.
But Harris and Di Biase say it didn't happen that way.
"The final decision to open or not open was mine," Harris said. "He (Di
Biase) didn't influence my decision."
Di Biase acknowledges speaking to Harris about the bid but wasn't clear
on when that conversation took place.
"I don't know why he (Harris) made that decision," he said, adding there
must have been a reason.
The matter remained unresolved until March 3, when senior staff proposed
a new Maple centre plan ? an expanded project that included an archival
cold storage area which, they said, had simply been overlooked
previously. Staff recommended the city retender the project, which they
did, and Maystar won the contract on May 21.
All this left a bad taste with Salehi, who maintains the city could
easily have renegotiated the $200,000 of extra work for the storage
space with his company. He said it's done all the time.
"We should have had that project," Salehi said.
But Di Biase said that council simply followed staff's recommendations.
All things being equal, the lowest bidder is generally supposed to get
the job. That's what most contractors who enter a bid expect to happen.
But in the case of a major road reconstruction job in Vaughan two years
ago, that rule of thumb didn't apply.
On Nov. 19, 2001, Richmond Hill-based Sanan Construction gave the city
the lowest quote in the rebuilding of Bowes Rd., between Keele St. and
Regional Rd. 7. But the contract ? worth just under $5 million ? still
went to Kapp Contracting, whose bid came in $350,000 higher than
Sanan's.
In December, 2001, the city awarded the largest engineering project of
that year to Kapp on the advice of a staff report, which simply stated
the company had a proven record with the city.
Three months later, Sanan, owned by Michael Crupi, filed a $5 million
lawsuit seeking damages for breach of contract, alleging the city did
not present any reasons for not accepting his company's bid.
Sanan, which has done previous work for Vaughan and other Toronto-area
municipalities, is backed by the influential Greater Toronto Sewer
Watermain Construction Association, which argues the onus is on the city
to explain why it didn't back the lowest bidder.
"We're trying to protect the sanctity of the public tendering process
right across the province for our members, and that means investigating
and pursuing circumstances where municipalities don't award to the
lowest qualified bidder," said Sam Morra, the association's executive
director.
In its statement of defence, the city claims Sanan and other bidders
knew full well that Vaughan, through a special clause in its bidding
rules, has the right to pick any company it wants for a tendered
contract, regardless of the amount of the bid.
Such clauses do exist in tender documents, but a Supreme Court of Canada
ruling in 1999 said it doesn't give cities the right to reject a low bid
outright without considering the spirit and intent of the tender
process.Again, Di Biase said council was simply following staff
recommendations.
Despite attempts to mediate a settlement, the civil suit continues.
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