Discrimination Policies: Do You Have to do Business With Someone Who is Suing You?


Sound Contracting Ltd. vs. City of Nanaimo, judgement dated December, 2000

This case will be of interest to universities, colleges, municipalities and other agencies and organizations implementing policies that must pass public scrutiny.

Sound Contracting worked on a number of construction projects for City of Nanaimo. The relationship between them had soured. In September of 1994, Sound Contracting had three active lawsuits against the City of Nanaimo. Staff at City of Nanaimo presented a report to Council that said:

“Staff are of the opinion that for solid business reasons, the City should not be entertaining bids from companies or firms that have an active law suit against the City for similar work. Staff, from experience, believe that there will be a saving to the City in administrative, legal and personnel costs if a company, at the time of tendering, is engaged in an active lawsuit with the City in relation to similar work, will not have its bid considered for the new work.”

City of Nanaimo Council adopted a staff recommendation that:

“Council revise its tendering policy to exclude bids from any company or agency where there is a current or pending legal action either by or against the City relating to work of a similar nature.”

City of Nanaimo revised its tender documentation to say:

“The Owner reserves the right to reject any tenders of a company that is, or whose principals are, at the time of tendering, engaged in a lawsuit against the City of Nanaimo in relation to work similar to that being tendered.”

I pause to note that, as reported in the reasons for judgement, there were no other lawsuits to which the resolution might have had application. It is clear that the policy was directed at Sound Contracting and its principals.

The Cormorant Road Project came up for tender after this policy had been implemented. Sound Contracting submitted a bid, which City of Nanaimo returned unopened. The same thing happened when the Turner Road Project came up for tender, a few months later, and again when the Fourth and Georgia Project came up for tender a month after that.

Sound Contracting sued, claiming damages lost as a result of the City refusing to enter into construction contracts with it.

Sound Contracting lost. The Court said:

“I am satisfied that the tendering policies, and the underlying resolution of Sept. 26, 1994, of the City of Nanaimo, were implemented for valid commercial or business purposes.

The defendant’s September 26, 1994, resolution was [valid]. That resolution discriminated against the plaintiff. The discrimination was for a business purpose. The defendant was entitled to discriminate, even though the policy was directed at the plaintiff, and even though the policy was “retroactive”, in the sense that it was for events which had already occurred.”

What can be garnered from this case? I observe the following:

  1. Of course you can’t discriminate for the wrong reasons (race, sex, and so on). But you can discriminate for proper reasons. This is an example of a proper reason.
  2. Do you need to have an explicit “lawsuit” clause in the tender documentation? Probably not. I say this with the benefit of knowing that, as reported in this judgment, later on City of Nanaimo thought better of it and changed its policy to delete the “lawsuit” clause. They went with a softer approach, by adopting evaluation criteria which included:
  • The Tenderer’s ability to work with the owners, consultants and representatives.
  • The Tenderer’s ability to effectively manage and do the work using the named superintendent and submitted contractors and subcontractors.
  • The Tenderer’s history with respect to quality of work, scheduling, changes in the work, and force account work.

So if the tender documentation sets out language about “best value” contracting, and an ample set of provisions affording flexibility to the Owner, that would probably suffice.

The case is under appeal to the BC Court of Appeal.

Readers might also be interested in a related article titled “Does the award have to go to the lowest bidder?” published in the September 2000 edition of our Construction Law Bulletin newsletter (available on our website) which involved the same parties. In that case, City of Nanaimo declined to award a contract to Sound Contracting, even though Sound Contracting was the lowest bidder, because City of Nanaimo concluded based on past experience that ultimately Sound Contracting would cost more.