Disputes in Tendering

This post was written prior to our January 2017 merger, under our previous firm name, Aikins, MacAulay & Thorvaldson LLP.

For an owner, the attraction of a tender is to create a competitive process.  The goal is often to obtain the lowest market price to build the project, but to keep some flexibility in the terms of tender for consideration of substantially compliant bids. For bidders, the tender process is to provide a level playing field; one in which all are bidding on exactly the same project and where each bid should be given fair and equal consideration by the owner.

In Manitoba Eastern Star Chalet Inc v. Dominion Construction, a Manitoba decision released in December, 2011, the Court provides a thorough review of the law of tendering in Canada. The Court discusses the concept of Contract “A” / Contract “B,” first introduced into construction law by the Supreme Court of Canada in the 1981 decision of Ron Engineering. In its most basic form, the concept provides that upon the submission of a valid bid in response to a call for tenders, Contract A is formed between the owner and each bidder. The owner agrees to receive and evaluate bids in accordance with the terms of the call for tenders.  Each bidder, by submitting a bid, agrees to be bound by the specific terms. Those terms typically require that a bid is irrevocable for a specified period of time. By submitting a bid, each bidder also agrees that if the owner accepts its bid, it must enter into the construction contract, described as Contract B.

The Contract A / Contract B concept has been revisited and clarified on several occasions by the Courts, including the Supreme Court of Canada, and remains the basis of tendering law in Canada.  The Courts have clarified the law to include that with an appropriate term, usually referred to as a “privilege” or “privative” clause, an owner may reserve for itself the right not to accept the lowest bid. As well, the Courts have stated that an owner must be fair and consistent in its review of bids, and must only accept a bid that is substantially compliant with the terms of Contract A.

In the Eastern Star case, the defendant contractor was one of three bidders for an extension to a senior’s non-profit housing complex. Prior to acceptance of the bid, and despite a term that the bid was irrevocable, the contractor attempted to withdraw it. When Eastern Star, the owner, advised the contractor that the bid had been accepted, and presented Contract B for signing, the contractor took the position that the bid was not capable of acceptance because it was non-compliant, and was therefore a “counteroffer.”

The contractor’s main arguments were that:

  1. it had failed to provide a copy of a by-law resolution of its board confirming authorization for the signing of the bid submitted; and
  2. it had failed to expressly list and account for one of the Addenda that had been issued.

When the contractor refused to enter into Contract B, the owner issued a claim for the difference in price between the bid submitted by the contractor and the next lowest bid which had been accepted, which was approximately $650,000 higher.

In Eastern Star, although the bid requested authorizing bylaws, the contractor’s bid was presented under seal. The evidence showed that the contractor rarely if ever provided bylaws, but that it had submitted the bid under the company’s corporate seal. Importantly, the person who signed the bid intended to irrevocably bind the company at the time of the submission of the bid.

The Court found that the bid in fact encapsulated all the issued structural addenda and that a problem with the numbering in the listing of those addenda was simply a typographical error, a matter of form. The bid was, as a result, substantially complaint, was not a counteroffer and could not be withdrawn. This allowed the owner to recover damages for the contractor’s breach of Contract A.

In allowing the owner’s claim, the Court noted that attempts by a contractor to withdraw a bid based on the contractor’s own non-compliance could lead to mischief in the tendering process. The owner was therefore awarded damages calculated as the difference between the bid amount and the amount that the owner paid the second lowest bidder to complete the renovation.

The Eastern Star case is a good reminder that owners, in the Instructions to Bidders, should only include what is reasonable and necessary to assess the bids. Bidders should be aware that relying on their own mistakes or non-compliance may not allow a bid to be withdrawn. If the matter proceeds to litigation, the overarching concern of the Court will be to provide a fair result for the parties and to maintain the integrity of the bidding process.

This article was originally published in Upword, Quarter 2 Edition 2012 issue.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.

Helga D. Van Iderstine practises in the areas of civil litigation and administrative law, with particular focus on professional liability, health law, personal injury and privacy legislation. Reach her at (204) 957.4679.

John B. Martens practicss in the area of civil and commercial litigation. Reach him at (204) 957.4856.