Applying the Law of Tendering in Canada

Robert J. Kennaley for The Lawyers Weekly

Applying the Law of Disclosed Criteria, Non-Compliant Bids and The Duty of Fairness

As discussed in Part I of this Article, the Supreme Court of Canada's decisions in Ron Engineering, MJB and Martel suggest at least four ways in which owners may have obligations to bidders in the tender process in Canada. Depending on the terms of the tender call, the owner's obligations will include some or all of the following:

  • The obligation to reject a bid that contains an error on its face
  • The obligation to accept only compliant bids
  • The obligation to consider only disclosed criteria in evaluating Canadian bids and
  • The obligation to act fairly in evaluating the tenders

Whether or not these obligations arise in any particular circumstance will depend on an analysis of the bids themselves, in conjunction with the bid documents. The possible fact situations are, of course, almost infinite. It is in the application of these cases to particular facts that the law of tendering in Canada will either become further clarified or more confused. Indeed, this process is already well underway, with mixed results:

  • the Ontario Superior Court recently held in Toronto Transit Commission vs. Gottardo Construction Limited et al that an owner cannot award based on a bid he knows contains an honest and inadvertent mistake which is fundamental to the Contract, even where the mistake is not obvious on the face of the bid;

  • similarly, the British Columbia Court of Appeal held, in Graham Industrial Services Ltd. v. Greater Vancouver Water District, that where an owner purported to award to a mistaken bidder, the mistake made the bid "materially" non-compliant;

  • the B.C. Supreme Court dealt with what constitutes a ’compliant bid’ in J. Oviatt Contracting Ltd. v. Kitimat General Hospital Society. There, the B.C. Court held that ’substantial compliance’ was sufficient, and upheld the award to a successful bidder who had omitted four of eight pages of the tender form. In Johnson’s Construction Ltd. v. Newfoundland, on the other hand, the absence of one unit rate was enough to render a bid non-compliant;

  • with respect to ’disclosed criteria’, owners in Ontario who rejected a low-bid were found liable for breaching their obligations of fairness in Direct Underground Inc. v. Pickering (City) and Tarmac Canada Inc. v. Hamilton-Wentworth (Regional Municipality). (These decisions are consistent with M.J.B., where the Court had stated that allowing the owner to accept a non-compliant bid amounted "to saying that because it thought it had interpreted the contract properly it cannot be in breach");

  • the B.C. Court of Appeal, on the other hand, has taken a somewhat different approach. In Sound Contracting Ltd. v. Nanaimo (City) the owner had rejected the low bidder because it had previously claimed an extra for deleted work. Although the tender call did not disclose that claims history would be a consideration, it did state that qualit, service and price would be relevant. The B.C. Court focused on the owner's obligations of fairness, and found no evidence that the owner's representatives had acted unfairly towards the low-bidder;

  • similar arguments prevailed in J. Oviatt Contracting Ltd. and in West Central Air Ltd. v. Government of Saskatchewan, where it was held that the owner had rejected the low bidder in good faith and fairly, given the information available at the time.

  • in Kinetic Construction v. Comox-Stathcona (Regional District), the British Columbia Court of Appeal dealt with a privilege clause which expressly allowed for non-compliant bids. It held that the acceptance of non-compliant bids in was contemplated by the tender call such that 'Contract A' could, in fact, come into existence;

  • In Naylor Group Inc. v. Ellis-Don Construction Ltd., the Supreme Court of Canada held that there is no reason why, in principal, the 'Contract A' /'Contract B' analysis cannot be applied to the contractor/subcontractor relationship. In that case the Canadian court found that the bid depository rules gave rise to Contract A and required the contractor to award to the subcontractor it had carried in its bid. Similar findings were made by the Ontario Court of Appeal in A. Dynasty Roofing (Windsor) Ltd. v. Marathon Construction Services (1991) Inc.

  • in Buttcon Ltd. v. Toronto Electric Commissioners, the Ontario Superior Court discussed how the law of tendering might apply to a Request for Proposals. The Ontario Court held that the owner had a duty of fairness to consider proposals fairly and suggested that had a contract been awarded to a non-compliant proponent, that proponent might have had "a legitimate complaint."

As a review of these decisions indicates, the law of bidding and tendering in Canada continues to evolve. Further, the decided cases in Canada provide only limited guidance, as each new case will necessarily be decided on its own facts. That having been said, there are steps which participants in the Canadian construction industry can take to better protect their interests in the process.

Bidders in Canada should take care to read the bid documents carefully and fully comply with the tender requirements, to minimize the risk of being declared non-compliant. Bidders should not qualify their bids, or make 'counter-offers', as this will often result in a rejected bid. Bidders in Canada should also understand what criteria has been disclosed as relevant for the purposes bid evaluation and consider requesting an explanation of an award in circumstances where they are low, but unsuccessful.

Canadian owners (and contractors who request bids in a potentially 'Contract A/Contract B' scenario) should take care to treat all bidders fairly and equally in the tender process. This includes providing all information equally to all bidders, including answers provided to requests for clarification made during the tender period. Canadian owners should also take care to only evaluate compliant bids, on the basis of disclosed criteria. The safest approach is often to accept the lowest compliant bid unless there is a good, disclosed reason for not doing so. Where complications arise, the advice of a corporate lawyer knowledgeable in the area should be sought. Such complications include concerns over the extent to which a bid is either compliant or too low, concerns that all bids are too high and concerns that the owner would like to make post-tender changes to the scope of work, pre-award. Canadian owners should also understand that they are ultimately responsible for the conduct of consultants who administer a tender process on their behalf. Owners should accordingly take care to ensure that the consultants they utilize understand the owner's obligations and will conduct themselves accordingly.

Robert Kennaley is a construction lawyer with McLauchlin & Associates in Toronto. He can be reached by e-mail here

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