oaa - bid theory - may 2014 5403716 (2) (2) (1) theory...dickinson v. dodds • dodds sells to...

Ontario Association of Architects2014 Admission Course

Bid Theory

Michael SwartzWeirFoulds LLP

May 9, 2014

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Overview

• What we’ll cover …• Basic Principles• “Privilege Clause” – price• “Discretion” Clause –

non-compliance• “Exclusion of Liability” Clause

Basic Principles – The Court System

• The Law of Tendering in Canada • Common Law (or Judge-made Law)

• Binding Authority • Persuasive Authority

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• Why is it important to know what judges have said before?• which arguments succeed and which ones fail?

• what arguments are new

• what is the likelihood of success?

• whole process is about “persuasion”

• no certainty of outcome

• right or wrong is in opinion of judge

• KEY: knowledge, prevention, and preparation4


• The Hierarchy of our Court System

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Supreme Court of Canada

B.C. Court of Appeal

B.C. Supreme Court

Court of Appeal for Alberta

Court of Queen's Bench for Alberta

Court of Appeal for Ontario

Ontario Superior Court

of Justice

Nova Scotia Court of Appeal

Nova Scotia Supreme Court

Federal Court of Appeal

Federal Court Trial Division

Basic Principles – Contract Law

• Contracts are absolutely everywhere!

“Promises are fundamental to the idea of contract.” …“A contract consists of a promise, or a set of promises, given by one person in exchange for the promise or set of promises made by another person.”

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In a contract, parties restrict their present and future freedom to act, they impose limitations upon themselves and create a set of legal rules, a legal regime binding on themselves and only on themselves. Through contracts, parties legislate for themselves a miniature legal system by and under which they are governed.

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In a contract, parties restrict their present and future freedom to act, they impose limitations upon themselves and create a set of legal rules, a legal regime binding on themselves and only on themselves. Through contracts, the parties legislate for themselves a miniature legal system by and under which they are governed.

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• When do you have a binding contract?The Objective Bystander Test

• Have the parties indicated to the outside world that they intended to enter into a contract?

• Are the terms of the contract known?

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• When do you have a binding contract?The Five Elements

• Offer• Acceptance• Consideration• Capacity• Other Particular Legal Requirements

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• Breach of Contract• The Theory of Contract Damages is

that the Innocent Party ought to be put into the same position that they would have been in had the Contract been carried through as the parties had agreed.

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• To prove a claim in breach of contract• Must prove there was a contract;• Must prove the terms of the contract;• Must prove there was a breach;• Must prove there were damages as a

result of the breach; and• Must prove the quantum of the damages or

entitlement to relief

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• What is claimed?• Monetary Damages• Specific Performance• Injunction• Declaratory Order

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• How is the claim defended?• There is no breach;• Waiver of damages;• Limitation of Liability; • Failure to mitigate damages;• Plaintiff is in breach (Counterclaim)

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Basic Principles – Bid Theory

• All of Bid Theory is really about a specialized and particular subset of Contract Law

• Contract Law as it applies to Bid Theory is constantly evolving

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Remember Dickinson v. Dodds?

• Dickinson v. Dodds• Dodds offering his home and property for

sale to Dickinson• Dickinson is interested but hesitant …• Dodds writes to Dickinson:

I hereby agree to sell to Dickinson all of thelands and premises for the sum of £800PS – This offer to be left open until Friday,June 12, 1874

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Dickinson v. Dodds

• Dodds sells to Thomas Allan on Thursday, June 11, 1874

• Dickinson learns this on Thursday afternoon

• Dickinson delivers acceptance to Dodd’s mother-in-law Thursday evening

• Dodds receives it Friday before noon

• Dodds says the acceptance is too late – the home and property are already sold

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Dickinson v. Dodds (cont’d)

• Issue:Was there an enforceable contract between Dickinson and Dodds?

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Dickinson v. Dodds (cont’d)

• Answer:• No

• Dickinson knew the house was sold

• Dodds did not agree to the terms at the time the acceptance was conveyed

• Must agree at the same time

• Applying Dickinson v. Dodds to the Law of Tendering• Timing• Terms• Offer• Acceptance• Fairness

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McMaster v. Wilchar Construction

• McMaster invites bids for health sciences centre

• 5 bidders

• Wage Escalation Clause (Hamilton Construction Association)

• Wilchar omitted WEC page (1 of the 9 pages of the bid documents)

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McMaster v. Wilchar Construction (cont’d)

• $185,613 bid price left only $10,000 for profit and overhead

• Would have lost money

• Owner says, “too bad”

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• Decision:• Trial judge thought Owner was looking for

a cash grab

• In a construction contract, price is always fundamental

• If there is a mistake affecting the fundamental term of the contract, and the other knows about it, the contract is void

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• Lesson:• A mistake on the face of the contract

means that there can be no contract – the parties aren’t agreeing to the same thing

• consensus ad idem (meeting of the minds)

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Belle River Community Arena v. WJC Kaufmann

• 1972

• $40,000 bid bond required

• Bids to remain open for 60 days

• Bids opened January 11, 1973

• Kaufmann lowest bidder by $15,000 but was $70,800 lower than they had intended to bid!

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Belle River Community Arena v. WJC Kaufman(cont’d)

• Next morning, telegram sent to withdraw bid

• Town accepts bid 1 month later

• Kaufmann reminds them of withdrawal

• Town enters into a contract with next lowest bidder

• Town sues Kaufmann

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Belle River v. Kaufman (cont’d)

• Decision:• At Trial:

• Town knew of mistake so bid not available for acceptance

• No formal refusal, therefore, it had remained open for 60 days

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• Decision:• On Appeal:

• You cannot accept an offer which you know:

• has been made by mistake; and• affects a fundamental term of the

contract, because the mistake means it is not the offer intended

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• Lesson:• A mistake, once you know about it, is

incapable of being accepted because it is not the offer intended

• A mistake, that is fundamental to the bargain, is incapable of being accepted because it is not the offer intended

• No consensus ad idem

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Wilchar v. McMaster / Belle River v. Kaufman

• Problems with the law?

• The Dawn of a New Era

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R. v. Ron Engineering & Construction Ltd.

• Contractors invited to submit bids for the construction of a water and sewage treatment plant located in North Bay

• Bids were to enclose a $150,000 bid deposit

• Instructions to Tenders:• Bidder could withdraw up to tender

closing• Bid deposit was forfeited if bid

withdrawn

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R. v. Ron Engineering & Construction Ltd. (cont’d)

• Ron’s bid was $2,748,000

• Ron’s bid was lowest by $623,000

• Immediately reviewed its bid and found a $750,058 error (price for its own forces or general conditions)

• Bid it intended to submit should have been $3,498,000

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Ron wrote 1 hour after closing:

“Today we submitted our tender for the above project and unfortunately due to the rush of compiling our last figures we omitted to add to our total sum … we would appreciate being given the opportunity to show to you our estimate … and request to withdraw our tender …without being penalized.”

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• Owner refused to allow Ron to withdraw and proceeded to award the contract to Ron

• Ron wouldn’t sign

• Owner retained the bid deposit and awarded to next lowest

• Ron sued for return of bid deposit

• Owner counterclaimed for difference between Ron bid and next lowest bid

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• What does a court do with this?• Trial judge asked:

• Was Ron’s error obvious?• If yes, did error relieve Ron from

liability?

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Price discrepancy:

• Owner’s consultants had previously estimated the job could be done for $2,744,700

• Including profit!

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Price discrepancy:• Trial judge says the price on its face is

reasonable

“I accept the evidence … that this job could have been carried out with proper allowance for profit at this figure and from this I am of the opinion that Ron could have completed this work at a profit”

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• Ron appeals to the Ontario C of A• Appeal court followed Kaufman case

“Kaufmann ought to be applied … The error in question has been found to be, as it obviously was, material and important. It was drawn to the attention almost at once … but the owner proceeded as if the error had never been made”

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“An owner calling for tenders is entitled to be a little skeptical when a bidder, who is the lowest bidder by a very substantial amount, attempts to say, after the opening of tenders, that a mistake has been made. However, when the mistake is proven … the person to whom the tender is made is not in a position to accept the tender”

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• If Court of Appeal had last say …• the law would have been that an owner

is not allowed to accept an offer that contains a mistake (even if the mistake is not obvious and is only pointed out after the fact)

• But the Court of Appeal did not have the last say … the Owner appealed to the SCC

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• What does the Supreme Court of Canada do with this situation?• The SCC says that Kaufmann was different

• Kaufmann withdrew its bid before the Owner took any action

• The Owner was thus unable to accept• In Ron, the Contractor did not comply with

the Instructions to Tenders– Ron was in breach!

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• A “bidding contract” came into existence when it submitted its bid to the owner

• “Contract A”• Tender documents called upon the winner

of the “bidding contract” to execute the “construction contract” - “Contract B”

• By failing to enter the construction contract (“Contract B”), Ron breached Contract A

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And what about the proof of mistake after the fact?• The test of “reasonable evidence of

mistake” must be imposed at the time the tender is submitted and not at some later date

• The rights of the parties crystallized upon the submission of Ron’s bid

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Call for Tenders Bid Acceptance

of Bid

The “Construction Contract”Offer Acceptance

Offer Acceptance

Contract “A”The “Bid Contract”

Contract “B”


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• Lesson:• There are two contracts and submitting a

bid binds you to the first one, “Contract A”

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• Question:• If there are two contracts, and the winning

bidder has made a mistake, what do we do if they try and mitigate their loss by offering to do the work for an amount lower than the next lowest bidder?

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Calgary v. Northern Construction Company Ltd.

• Calgary invited bids for a construction project• Bid documents stated that,

• once all bids had been opened, they would be irrevocable until the successful bidder signed the construction contract

• Northern’s bid was $9,342,000• Next lowest was $395,000 more

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• Northern’s $9,342,000 bid contained a $181,274 error• Please add $181K to our bid; or• Please let us withdraw without penalty

• Mitigation?• Not here. It would change the bid to an

auction

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• Lesson:• A bidder cannot mitigate its error to the

detriment of the owner. • Remember the theory of contract damages

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• Question:• The Owner knows that it wants at least one

of two possible options. Can the Owner put out a call for bidders to bid on both options and reserve a right to select its preferred price?

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Best Cleaners and Contractors v. R

• Federal Government calls for tenders for two-year operation and maintenance contract on an airport in NWT

• Also asked for estimated value for an additional two-year term

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Best Cleaners and Contractors v. R (cont’d)

Best Cleaners Arctic Tower

Contract Period

$948,600(~$4,000)

$952,538

Extension Period

$1,241,890 $1,180,000(~$62,000)

Total for Both Periods

$2,190,490 $2,132,538(~$58,000)

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• Owner called Arctic Tower to confirm if it would enter into 4 year contract

• Did not ask Best Cleaners• Best Cleaners complained – no right to

negotiate• Owner then tried to award 2 year contract to

Arctic Tower

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• Owner argued that it reserved to itself that “privilege”• “the lowest or any tender need not be

accepted”• Court found for Best Cleaners

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The court called this a “sham”

“The owner’s obligation under Contract A was not to award a contract except in accordance with the terms of the tender call”

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• Lesson:• The Owner and Contractor are stuck with

the terms of Contract A

• If the Owner calls a tender for a certain scope of work, it is stuck with that scope of work

• If the Owner is going to consider its “options”, then say so clearly

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• Question:• Owners often state that they reserve the

right to accept a bid in “whole or in part”. Can an Owner select only those portions of the bid that it wants to keep?

Ben Bruinsma & Sons v. Chatham

• Tender Call for sodding and seeding soccer fields at a local college campus

• Ben Bruinsma was the lowest bidder• Part of the scope of work was for the cutting,

rolling and placing seed• City determined it could save money if it

deleted that portion of work from the scope• Once removed, Ben Bruinsma was no longer

the lowest bidder and the contract was awarded to another contractor

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• Ben Bruinsma argued that it was improper to delete one phase without first giving all tenders an opportunity to resubmit a bid price for the new scope

• Court agreed

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• “If a recipient of tenders can unilaterally, without notifying the tenders and giving them the opportunity to revise their bids to take into account a substantial deletion from the specs, then there would not be any reason why the recipient could not go further and delete other items and this practice, in my opinion, could easily make a mockery of the customary tendering procedure”

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• Lesson• An Owner has the obligation to accept

or reject a tender as submitted• If the Owner wishes to select only

certain elements of a tender, it should say so expressly

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• Question:• What role does “local preference” play in

the law of tendering?

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Chinook Aggregates Ltd. v Abbotsford (Mun. Dist.)

• City ran call for tenders for gravel crushing contract

• Public invited to bid but …• City reserved a secret local preference to

itself• The City also had a reservation clause:

• the lowest or any tender will not necessarily be accepted

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Chinook Aggregates Ltd. v Abbotsford (Mun. Dist.) (cont’d)

• Chinook was lowest but lost the tender to a local contractor

• Chinook sued• City argued that it was custom to give a

local preference

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• Trial judge held that it was an implied term of Contract A that all bidders would be treated fairly

• Court of Appeal held that custom cannot override the express or implied terms of a contract

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“… it is inherent in the tendering process that the owner is inviting bidders to put in their lowest bid and that the bidders will respond accordingly. If the owner attaches an undisclosed term that is inconsistent with that tendering process, a term that the lowest qualified bid will be accepted should be implied in order to give effect to that process.”

Kencor Holdings v. Saskatchewan

• Saskatchewan invited bids for bridge construction

• Kencor, a Calgary company, bid $1.7M• Graham, also a Calgary company, but with an

office in Saskatoon, bid $1.8M• Crown bridge branch recommended Kencor• Deputy Minister of Hwys and Transportation

recommended Graham• “it was expedient and in the public interest

to award locally67

Kencor Holdings v. Saskatchewan

• “To maintain the integrity of the tendering process, it is imperative that the low qualified bidder succeed … especially in the public sector”

• “If governments meddle in the process and deviate from the industry custom of accepting the low bid, competition will wane. The inevitable consequence will be higher costs to the tax payer. Moreover, when governments, for reasons of patronage or otherwise, apply criteria unknown to bidders, great injustice follows. Bidders will waste money preparing doomed bids”

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Chinook Aggregates & Kencor

• Lesson:

• The Owner can prefer local bidders but they cannot attach secret terms

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• Question:

• What role does custom play in bid theory? Can an owner ever rely on its discretion and reservation clauses?

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Sound Contracting v. Nanaimo

• City awarded contract to 2nd lowest bidder due to prior litigious experience with lowest bidder

• The difference in bids was only $25,000

• City was convinced the difference in price would still make the 2nd lowest much cheaper in the long run

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Sound Contracting v. Nanaimo (cont’d)

• City relied on its privilege clauses• The Owner reserves the right to reject any or all

tenders; the lowest will not necessarily be accepted

• The City reserves the right to waive informalities in or reject any or all tenders or accept the tender deemed most favourable in the interests of the City

• Awards shall be made on tenders that will give the greatest value based on quality, service and price. Preference to local suppliers.

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Sound Contracting v. Nanaimo (cont’d)

• Sound argued that it was the custom to award to the lowest compliant bidder

• Why else would one tender?

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Elgin Construction Co. v. Russell (Township)

• Township invited bids for the construction of water mains and sewers

• Contained a privilege clause

“The Township reserves the right to reject any and all tenders, and the lowest or any tender will not necessarily be accepted”

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Elgin Construction Co. v. Russell (Township) (cont’d)

• Elgin’s bid was lowest but it provided for a completion time of 52 weeks

• Atomik Construction was the next lowest but it provided for a completion time of 28 weeks

• Township concluded that Atomik’s bid was ultimately the lowest because of savings on supervision

• Contract awarded to Atomik

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• Elgin sued and argued that the industry custom was to award to the lowest tender.

• That is the whole purpose of tendering!

• Township argued that privilege clause was inserted to protect the owner if, for example,

• all bids are too high

• the lowest bidder lacks expertise

• there is an irregularity in the bidding process

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• Court found in favour of the Township

“It is my opinion that no “custom of the trade” can be deemed to qualify the most explicit words of the tender documents namely, that the Township gave itself a privilege”

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• Court found in favour of the Township

“The words of the tender govern and must trump custom”

“To deny this would be to destroy the doctrine that contractual relations between parties are based on their objective manifestations of intent to exchange binding promises”

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Sound Contracting / Elgin Construction Co.

• Lesson:• The words of the tender govern and trump

whatever custom may exist

• Properly worded privilege clauses are capable of succeeding

• Remember – “parties legislate for themselves a miniature legal system by and under which they are governed”

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• Question:• Can an owner use its discretion or privilege

clause to award a contract to a qualified bid?

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MJB Enterprises Ltd. v. Defence Construction

• Owner called for tenders for construction of pump house

• Part of work was for supply and installation of pipe and then backfilling trenches used for laying pipe

• Original bid documents asked for bid price of 3 types of backfill (native, gravel or concrete slurry)

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• Amended bid documents and asked for best price for whatever owner chooses

• 3 of 4 bidders provided their best price

• Sorochan qualified its price

• One price for native or gravel backfill

• Another for concrete slurry

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• Sorochan was the lowest bid … albeit qualified

• MJB sued on the basis that, had Sorochanbeen disqualified, MJB would have been lowest bidder and won

• Owner relied on its privilege clause that,

“the lowest or any tender shall not necessarily be accepted”


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• Trial and Court of Appeal agreed with the Owner

• Owner’s privilege clause gave it a full defence

• MJB appealed to the Supreme Court of Canada … and won!

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• The issue on appeal was whether the privilege clause was broad enough to allow an owner to accept a bid that did not conform to the tender documents

• SCC upheld Ron Engineering

• Contract A, in Sorochan’s case, was really a counter-offer and, therefore, not Contract A … it was something else

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• The language in the tender documents implicitly meant that,

• “the lowest or any (compliant) tender shall not necessarily be accepted”

• it did not allow Owner to select a non-compliant tender

• if Owner wanted to reserve to itself the ability to select a non-compliant bid, its tender documents should have said so expressly

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• Lesson:• The words of the tender govern and should

be carefully chosen

• Unless Contract A expressly allows for an Owner to select a non-compliant bid, the Owner can only accept compliant bid

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• Question:• What exactly is this whole concept about

“non-compliance”?

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“Non- Compliance”

• What is “non-compliance”?

• Problem with the bid submitted:

• late

• missing bond or other security

• missing information about names of subcontractors

• mathematical errors make bid price unclear

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“Non-Compliance” (cont'd)

• What happens to a “non-compliant” bid?

• General rule is that a “non-compliant” bid should be disqualified

• Only compliant bids can be considered by the owner in M.J.B. Enterprises

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“Non-Complaince” (cont'd)

• What is test of “non-compliance”?

• Now “Substantial Compliance”

• Concern is “material non-compliance”

• i.e. does the “flaw” really matter?

• Does it give a bidder an unfair advantage?

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North America Construction v. York Region

• Region allowed one bidder to submit a tender package without attaching all of the drawings that had been called for in the bid

• The Court held that the “omission” did not matter to the outcome of the bid – therefore the bid was “substantially compliant”

• There was no advantage to one bidder over the other.

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The “Discretion” Clause

• Owners try and address non-compliance with a “waiver” clause:

“Owner has right to waive minor errors, omissions or irregularities in the bid …”

• Still begs the question: what’s “minor”?

… which leads to …

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The “Discretion Clause” (cont'd)

… the “Ultimate Discretion Clause”:

“The Owner may, in its sole discretion, reject or retain for its consideration Tenders which are non-conforming because they do not contain the content or form required by the Instructions to Tenderers or for failure to comply with the process for submission set out in these Instructions to Tenderers”

Does this actually work?

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“Mistake” versus “Non-Compliance”

• Mistake• Central issue in Ron Engineering• Unless mistake is obvious, Owner can

accept bid• Non-Compliance

• Central issue in M.J.B. Enterprises• Implied term of Contract A that

non-compliant bids must be rejected• What happens when the two meet?

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“ESCAPING” from the Non-Compliant Bid

• Graham Industrial Services Ltd. v. Greater Vancouver Regional District (2004 B.C.C.A.)• Bidder made a mistake in bid and wanted

out• Bid was non-compliant so no Contract A

arose• Owner could not use discretion clause in

Contract A to waive non-compliance and force contract

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“CATCHING” The Non-Compliant Bid

• Kinetic Construction Ltd. v. Comox-Strathcona (Regional District) (2004 B.C.C.A.)• Owner had wide discretion clause in tender

documents (see “Ultimate Clause”)• Owner chose qualified (non-compliant) bid

over compliant bid

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“CATCHING” The Non-Compliant Bid

Kinetic Construction …• Court considered non-compliant bid

“counter-offer” capable of acceptance by Owner, but didn’t give rise to Contract A

• Contract A containing discretion clause did arise with compliant bidders

• Discretion clause permitted consideration of non-compliant bid so no breach of Contract A by Owner by choosing non-compliant bid

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WAIVING “NON-COMPLIANCE”

The “Dilemma”:• How do you reconcile these two cases?• Can an owner waive non-compliance or not?• Is acceptance ultimately up to the contractor?

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Owner

Bidder 1 Bidder 2

NON-COMPLIANCE AND CONTRACT “A”

Non-compliantBid

Compliant Bid

No Contract “A” Contract “A”

“Owner can acceptnon-compliant bids”

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• Question:• How much non-compliance can you

waive???

102

Maystar v. Town of Newmarket

• Town invited pre-qualified contractors to bid on a new recreational facility

• Town read all bids at the bid opening but only read aloud the total price (i.e., the fixed fee plus the GST)

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• Maystar’s total bid was lowest at $35,524,000

• Bondfield’s bid was the third lowest at $35,874,960

• Each bid at opening ceremony was said to be unofficial until reviewed by the bid review committee

• A discrepancy in the Bondfield price?

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1.1 We, if notified, will provide all materials and perform all work for:

Thirty-three million Five Hundred twenty-eight ($33,000,528) 00 Dollars Plus GST

1.1.1 GST is

Two million Three Hundred Fort-six thousand nine hundred sixty ($2,346,960) 00 Dollars

1.1.2 Total (Stipulated Price + GST) is

Thirty-five million eight hundred Seventy-four thousand nine hundred sixty ($35,874,960) 00 Dollars

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Bid Scenario 1 Scenario 2

$33,000,528 $33,000,528 $33,528,000

$2,346,960 $2,310,036.96 $2,346,960

$35,874,960 $35,310,564.96 $35,874,960

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The issue was certainty of Bondfield’s price• All arithmetic extension calculations will be

checked to ensure they are correct

• Where there are obvious or patent errors such as misplaced decimals, the Owner shall consider the intent of the bidder

• The bidder acknowledges that the Owner shall have the right to reject any, or all, bids for any reason, or to accept any bid, which the Owner in its sole unfettered discretion deems most advantageous to itself

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• The Owner hereby reserves the right, privilege, entitlement and absolute discretion, and for any reason whatsoever to:

• Accept a bid which is not the lowest;

• Accept the bid deemed most favourable;

• Waive any informalities, requirements, discrepancies, errors, omissions, or any other defects or deficiencies in any bid form or bid submission

• Accept or reject any unbalance, irregular, or informal bids

108


What to do with the Bondfield bid?• The Committee reviewed the case law:

• Vachon – BC Court of Appeal decided that a bid must not be accepted when the price is not certain

Four hundred and eighty-eight thousand four hundred and fifty dollars ($492,450)

109


What to do with the Bondfield bid?• The Committee reviewed the case law:

• Bradscot – Ontario Court of Appeal decided the stipulated price is the base bid price and what follows is simply a GST calculation using the amount set out as the base bid price

110


111


• The Committee followed the Ontario Court of Appeal Bradscot decision (along with the Town’s bid documents) and determined that Bondfield intended to bid a base price of $33,000,528

• The Committee recommended to the Town that it award the contract to Bondfield

• Bondfield did sign for $33,000,528

112


Maystar sued• Maystar argued that Bondfield’s bid contained two

competing and inconsistent prices and, therefore, the Bondfield bid should have been rejected

• The Town argued that the operative price was the base bid price which was written clearly in both words and numbers (unlike Vachon) and that the Town had all of the powers it reserved unto itself as set out in the bid documents

113


• The Court found that price is fundamental

• Bradscot was different because the Town’s bid documents were set out in such a way that, unlike Bradscot, both GST and total bid amounts were important components

• Also followed Ottawa v. Canvar which dealt with a discrepancy between the base bid price and the bid bond (5% of the bid price)

114


• Damned if you do? …

• The Town followed what they thought was a clear precedent decision from our own Court of Appeal. They were sued as a result.

• Had they awarded the contract to Maystar, they very may well have been sued (and possibly lost) to Bondfield

Question: Could the Town have started all over?

115


• Lesson:• Price is always a fundamental term

• Fairness is the ultimate goal

• The words of the tender govern and should be carefully chosen

• Get rid of unnecessary parts like GST

116


• Question:• What issues arise when comparing one bid

to the next?

117

Martel Building v Canada

• Atomic Energy Control Board• Ten year lease was set to expire• Martel met with Government about

renewing lease• Government issued a call for tenders

instead of renewing• Martel bid• Wide discretion clauses including the right

to add to the bid price the estimated tenant fit up costs

118

Martel Building v Canada (cont’d)

• Martel submitted the lowest of the four bids but lost to another

• In assessing the bid, Government added $1,000,000 for fit up costs and another $60,000 for a security card system

• No other bidder had the cost of a security card system added to their bid

• The Government’s additional costs meant Martel was now second lowest

119


• Martel argued all the way to the SCC

• It argued that it should not have had the security card system added to its bid

• It also argued that it should have been given credit for recent improvements it made to its building to entice the Government to renew lease

120


• SCC found an implicit obligation on Owners to treat bidders fairly and equally

• fit-up costs were fair and equal

• security card system was not fair and not equal

• there was not even any mention of it in the bid documents

121


• Martel won the point

• Lost the battle

• It would have still finished in second place

122


• on the issue of credit …“Martel is essentially asking to be given special treatment based on its previous relationship with the Department. That would give Martel an unfair advantage over the other bidders. The Department acted properly in disregarding any past or planned improvements”

123


• Lesson:• There is an implied duty to treat all

bidders fairly and equally

• Fairness and equality works both ways

124


• Question:• How much detail must the bid documents

contain?

125

Elite Bailiff Services Ltd. v. British Columbia

• Call for tenders on bailiff services

• Not an ordinary tender because skill and trustworthiness played a role in evaluation criteria

• Subjective evaluation

• Elite lost by narrow margin in evaluation

• Elite argued a “secret preference” for past experience

126


• Elite and BC enjoyed divided success• There was not a secret preference

• Do not need to put the precise weight of each point being evaluated – it could go on into infinitesimal detail

• BUT, an incumbent preference is contrary to the spirit of the tendering process and skews marks in favour of those with previous experience

• Indirect unfairness because a bidder with no prior experience could never score those pre-determined points

127


• Lesson:• There is an implied duty to treat all

bidders fairly and equally and avoid any indirect evaluation criteria that would undermine that spirit

• Damages may be capped by a limited liability clause

128


• Question:• We’ve seen a limitation of liablity clause

work. Does an “exclusion” of liability clause work?

129

THE “EXCLUSION OF LIABILITY” CLAUSE

• Tercon Contractors Ltd. v. B.C.• Involved request for proposal for

construction of a highway in northern B.C.• Successful “bidder” had joined forces in

joint venture with outside contractor after pre-qualification but before submission of proposal

• Runner-up sued for breach of Contract A

130

THE “EXCLUSION OF LIABILITY” CLAUSE (cont'd)

Tercon Contractors Ltd. v. B.C. …• “no Proponent shall have any claim for any

compensation of any kind whatsoever, as a result of participating in this RFP …”

• Owner committed a “fundamental breach” by accepting an ineligible proponent’s bid

131


Tercon Contractors Ltd. v. B.C. …• Wording of exclusion clause not clear

enough to cover circumstances• Trial judge held that Owner couldn’t rely on

clause, awarded $3.3M in damages

132


• Tercon Contractors Ltd. v. B.C.• On appeal, court held exclusion clause

was clear and unambiguous• Court considered parties to be on roughly

equal footing• It is up to the major contractors to act … if

they don’t like the clause, they shouldn’t bid on such jobs

133


• Tercon Contractors Ltd. v. B.C.• On appeal, Supreme Court split 5-4• Minority agreed exclusion clause was clear

and unambiguous• Majority held that wording didn’t cover the

circumstances – needed better wording to work

• Whole court agreed that “fundamental breach” shouldn’t apply

134


• Tercon Contractors Ltd. v. B.C.• But court still has the ability not to enforce

the clause if “unconscionable” or “against public policy”

• For majority, principles of fairness and the integrity of the process may still have overridden clause, no matter how clearly written

135

• Lesson• Tension created by desire to preserve fairness

and integrity of the bidding system and recognition of express terms of “bidding contract”

• Courts are leaning towards allowing freedom of contract and broad discretion, but:

• must be clear

• must be fair

• Still may not be upheld if “unconscionable”

136

• Question:• How much policing is required in the tendering

process?

137

Double N Earthmovers v. Edmonton

• 30 month contract to supply equipment and services to move refuse to a waste disposal site

• All equipment to be 1980 or newer

• Provide serial numbers of equipment and City license for same

• Sureway said its dozers were from 1980

• Serial numbers and license showed it had dozers from 1977 and 1979

• Sureway won and City negotiated for better price as permitted to do so under the bid documents

138


• Meanwhile, Sureway said it had explored all avenues and that City was stuck with Sureway’s old dozers

• City decided to just let it die peacefully

• Double N complained and sued

• Claimed it was a mere representation, not a promise to comply

• Claimed it amounted to bid shopping

• Claimed deceit

• Double N lost at trial, lost unanimously on appeal, and took the case to the SCC

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• Double N lost at SCC but only by a 5-4 split decision. SCC found:

• that there is always a commitment to comply

• no evidence of bid shopping – the City and lowest bidder were permitted to negotiate under the Contract

• no deceit on the part of the City and anything that happened after the contract award was a matter of Contract B for which Double N (nor anyone else who only had a Contract A) were privy

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• Lesson:

Parties to Contract B might be subject to constant surveillance and scrutiny of other bidders, challenging any deviation from the original terms of Contract A; thereby ultimately frustrating the bidding industry generally, and introducing an element of uncertainty to Contract B

SCC

Changes / Bid Shopping

• Stanco Projects Ltd. v. British Columbia (Ministry of Water, Land and Air Protection), [2004] B.C.J. No. 1644

• Owner reduced scope of project before award and sought credit from bidders

• Award to other than lowest original bidder amounted to “bid shopping” and was breach of duty of fairness

• Should have awarded and proceeded as change to construction contract


• Port Hawkesbury (Town) v. Borcherdt Concrete Products Ltd., 2008 NSCA 17 (CanLII)• Bidder submitted the only bid received

• Bid price was 59% over budget

• Before terminating bid process with Bidder, Town “shopped” supply-only price and acted as general contractor


Port Hawkesbury (Town) …• Bidder awarded damages for “lost”

Contract B

• Appeal Court discounted damages by 35% to account for possibility of Contract B not being awarded

• Shows Owner must conclude dealing with bidders before moving to other options


• Amber Contracting Ltd. v. Halifax (Regional Municipality) (June 2008)

• Owner re-tendered on same specs after first tender over budget

• New bidder joined original three bidders in second round

• “Winner” of first tender found to have been unfairly treated


• Amber Contracting Ltd. v. Halifax (Regional Municipality) (C of A - October 2009)

• “Privilege clause” allowed owner to cancel, so owner wasn’t in breach of Contract A by cancelling an re-tendering later

• Minority judge disagreed and thought conduct was unfair


• How to avoid risk of claims:

• Cancel current process, re-evaluate project and make changes, re-tender

• Question:• We have a clause that the Owner indemnifies

us from any liability or harm. Are we protected?

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Edgeworth Construction v. N.D. Lea

• Edgeworth successfully bid on a road building contract in B.C.

• Edgeworth alleged that it lost money on the job because drawings and specs were erroneous.

• Edgeworth sued the Consultants

148


• N.D. Lea first asked the court to dismiss the action on the basis that there was no chance of success

• The Court Agreed• The only claim was against the province

• Edgeworth appealed

149


• On appeal, Edgeworth argued that:• The Construction Contract with B.C.

contained a clause that waived any liability for any reports that the province commissioned or furnished.

• That clause only waived B.C.’s liability – it did not absolve the engineers of their negligence

• Edgeworth won!150


• Negligent misrepresentation arises• where a person makes a representation

knowing that another may rely on it;• where the person DID rely on it; and• they did so to their detriment

• The contract between the Edgeworth and B.C. did not absolve the Engineer’s duty of care

151


• The Engineers’ work did not cease to be their representation even though their representations were, in theory, the province’s once incorporated into the tender package

• Edgeworth relied on the accuracy of the design to the same extent before and after it entered into the contract

152


“If N.D. is correct, then those bidding on contracts will be obliged to do their own engineering. In a typically short period for bid preparation – here, 2 weeks – it is impossible to think that Edgeworth could have done what took N.D. 2 years to complete …”

153


“Moreover, each bidder would have to hire its own engineers and repeat a process already undertaken by the owner. The result would be higher costs which would be reflected in higher bid prices and, ultimately, higher costs for the public …”

154


“From a practical standpoint, it makes more sense for one firm to do the engineering work, which the contactors in turn are entitled to rely upon, absent any disclaimers or limitations on the part of the engineering firm…”

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• Lesson:• Careful drafting and review of Contract• The Engineering firm could have taken

measures to protect itself from the liability in question by placing a disclaimer on the design, requiring a supervisory role for itself or by acquiring the appropriate level of insurance.

156

• Question:• How careful is careful?

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The million dollar comma

“… This agreement shall be effective from the date it is made and shall continue in force for a period of five (5) years from the date it is made, and thereafter for successive five (5) year terms, unless and until terminated by one year prior notice in writing by either party.”

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The million dollar comma

“… This agreement shall be effective from the date it is made and shall continue in force for a period of five (5) years from the date it is made, and thereafter for successive five (5) year terms, unless and until terminated by one year prior notice in writing by either party.”

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Tender vs. RFPs

• What’s the difference?

The Tender Process

• When is it appropriate?

• Competitive pricing is desired

• Large degree of certainty is possible

• Design is complete

• Objective assessment of bids possible

The Tender Process

• The legal principles…

• Contract A/Contract B process

Call for Tenders Bid Acceptance

of Bid

The “Construction Contract”Offer Acceptance

Offer Acceptance

Contract “A”The “Bid Contract”

Contract “B”The Tender Process

The Tender Process


• Contract A/Contract B process

• Owner cannot choose based on undisclosed preferences

• Subject to express terms to the contrary, implied contractual duty on Owner to reject non-compliant bids

The Tender Process• The legal principles…

• Privilege Clause and Discretion Clause provides limited flexibility

• With pre-qualification, bid award should generally be based solely on price

• Owner should award construction contract as bid without changes

• Little or no negotiation carried out

“Duty of Fairness” - Tender


• Duty on Owner to treat bidders fairly

= implied contractual term of Contract A

• If no Contract A…no “free-standing duty of fairness”

The RFP Process


• Competitive proposals are desired, but not just on price:

• Team• Financial Terms• Design

• Elements of project are not finally determined and Owner looking for innovation and creativity

The RFP Process


• Owner may have developed “Statement of Requirements” or “Outline Specification”

• Both subjective and objective evaluation of proposals are required

• Negotiation of final deal contemplated from outset

The RFP Process

• What legal rules apply?

Request for Proposals Proposal Acceptance

of Proposal

The “Contract”

AcceptanceInvitation Offer

No Contract “A”The “RFP Process”

No Contract “B”

The RFP Process

The RFP Process

• How do you tell the difference between and RFP and a Tender?

• Not always easy to tell, especially with “hybrids”

• KEY QUESTION: Did parties intend to create “Contract A”?

“Duty of Fairness” - RFP

• In spite of there being no Contract A, Owner is not free to act as it chooses

• Must be mindful of obligation under RFP process to run a “fair process” in absence of “Contract A”

• Questions?

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