TENDERING & PROCUREMENT

BASIC PRINCIPLES

Seema Lal & Vanessa Werden

CCW Panel Event – May 24, 2016

IS IT A TENDER?

Competitive procurement process

Period of irrevocability

Process replaces negotiation with competition

CONTRACT A / CONTRACT B

The fundamental principle of the law of tendering for

construction in Canada is that that method of contract

procurement involves two stages of contractual relationships:

R v. Ron Engineering & Construction (Eastern) Ltd.

a) Contract A, which arises between the tendering authority and each

“materially compliant” bidder, the terms of which are generally as set

out in the tendering documents; and

b) Contract B, which is the tendered contract entered into between the

tendering authority and the successful bidder.

Note: Contract A only arises if bid submission is compliant with

tender documents (MJB Enterprises v Defence Construction)

TENDERING AUTHORITY OBLIGATIONS

Duty to follow express terms of Contract A

Duty to treat all bidders fairly and equally

Duty not to accept non-compliant bid and duty not to accept bid

that has an obvious mistake regarding price

No negotiation with individual bidders

No bid shopping

Note: No duty owed by owner to subcontractor

DUTY OF FAIRNESS

Consider only compliant bids

Treat all bids fairly/equally

Must disclose all evaluation criteria – no hidden preferences

DAMAGES

The Contract A/Contract B analysis means that both the

tendering authority and bidders may be liable for damages if, for

example:

a) an owner purports to award a construction contract to a materially

non-compliant bidder in preference to the lowest compliant bidder;

or

b) a materially compliant bidder refuses to sign a construction

contract and proceed with the work after being awarded the

contract.

PRIVILEGE & DISCRETION CLAUSES

Privilege Clauses

The lowest or any tender will not necessarily be accepted

• Can be invoked if tendering authority has valid objective reason for

rejecting lowest bid

Price + other criteria + best interest can be taken into

consideration

• However, cannot be used to evaluate bids based on undisclosed

criteria

Limited or no liability for treatment of tender (Tercon)

PRIVILEGE & DISCRETION CLAUSES

Discretion Clauses

Permit tendering authority to waive minor defects in a bid that

is otherwise compliant

• However, material non-conformance with tender requirements

cannot be waived

PRACTICE POINTS FOR TENDER

SUBMISSIONS

Have a basic knowledge of tendering law

Read and understand the totality of the procurement

documents

Clarify pre-bid questions using designated process

Quality assurance for tender preparation

Comply with all tender requirements

Common Problems in the Drafting of

Tender Documents

POOR DRAFTING

- Inconsistent provisions

- Inclusion of Contract B provisions

- Unclear or ungrammatical wording

- Inadequately worded privilege clauses

Common Problems…

COUNTER-PRODUCTIVE “PHILOSOPHY”

- Unreasonable privilege clauses

- Complicated tender procedures

- Mixing of negotiation with tendering

Common Problems…

LACK OF KNOWLEDGE, CARE

and ATTENTION TO DETAIL

- Lack of knowledge of tendering law

- Lack of care in setting, understanding and following

tender “rules”

Practice points for tender submissions

1. Have a basic knowledge of tendering law

2. Read and understand the totality of the procurement

documents

3. Clarify pre-bid questions using designated process

4. Quality assurance for tender preparation

5. Comply with all tender requirements

Fact Pattern

The Village of Podunk puts out to tender the construction of a new

municipal swimming pool. The tender documents state that the

lowest tender will not necessarily be accepted; that the Village

may reject any tender which contains an error, omission or

qualification; that the Village can take into account price and

previous work experience in evaluating tenders; and that tenders

are irrevocable (i.e., cannot be withdrawn) for 60 days.

The Village receives two tenders, one from Metallica Contracting

Ltd. in the amount of $300,000 and one from Anthrax

Construction Inc. in the amount of $400,000. The Village needs its

consulting engineer’s advice concerning its rights and

responsibilities in awarding the contract.

Question 1Metallica has submitted a tender with a lower price, and has significantly

more swimming pool construction experience than Anthrax. However, the

price breakdown and the GST shown on Metallica’s Tender Form does not

total the price in Metallica’s bid. What are Podunk’s options?

(a) Podunk can accept Metallica’s tender, because the tender documents

say that the Village may, but not must, reject a tender which contains an

error.

(b) Podunk must reject Metallica’s tender, because a tender which contains

an error relating to the tender price which error is obvious on the face of

the Tender Form is incapable of acceptance.

(c) Podunk can’t accept either tender, because Metallica’s tender has an

obvious error and Anthrax’s tender is a higher price.

Question 2For this question, assume that there is no calculation error obvious on the face of

Metallica’s Tender Form. Instead, assume that four days after the tenders are

opened but before Podunk accepts either tender, Metallica discovers an error in

its calculation of its tender price which has resulted in that price being far less

than it intended. It advises Podunk that it wishes to revoke its tender. What are

Podunk’s options?

(a) Podunk can accept Metallica’s low tender despite the alleged error, since the

error is not obvious on the face of Metallica’s Tender Form and the tender is

irrevocable for 60 days.

(b) Podunk must allow Metallica to revoke its tender, in view of the alleged error.

(c) Whether or not it allows Metallica to revoke its tender, Podunk must accept

Anthrax’s tender, in view of Metallica’s alleged error and the fact that Anthrax is

the only other tenderer.

Question 3

What are Podunk’s options if there is nothing wrong with Metallica’s

tender or work experience, but Podunk would like to award the contract

to Anthrax because of that company’s generous contributions to local

charities?

(a) Podunk can accept Anthrax’s tender for that reason, because the

Village has no positive legal duty to accept Metallica’s tender.

(b) Podunk must accept Anthrax’s tender for the public good.

(c) Podunk can’t accept Anthrax’s tender on the basis of Anthrax’s

charitable contributions, because that was not a factor identified by

the tender documents as applying to the acceptance or rejection of

tenders.

Question 4

What are the Village’s options if its budget has no more than

$250,000 for the construction of the swimming pool project?

(a) The Village can reject both tenders, because it is not required

to award a contract which it cannot afford.

(b) The Village must accept Metallica’s tender, because it is the

lowest price.

(c) The Village must negotiate with Metallica to obtain a lower

price for the reduced scope of work.

Case Law

Following Ron Engineering, three key principles in the law of tendering

emerged:

(a) Only a compliant tender can be accepted by an owner;

(b) The lowest compliant tender should be accepted; and

(c) The owner owes bidding contractors a duty of fairness in

analyzing the tender bids.

Tercon Construction Ltd. v. British Columbia

(Transportation and Highways) 2010 SCC 4

• The application of the Ron Engineering principles was

modified by the inclusion of exclusion clauses or

“privilege” clauses by owners in tendering documents.

• However, an exclusion clause does not give an owner

the ability to accept any bid; a decision to accept a bid

other than the lowest bid must be done in good faith

and based on objective reasons.

Tercon Construction

• The Supreme Court of Canada's decision in Tercon

leaves open the possibility for a properly crafted exclusion

clause to permit an owner to breach a fundamental term

of Contract "A", such as the requirement to only accept a

compliant bid.

• However, the Court stressed that such a result would

require a clear and unequivocal exclusion clause.

Bhasin v. Hrynew, 2014 SCC 71

• This decision of the Supreme Court of Canada

represents a very significant development in the law of

contract in this country, which applies equally to

tendering and other construction-related types of

contract.

• The Court confirmed as a new principle of Canadian

law that all contracting parties have a duty to perform

their contractual obligations honestly, based on the

existence of an implied term of good faith.

How has Bhasin been applied in the context

of tendering?

• Recently cited in a tendering case in the Court of

Queen’s Bench of Alberta in Elan Construction Limited

v. South Fish Creek Recreational Association, 2015

ABQB 330.

• Key take-away: The “duty of good faith” requires more

than honesty. It requires, particularly in the tendering

context, “honest, candid, forthright or reasonable

contractual performance”.

So what does it all mean?

• In the tendering context, the law requires an elevated

standard of good faith and a duty to act honestly in the

performance of contractual obligations.