Changes in the Law of Tendering Part 1

An Introduction to Disclosed Criteria, Non-Compliant Bids and The Duty of Fairness

The law of bidding and tendering in Canada has been evolving in recent years. Significantly, these developments have both clarified and expanded the rights and obligations of those who participate in the tender process. These developments should accordingly be of interest to most who work in the construction industry.

In 1981 the Supreme Court of Canada, in R. v. Ron Engineering and Construction (Eastern) Ltd, introduced the concepts of "Contract A" and "Contract B". The Court found that a contract ("Contract A") had arisen upon the tenderer's submission of a valid bid. Pursuant to Contract A, the owner had agreed to accept bids in accordance with the terms of the tender call. In exchange, bidders agreed that the bids were irrevocable and that they would enter into the construction contract ("Contract B"), if it was awarded by the owner. The tender documents further provided that where the bidder withdrew its bid or refused to enter the construction contract on award, it would forfeit its bid deposit.

In Ron Engineering the low bidder refused to enter into the construction contract upon award, citing a mistake in its bid. The owner, knowing of the mistake, refused to return the bidder's deposit upon the refusal. The Supreme Court held that while the owner could not accept a mistake that was obvious on the face of the bid itself, the mistake was not so obvious in the case before it. Accordingly, the owner was entitled to enforce the provisions of Contract A and retain the deposit.

In 1999, the Supreme Court of Canada revisited the law of tendering in MJB Enterprises Ltd. v. Defence Construction (1951) Ltd. At issue was the form of 'privilege clause' found in many tender documents: 'the lowest or any tender not necessarily accepted'. The Court confirmed that Contract A does not automatically arise upon a tender call, but may arise depending on the terms of the tender documents. After finding that Contract A arose in the case before it, the Court in M.J.B. went on to deal with the owner's obligations thereunder. While the owner had argued that it could select a non-compliant bid so long as it had treated bidders fairly, the Court found an implied term that only compliant bids could be accepted. The Court found no support for the proposition that, in the face of the privilege clause, the owner was required to accept the lowest compliant bid. The Court did, however, hold that the owner was required to base its award on criteria disclosed in the tender documents.

In a later case, Martel Building Ltd. v Canada, the Supreme Court of Canada found an implied term obliging the owner to be fair and consistent in its assessment of bids. In the circumstances, it held that the obligation required the owner to treat all bids consistently, to apply assumptions evenly and to avoid 'colourable' attempts to achieve desired results.

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. 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 bids and

• The obligation to act fairly in evaluating the tenders

A discussion of the application of these decisions in recent cases is offered in Part II to this article.

Robert Kennaley practises construction law with McLauchlin & Associates in Toronto. He can be reached by e-mail at kennaley@mclauchlin.com