Post on 20-May-2018
Ontario Association of Architects
2016 Admission Course
Bid Theory and Practice
Michael SwartzWeirFoulds LLP
November 12, 2016
Outline
• Basic Principles
• Tender v. RFP
• Architect’s Role in Tender Process
• Our Court Process as a Compass
• Contract Law – The Building Blocks
• Bid Theory in Practice
• Historical Context
• Case Studies
• Questions2
Basic Principles – Tendering
• Competitive procurement method used
to acquire goods, services and works
• open to all qualified and interested bidders;
• advertised or by invitation;
• objective qualifications/criteria;
• clear technical specs;
• clear/objective evaluation criteria; and
• normally awarded to the lowest contract
value, without contract negotiations3
Basic Principles – RFP
• Also competitive procurement process
and still …
• open to all qualified and interested
proponents;
• advertised or by invitation;
• objective qualifications/criteria;
4
Basic Principles – RFP
• Also competitive procurement process
but
• clear and objective evaluation criteria
based on subjective tastes;
• typically involves more than just “price”;
• normally awarded to best “concept”;
• awarded the opportunity to negotiate rather
than the outright contract
5
Basic Principles – Tendering and RFP
• Tender Calls and RFPs often share
other common traits
• deadline for submissions fixed;
• security;
• addenda or information requests;
• bid or proposal opening;
• review committee (using “rules”);
• committee recommendation; and
• award6
Basic Principles –
Role of Architect in Bidding/Tendering
• After going through your own RFP
process and design work …
• determining best project model;
• determining criteria;
• ability to meet project scope
• ability to staff appropriately
• experience
• reputation
• financial stability
• references7
Basic Principles –
Role of Architect in Bidding/Tendering
• After going through your own RFP
process and design work …
• put together and arrange bid documents;
• bid instructions;
• addenda or response to information
requests;
• bid opening;
• bid review and analysis; and
• recommendation for award8
Basic Principles – Our Court System
• 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 preparation9
Basic Principles – Our Court System
• The Rules (Law) of Tendering
• Common Law (aka Judge-made Law)
• Binding Authority
• Persuasive Authority
• Regulation
• Procurement by-laws
• Some judicial interpretation
10
Basic Principles – Our Court System
• Court Hierarchy
11
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 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.”
12
Basic Principles – Contract Law
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.
13
Basic Principles – Contract Law
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.
14
Basic Principles – Contract Law
• 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?
15
Basic Principles – Contract Law
• When do you have a binding contract?
The Five Elements
• Offer
• Acceptance
• Consideration
• Capacity
• Other Particular Legal Requirements
16
Basic Principles – Contract Law
• 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.
17
Basic Principles – Contract Law
• 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
18
Basic Principles – Contract Law
• What do you claim?
• Monetary Damages
• Specific Performance
• Injunction
• Declaratory Order
19
Basic Principles – Contract Law
• On what basis do you defend?
• There was no breach;
• Waiver of damages;
• Limitation of Liability;
• Failure to mitigate damages;
• Plaintiff is in breach (Counterclaim)
20
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
21
22
Basic Principles – 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 the
lands and premises for the sum of £800
PS – This offer to be left open until Friday,
June 12, 1874
23
Basic Principles – 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
24
Basic Principles – Dickinson v. Dodds
• Question:
Was there an enforceable
contract between Dickinson and
Dodds?
25
Basic Principles – Dickinson v. Dodds
• 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
Basic Principles – Dickinson v. Dodds
• Applying Dickinson v. Dodds to the Law
of Tendering
• Timing
• Terms
• Offer
• Acceptance
• Fairness
26
27
Bid Theory in Practice
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)
28
McMaster v. Wilchar Construction
• $185,613 bid price left only $10,000 for
profit and overhead
• Would have lost money
• Owner says, “too bad”
29
McMaster v. Wilchar Construction
• 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
30
McMaster v. Wilchar Construction
• Bid Theory:
• 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)
31
Bid Theory in Practice
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!
32
Belle River Community Arena v. WJC Kaufman
• 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
33
Belle River Community Arena v. WJC Kaufman
• Decision:
• At Trial:
• Town knew of mistake so bid not
available for acceptance
• No formal refusal, therefore, it had
remained open for 60 days
34
Belle River Community Arena v. WJC Kaufman
• 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
35
Belle River v. Kaufman (cont’d)
• Bid Theory:• 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
36
Wilchar v. McMaster / Belle River v. Kaufman
• A flaw with the law?
• A New Era in Bid Theory Begins
37
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
38
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
39
R. v. Ron Engineering & Construction Ltd. (cont’d)
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.”
40
R. v. Ron Engineering & Construction Ltd. (cont’d)
• 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
41
R. v. Ron Engineering & Construction Ltd. (cont’d)
• What does a court do with this?
• Trial judge asked:
• Was Ron’s error obvious?
• If yes, did error relieve Ron from
liability?
42
R. v. Ron Engineering & Construction Ltd. (cont’d)
Price discrepancy:
• Owner’s consultants had previously
estimated the job could be done for
$2,744,700
• Including profit!
43
R. v. Ron Engineering & Construction Ltd. (cont’d)
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”
44
R. v. Ron Engineering & Construction Ltd. (cont’d)
• 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”
45
R. v. Ron Engineering & Construction Ltd. (cont’d)
“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”
46
R. v. Ron Engineering & Construction Ltd. (cont’d)
• 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
47
R. v. Ron Engineering & Construction Ltd. (cont’d)
• 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!
48
R. v. Ron Engineering & Construction Ltd. (cont’d)
• 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
49
R. v. Ron Engineering & Construction Ltd. (cont’d)
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
50
Call for
TendersBid
Acceptance
of Bid
The “Construction Contract”
Offer Acceptance
Offer Acceptance
Contract “A”
The “Bid Contract”
Contract “B”
R. v. Ron Engineering & Construction Ltd. (cont’d)
51
R. v. Ron Engineering & Construction Ltd. (cont’d)
• Bid Theory:
• There are two contracts:
• “Contract A” and “Contract B”
• Submitting a bid binds you to “Contract A”
52
• Question:
• If there are two bidders, and the winning
bidder has made a mistake in its “Contract
A”, can the mistaken bidder correct its bid?
• Can it help the Owner mitigate to a win/win
solution?
53
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
54
Calgary v. Northern Construction Company Ltd.
• 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
55
Calgary v. Northern Construction Company Ltd.
• Bid Theory:• A bidder cannot mitigate its error to the
detriment of the owner
• A bidder cannot mitigate its error even if it
is still the lowest bidder
• Remember the theory of contract damages
56
• 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?
57
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
58
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)
59
Best Cleaners and Contractors v. R (cont’d)
• 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
60
Best Cleaners and Contractors v. R (cont’d)
• Owner argued that it reserved to itself that
“privilege”
• “the lowest or any tender need not be
accepted”
• Court found for Best Cleaners
61
Best Cleaners and Contractors v. R (cont’d)
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”
62
Best Cleaners and Contractors v. R (cont’d)
• Bid Theory:
• The Owner and Contractor are BOTH
bound to the terms in “Contract A”
• If the Owner calls a tender for a certain
scope of work, it is “stuck” with the scope
of work
• If the Owner is going to consider its
“options”, then must say so clearly
63
• 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 contractor64
Ben Bruinsma & Sons v. Chatham
• 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
65
Ben Bruinsma & Sons v. Chatham
• “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”
66
Ben Bruinsma & Sons v. Chatham
• “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”
67
Ben Bruinsma & Sons v. Chatham
• Bid Theory
• 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
68
70
Chinook Aggregates Ltd. v Abbotsford
• 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
71
Chinook Aggregates Ltd. v Abbotsford
• Chinook was lowest but lost the tender to a
local contractor
• Chinook sued
• City argued that it was custom to give a
local preference
72
Chinook Aggregates Ltd. v Abbotsford
• 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
73
Chinook Aggregates Ltd. v Abbotsford
“… 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.”
74
Chinook Aggregates Ltd. v Abbotsford
“… 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.”
75
Chinook Aggregates
• Bid Theory:
• The Owner can prefer local bidders but
they cannot attach “secret” terms
• If your Owner wants a local preference,
be sure to include clear language in the
Instructions to Tenderers
77
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
78
Sound Contracting v. Nanaimo (cont’d)
City relied on its privilege clauses
• Owner reserves the right to reject any or all
tenders; the lowest will not necessarily be
accepted.
• Owner reserves the right to waive
informalities in or reject any or all tenders or
accept the tender deemed most favourable.
• Awards shall be made on tenders that will
give the greatest value based on quality,
service and price. Preference to local
suppliers.
79
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?
80
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”
81
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
82
Elgin Construction Co. v. Russell (Township) (cont’d)
• 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
83
Elgin Construction Co. v. Russell (Township) (cont’d)
• 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”
84
Elgin Construction Co. v. Russell (Township) (cont’d)
• 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”
85
Sound Contracting v. Nanaimo (cont’d)
• Court found in favour of the Nanaimo
• There was legitimate business
considerations
• Applied objectively and with merit
86
Sound Contracting / Elgin Construction Co.
• Bid Theory:
• 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”
87
• Question:
• Can an owner use its discretion or privilege
clause to award the contract to a qualified
bid?
88
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)
89
MJB Enterprises Ltd. v. Defence Construction
• 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
90
• Sorochan was the lowest bid … albeit
qualified
• MJB sued on the basis that, had Sorochan
been 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”
MJB Enterprises Ltd. v. Defence Construction
91
MJB Enterprises Ltd. v. Defence Construction
• 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!
92
MJB Enterprises Ltd. v. Defence Construction
• 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
93
MJB Enterprises Ltd. v. Defence Construction
• 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
94
MJB Enterprises Ltd. v. Defence Construction
• Bid Theory:
• 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
• Pay particular attention to wording
96
“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
97
“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 (M.J.B. Enterprises)
98
“Non-Complaince” (cont'd)
• What is the test for “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?
99
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.
100
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 …
101
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?
102
“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?
103
“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
104
“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
105
“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
106
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?
107
Owner
Bidder 1 Bidder 2
NON-COMPLIANCE AND CONTRACT “A”
Non-compliant
Bid
Compliant Bid
No Contract “A” Contract “A”
“Owner can accept
non-compliant bids”
109
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)
110
Maystar v. Town of Newmarket
• 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?
111
Maystar v. Town of Newmarket
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
112
Maystar v. Town of Newmarket
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
113
Maystar v. Town of Newmarket
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
114
Maystar v. Town of Newmarket
• 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
115
Maystar v. Town of Newmarket
What to do with the Bondfield bid?
• Review Committee looked at 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)
116
Maystar v. Town of Newmarket
What to do with the Bondfield bid?
• Review Committee looked at 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
118
Maystar v. Town of Newmarket
• 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 intended contract to
Bondfield
• Bondfield did sign for $33,000,528
119
Maystar v. Town of Newmarket
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
120
Maystar v. Town of Newmarket
The Issues …
• What do you make of the GST calculation? Is it
important?
• Were there two prices?
• What is the operative price?
• Arguments in favour of the Town?
• Arguments in favour of Maystar?
121
Maystar v. Town of Newmarket
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)
122
Maystar v. Town of Newmarket
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?
123
Maystar v. Town of Newmarket
• Bid Theory (and Practice):
• 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
• Be alert for documents beyond the bid
documents
125
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
126
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
127
Martel Building v Canada (cont’d)
• Martel argued all the way to the SCC
• It argued:
• that it should not have had the security
card system added to its bid
• that it should have been given credit for
recent improvements it made to its building
to entice the Government to renew lease
128
Martel Building v Canada (cont’d)
• 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
129
Martel Building v Canada (cont’d)
• Martel won the point
• But lost the battle
• It would have still finished in second
place
130
Martel Building v Canada (cont’d)
• 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”
131
Martel Building v Canada (cont’d)
• Bid Theory:
• There is an implied duty to treat all
bidders fairly and equally
• Fairness and equality works both ways
133
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
134
Elite Bailiff Services Ltd. v. British Columbia
• 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
135
Elite Bailiff Services Ltd. v. British Columbia
• Bid Theory:
• 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
136
• Question:
• We’ve seen a “limitation” of liability clause
work
• Does an “exclusion” of liability clause
work?
137
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
138
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
139
THE “EXCLUSION OF LIABILITY” CLAUSE (cont'd)
• 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
140
THE “EXCLUSION OF LIABILITY” CLAUSE (cont'd)
• 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
141
THE “EXCLUSION OF LIABILITY” CLAUSE (cont'd)
• 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
142
THE “EXCLUSION OF LIABILITY” CLAUSE (cont'd)
• 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
143
• Bid Theory
• 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”
145
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
146
Double N Earthmovers v. Edmonton
• 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
147
Double N Earthmovers v. Edmonton
• 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
148
Double N Earthmovers v. Edmonton
• Bid Theory:
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
Rankin Construction v. Ontario
• August 2005 MTO invites tenders for
widening of Highway 406
• 275 pages of tender documents
• Bidders received 10% reduction for steel
that was domestically supplied
• H-Piles – one of the required components
– was not eligible for the reduction
150
Rankin Construction v. Ontario
• Rankin mistakenly included H-Piles as
domestic supplied steel
• Received a 10% reduction for its H-
Piles (~$50,000 reduction)
• Rankin was lowest bid by $1.7M
• Next lowest complained
• MTO investigated and DQ’d Rankin
151
Rankin Construction v. Ontario
• Rankin sued for lost profits in the
amount of $5M
• Contract A was formed;
• There was no right to investigate?;
• Not really non-compliance;
• Too late to “reject”; and
• Exculpatory Clause
152
Rankin Construction v. Ontario
• The Issues
• Was “Contract A” was formed?
• Was there a right to investigate?
• Was this “non-compliance”?
• Was there timely “rejection”?
• Saved by an exculpatory clause?
153
Rankin Construction v. Ontario
• Was “Contract A” formed?
• Yes!
• Tender Documents contemplated that bid
might not be compliant.
• “Tenders not accompanied by a Tender
Deposit in the required amount may be
rejected.”
154
Rankin Construction v. Ontario
• Was there a right to investigate?;
• Yes!
• Looked at Double N Earthmovers;
• Did not have an implied duty to investigate;
• That didn’t mean the Owner was prohibited
from investigating.
155
Rankin Construction v. Ontario
• Nature of the non-compliance;
• “MTO reserves the right to reject any or all
tenders, and to waive formalities as the
interests of the MTO...”
• MTO may, but is not obliged, to waive
informalities
156
Rankin Construction v. Ontario
• Timing of “rejection”?
• 10 days to reject;
• 30 days to accept;
• Rankin was not rejected, rather, it was
ruled to be non-compliant
157
Rankin Construction v. Ontario
• Exculpatory Clause?
• Looked at Tercon;
• Here:
• “MTO shall not be liable for any costs,
expenses, loss or damage incurred,
sustained or suffered by any bidder prior,
or subsequent to, or by reason of the
acceptance or the non-acceptance of bid”.
158
Rankin Construction v. Ontario
• Exculpatory Clause?
• Had MTO simply called off the project,
Rankin would have no claim against MTO;
• Not unconsciounable:
• “MTO objective was to promote integrity of
the tendering process.
• language is clear and covers MTO from a
bidder alleging that a breach had occurred.
159
Bid Theory – Beyond the Contract
• The following apply to consultants
involved in the bidding process
• Bid documents should be prepared
keeping the average bidder in mind, not
one with special knowledge;
• The architect that prepares the bid
documents owes a duty of care to bidders
that will be relying on those documents.
160
Bid Theory – Beyond the Contract
• The following apply to consultants
involved in the bidding process
• Duty is to use reasonable care that
information in docs is reasonably accurate;
• If information has not be verified, duty to
disclose that fact;
• May be liable for negligent
misrepresentation
• Ensure waivers or limitations of liability are
in place, where applicable161
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
162
Edgeworth Construction v. N.D. Lea
• 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
163
Edgeworth Construction v. N.D. Lea
• 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!
164
Edgeworth Construction v. N.D. Lea
• 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
165
Edgeworth Construction v. N.D. Lea
• 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
166
Edgeworth Construction v. N.D. Lea
“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 …”
167
Edgeworth Construction v. N.D. Lea
“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 …”
168
Edgeworth Construction v. N.D. Lea
“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…”
169
• 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.
170
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.”
172
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.”
173