John Kulik QC
John Kulik QC, Lawyer, McInnes Cooper
Theron Davis
Theron Davis, Articled Clerk, McInnes Cooper
 

Lawyers regularly encourage clients to be proactive and discuss potential issues with third parties before they become real problems. But in the case of tenders after closing, this might not be the best policy. On May 23, 2018, the N.S. Supreme Court decided that by rejecting a submitted bid that was compliant on its face based on subsequent communications between the owner and bidder, the owner breached its duty to treat all bidders fairly and equally. The decision in CF Construction v. Town of Westville serves as an effective reminder to both owners and bidders to be wary in engaging in communications with each other about a bid after it has been submitted but before it has been awarded; doing so can be costly to one or both.

  • Owners might be tempted to be proactive, and to investigate a submitted bid in an effort to avoid a dispute with the bidder, should its bid be accepted, down the road. And while owners are not precluded from investigating a bid, they do not have a duty to do so – and they cannot use the information they get to justify disqualification of a bidder. If the owner subsequently learns that the contractor is unable or unwilling to comply with the terms of the tender, the owner then has the right to fire that contractor, hire the second low compliant bidder and sue the fired contractor for the difference between the amounts of its bid and the second low compliant bid. If the fired contractor were required to provide performance security, the owner could call on that security.
  • Bidders might be tempted to communicate with an investigating owner about possible alternative solutions. But by doing so, the bidder runs the risk of being disqualified by the owner. Even if the bidder successfully sues the owner (as it did in this case), it will still incur both the costs and delays associated with litigation.

In September 2014 the Town of Westville issued a tender call, to which C.F. Construction Limited submitted the lowest bid. The Town, however, received post-bid closing information from CF’s lead estimator which caused the Town to conclude that CF’s lump sum bid price was based on supplying a non-compliant component. In particular, the Town’s engineer called CF to review CF’s bid submission. During that conversation, CF allegedly asked if the Town would entertain the idea of an alternate component to that which was specified in the call for tenders. The Town took from the conversation that CF had priced its bid based on the non-compliant component. Though both witnesses remembered the conversation very differently, the Town relied on that discussion as proof that CF’s bid was non-compliant. A follow-up email from the Town’s engineer to CF asking for clarification and further detail on the non-compliant component led the parties further astray. CF thought this meant the Town was entertaining the idea of an alternate component: however, the Town’s engineer had sent the e-mail to confirm his suspicions that CF’s price was based off a non-compliant component. On this basis, the Town considered it was justified in disqualifying CF’s bid, and awarded the contract to the second lowest bidder. CF sued the Town alleging breach by the Town of the contract formed as a result of the tendering process (Contract A). The N.S. Supreme Court agreed and awarded CF the profit it would have earned had it been properly awarded the contract to do the work (Contract B). CF received $343,745.00 in damages for lost profit.

Compliance at face-value. The Town admitted that when it opened CF’s bid it appeared compliant on its face. It was only through the subsequent communications that the Town grew suspicious, and ultimately awarded the contract to the second lowest bidder. The court decided that the submitted bid was indeed compliant on its face. It was not relevant whether or not CF had priced one of the individual components of its lump sum bid price based on a non-compliant component: Contract A came into existence between the parties when the bid was submitted and CF would have been legally responsible to perform the work in accordance with the specifications in the call for tenders (including the supply of the exact component required in the tender call). Accordingly, the Town breached its duty to treat all bidders fairly and equally.

The court believed the contractor. The Judge ultimately preferred CF’s recollection of the phone call and concluded that CF’s bid price was not based on a non-compliant component. The fact that CF’s lead estimator had procured an estimate for the compliant component from a subcontractor supported this fact. It would defy all logic that CF’s lead estimator had priced their bid based on a non-compliant component for which they had not received an estimate and of which they had no design.

The result would have been the same based on the law, regardless of who the Court believed. However, the Judge confirmed he need not decide the case based on these facts; the law alone was sufficient. In a 2007 Supreme Court of Canada decision, Double N Earthmovers v. Edmonton, the Court decided an owner has no duty – or right – to investigate bids; they must accept bids at face value. Whether the bidder, at the time of tender, is capable of or intends to perform per the tender requirements is irrelevant in light of the bidder’s legal obligation to do so once its bid is accepted. The best way to make sure that all bids receive the same treatment is for an owner to weigh bids on the basis of what is actually in the bid – not subsequent discovered information.

To discuss this or any other legal issue, contact any member of the Construction Law Team @ McInnes Cooper.  Read more McInnes Cooper Legal Publications and subscribe to receive those relevant to your business.

 

About the authors:

John Kulik is an experienced construction and insurance lawyer at McInnes Cooper. He represents a broad range of clients in the construction industry, conducting construction-related litigation and arbitrations and preparing and reviewing construction contracts, with a special focus on construction liens. You can reach John at john.kulik@mcinnescooper.com.

Theron Davis is an Articled Clerk at McInnes Cooper.