Tendering: Fair or Just Frustrating?

Over the past 25-30 years the tendering process has undergone an evolution that has seen some dramatic shifts in the legal analysis.

This started in 1981 with the Supreme Court of Canada’s decision in Ron Engineering case that established the Contact A (the contract formed by the tender document and responsive bid) - Contract B (the actual construction contract) analysis. This was the high-water mark for owner rights as the court held that the owner can unilaterally set the terms of Contract A in the tender documents and there were very few obligations placed on the owner. The owner had the ability to insert a privilege clause in the tender documents allowing refusal of the lowest bid.

The pendulum swung in 1999 when the Supreme Court of Canada in MJB Enterprises held that it was an implied term of Contract A that only compliant bids would be accepted and that all bidders would be treated fairly.

This requirement to treat bidders fairly has been affirmed in BC where the courts have concluded that the refusal to accept the low bidder must be exercised fairly, objectively and in good faith, although it gave owner’s greater discretion to refuse a compliant low-tender bid.  But the question has arisen:  can an owner in fact accept a non-compliant tender?

FACTS
In Tercon Contractors Ltd. v. British Columbia (Transportation and Highways) the project was the construction of 25 kilometres of highway in Northern British Columbia. The Ministry of Transportation and Highways (“MOTH”) issued a request for proposals (“RFP”) that contained an exclusion clause (which has the same effect as a privilege clause) that reads:
Except as expressly and specifically permitted in these Instructions to Proponents, no Proponent shall have any claim for any compensation of any kind whatsoever, as a result of participating in this RFP, and by submitting a proposal each proponent shall be deemed to have agreed that it has no claim.

Tercon submitted a compliant bid, while a bid by another contractor, Brentwood, was non-compliant. MOTH eventually awarded the contract to Brentwood. Tercon sued.


ISSUE
Was MOTH able to accept a non-compliant bid?

DECISIONS
The BC Supreme Court decided that the exclusion clause did not permit the acceptance of a non-compliant bid. Rather, they held that MOTH fundamentally breached Contract A, the tendering contract, in two ways: first by accepting a non-compliant bid, and second by treating Tercon unfairly by awarding Contract B, the construction contract, to the non-compliant bid. The BC Supreme Court said:
This attacks the essence of the tender documents, that is, to ensure that only compliant bids are accepted.  It attacks the underlying premise of the process to ensure fair competition.  It denied the plaintiff any potential benefit from contract A.

The BC Court of Appeal, however, overturned the Supreme Court decision and found that the exclusion clause did allow MOTH to accept a non-compliant bid since the wording of the exclusion clause was so clear and unambiguous that it was inescapable that the parties intended it to cover all defaults, including fundamental breaches. The fact that it may undermine the tender process did not, in the Court of Appeal’s opinion, was up to the construction industry to address:
If the major contractors refuse to bid on highway jobs because of the damage to the tendering process, the Ministry’s approach may change. Or, the industry may be prepared to accept that the Ministry wants to avoid suits for Contract A violations, and the contractors will continue to bid in the hope that the Ministry acts in good faith.

LESSON - CONTRACTORS
Read the RFP carefully to ensure what is or is not allowed by the privilege and/or exclusion clauses before you decide whether to incur all of the costs required to bid.

LESSON FOR OTHERS ISSUING RFPs
Consider drafting the RFP to give yourself enough discretion to choose which bid you want, regardless of whether it is the lowest or even compliant.

NOTE: This article was written by Robert G. Kuhn and Ian C. Moes, lawyers who practice in construction law at the law firm of Kuhn LLP. It is only intended as a guide and cannot cover every situation. It is important to get legal advice for specific situations. If you have questions or comments about this case or other construction law matters, please contact us at 604-864-8877.