Bid Theory and Practice - Ontario Association of … - Bid Theory and Bid Practice...Bid Theory and Practice Michael Swartz WeirFoulds LLP November 12, 2016. Outline ... •Dickinson

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


• The Rules (Law) of Tendering

• Common Law (aka Judge-made Law)

• Binding Authority

• Persuasive Authority

• Regulation

• Procurement by-laws

• Some judicial interpretation

10


• 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


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


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


and under which they are governed.

14


• 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


• When do you have a binding contract?

The Five Elements

• Offer

• Acceptance

• Consideration

• Capacity

• Other Particular Legal Requirements

16


• 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


• 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


• What do you claim?

• Monetary Damages

• Specific Performance

• Injunction

• Declaratory Order

19


• 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


• 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


• Question:

Was there an enforceable

contract between Dickinson and

Dodds?

25


• 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


• 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


• $185,613 bid price left only $10,000 for

profit and overhead

• Would have lost money

• Owner says, “too bad”

29


• 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


• 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


• 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


• 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


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


• 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


• What does a court do with this?

• Trial judge asked:

• Was Ron’s error obvious?

• If yes, did error relieve Ron from

liability?

42


Price discrepancy:

• Owner’s consultants had previously

estimated the job could be done for

$2,744,700

• Including profit!

43


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


• 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


“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


• 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


• 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


• 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


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”


51


• 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


• 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


• 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


• 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


• Owner argued that it reserved to itself that

“privilege”

• “the lowest or any tender need not be

accepted”

• Court found for Best Cleaners

61


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


• 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 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


• “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


• “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


• 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

69

• Question:

• Can the owner have a “local preference”

clause in its bid documents?

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 was lowest but lost the tender to a

local contractor

• Chinook sued

• City argued that it was custom to give a

local preference

72


• 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


“… 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


“… 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

76

• Question:

• Can an owner ever rely on a “discretion”

or “reservation” clause?

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 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 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


• 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


• 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


• 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


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


• 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”


91


• 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


• 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


• 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


• 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

95

• Question:

• What exactly is “non-compliance”?

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”

108

• Class Exercise:

• Just how much non-compliance can you

waive?

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’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


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


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


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


• 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


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)

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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

117


118


• 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 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

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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


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


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


• 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

124

• Question:

• What issues arise when comparing one

submission to another?

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 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


• 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 won the point

• But lost the battle

• It would have still finished in second

place

130


• 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


• Bid Theory:

• There is an implied duty to treat all

bidders fairly and equally

• Fairness and equality works both ways

132

• Question:

• How much detail must the bid documents

contain?

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 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


• 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)


• “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



• 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



• 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



• 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



• 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”

144

• Question:

• How much policing is required in the tendering

process?

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


• 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 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


• 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

• Class Exercise:

• Putting it all together …

149

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 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 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


• 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


• 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


• 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


• 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


• Timing of “rejection”?

• 10 days to reject;

• 30 days to accept;

• Rankin was not rejected, rather, it was

ruled to be non-compliant

157


• 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


• 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


• 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


• 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


• 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


• 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


“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


“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


“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

• Question:

• How careful is careful?

171

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

Questions?

Michael Swartz

Partner

WeirFoulds LLP

416.947.5024

[email protected]

174