March 1, 2006
By Owen D. Pawson, Miller Thomson LLP
Ever since the Supreme Court of Canada's important 1999 decision in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., Canadian courts have been trying to come to grips with a key question i...
Ever since the Supreme Court of Canada’s important 1999 decision in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., Canadian courts have been trying to come to grips with a key question in the construction bidding process: when are “bid errors” fatal non-compliances and when are they mere technicalities that can be “corrected” or ignored?
The court’s decision in the MJB case was fairly complex. It established that “Contract A” arises upon submission of a compliant bid, provided it is clear the parties intended to initiate contractual relations by the tender call and submission of a bid. The court determined that the terms of Contract A are described in the tender call and may include implied obligations (e.g. accepting the lowest bid, accepting only compliant bids). The judge also determined that the express language of the tender documents can override implied clauses, provided the tender documents clearly demonstrate a contrary intention.
Several cases since MJB have dealt with situations that involved less serious or less clear-cut “non-compliances.” For consulting engineers who advise their clients on the bidding process, it is useful to see how this drama is playing out.
In 2000, the Newfoundland Supreme Court in Johnson’s Construction Ltd. v. Newfoundland dealt with a bid that was missing one unit price. The omission was minor, but the tender documents provided that, “if any unit price is omitted by the bidder, then the bid shall be considered incomplete and automatically rejected.” The court held that the owner had no discretion to accept the bid: “[If] the tender documents had provided a discretion to accept an incomplete tender, or if the documents had not stipulated that the omission of a unit price resulted in an incomplete rather than an incorrectly prepared tender, a different analysis would have applied.”
In J. Oviatt Contracting Ltd. v. Kitimat General Hospital Society, the B.C. Supreme Court held that failing to fill in “blanks” in a tender form did not make the low bid non-compliant because that information was available elsewhere in the bid; the blanks were merely part of a standard form.
In Inter-Rail Auto Handling Inc. (c.o.b. Inter-Rail Canada) v. Canadian Pacific Ltd., the same court found a bid should not have been accepted because the bidder did not sign a critical page of the tender documents which would have bound the bidder to accept a particular form of written agreement and to keep the bid open for 60 days.
In Maritime Excavators (1994) Ltd. v. Nova Scotia (Attorney General), in 2000, the Nova Scotia Supreme Court held that non-compliance must be “material” to render a bid not acceptable. The court also said that the burden is on the party seeking to accept the bid “to satisfy the court that the non-compliance is not so material as to be deemed a violation of Contract A.”
In 2002, the Saskatchewan Queen’s Bench in Derby Holdings Ltd. v. Wright Construction Western Inc., held that a contractor may rely on its own non-compliance to establish that no Contract A arose. However, the court found that in most cases the test should be whether there was substantial rather than strict compliance. The court even hinted that the contractor’s allegation of non-compliance was a “smokescreen” to obscure its real reason for refusing to honour its bid.
In 2003, the B.C. Court of Appeal in Kinetic Construction Ltd. v. Comox-Strathcona (Regional District) held that if the tender instructions expressly allow for acceptance of non-compliant bids, a non-compliant bid becomes a counter-offer in which case Contract A does not arise. However, if the person calling for tenders considers the non-compliant bid, there is an acceptance of the counter-offer and Contract A arises.
In Winbridge Construction Ltd. v. Defence Construction (1951) Ltd., the Nova Scotia Court of Appeal affirmed in 2004 that a failure to provide required references was not material because the bid provided that information elsewhere. The plaintiff’s position was that references meant more than the name and location of former clients, but this argument was dismissed as an attempt to impose a technicality that did not exist.
In Graham Industrial Services Ltd. v. Greater Vancouver Water District, the B.C. Court of Appeal held in 2004 that the provision giving the owner sole discretion to determine the materiality of a defect did not permit acceptance of a flawed bid whose non-compliances included a substantial arithmetical error. The court found the bid must be compliant for Contract A to arise and held that the bid was not compliant.
In 2004, the same court in Silex Restorations Ltd. v. Strata Plan VR 2096 held that a 60-day bid bond when a 90-day bid bond was stipulated was a material non-compliance. It also held that the subsequent request by the owner for the contractor to extend its bid bond was not a waiver of that non-compliance. The court decided the contractor had gained financial advantage by providing only a 60-day bond and had also exposed the owner to claims by compliant bidders.
In the same year, in Gagnon Demolition Inc. v. Windsor (City), the Ontario court found that failure to include the name of a subcontractor did not disqualify a bid despite the warning in the instructions that failure to provide full information would result in disqualification. Because a clause in the general information gave the city the discretion to reject or accept a bid, the court said the city had not failed in its obligation to treat all bidders fairly. The court held that the winning bid’s non-compliance did not go to the fundamental purpose of the proposed contract, nor did it affect the price.
Finally, in 2005, the court in Rhyno Demolition Inc. v. Nova Scotia (Attorney General), the Nova Scotia Supreme Court found that a failure to provide bid security funds upon submission of the bid was not a non-compliance because the original requirement for bid security had been amended to refer to performance security. The court noted that “[v]ery clearly there is a practice in the trade and industry of treating performance security in a far less technical manner than a bid bond security.” In contrast, the court said, “in a bid bond situation there must be strict compliance because it is the prerequisite entrance fee” as it is “a fundamental requirement of the tendering process.”
As you can see, the cases since MJB have struggled to distinguish between merely technical defects and material non-compliances that make a bid incapable of acceptance. There is clearly room for argument in court as to whether an error in a bid is a mere technicality or a fatal error.
Owners and their consultants should review their tender documents to ensure that “minor” or “technical” errors in a bid do not mean that it must be disqualified. Also, bidders and owners should seek legal advice before deciding if an error is material enough that the bid cannot be accepted.
Owen Pawson has extensive experience in construction law and practises at the Vancouver office of Miller Thomson, LLP.