Prequalifying Bidders

colleague recently came to my office and, without preamble, asked if I knew the difference between a lawyer and an engineer. Without waiting for my answer he said, “A lawyer does not do engineering.” He then left my office leaving me to wonder what he meant.

Coincidentally, I was in the midst of reviewing a legal issue that had arisen out of a bid process. The issue was complicated by the fact that the bid documents did not take into account nor permit the owner to take the steps it did (carry out interviews and negotiations), which led to a complaint by one of the bidders. Upon further review, I determined the bid documents had been prepared by an engineer retained by the owner. Suddenly my colleague’s answer made sense.

I doubt that a client would ever hire a lawyer to design a building or a water main system or a road. So why would an owner hire an engineer to prepare contract documents, which create legal rights and obligations that if breached can result in an award of damages? Or, put another way, why would an engineer agree to take on the risk and potential liability of preparing legal documents?

Maybe the answer is “We do it because we’ve always done it.” In that case, you might consider revising your practice.

Historically, pre-qualifying bidders, preparing bid documents, managing the bid process, evaluating bids, and recommending contract awards were tasks included in an engineer’s scope of services. Prior to 1981 there was relatively little risk in an engineer performing such services. However, the law changed in 1981 with the Supreme Court of Canada’s decision in The Queen in Right of Ontario v Ron Engineering & Construction Eastern Ltd. In that case the Court held that the bid process is made up of two separate contracts, which it called “Contract A” and “Contract B.”

According to the Court, an owner’s issuance of a bid call represents in law an offer, and a bidder’s submission of a compliant or substantially compliant bid represents acceptance of the offer, which results in the formation of Contract A. Contract A governs the owner’s rights and obligations with respect to the evaluation of the bids and the award of Contract B. Contract A also imposes obligations on bidders in relation to the irrevocability of the bid and a bidder’s obligation to execute Contract B (in Ron Engineering, a contract for the construction of a water treatment plant). If an owner breaches its Contract A obligations and awards Contract B to the “wrong” bidder, the owner is at risk of having to pay damages to the bidder to whom Contract B should have been awarded.

How does this impact an engineer who prepares bid documents, evaluates bids, and recommends to the owner an award of Contract B? Sometimes, the impact can be devastating.

In Tectonic Infrastructure Inc. v Middlesex Centre (Township), a decision of the Ontario Superior Court of Justice in November 2004, the township hired an engineer to prepare tender documents, review tenders, and recommend an award of contract for the construction of water mains and roads. One of the unsuccessful bidders, Tectonic Infrastructure Inc., found out later that the bidder to whom the contract was awarded had inserted handwritten additions in its bid form. Tectonic sued the township for damages for breach of Contract A, and the township brought a claim against the engineer.

After a lengthy review of the bid process the court found that the engineer had made several mistakes with the bid documents and had improperly determined that the bidder to whom the contract was awarded had submitted a compliant bid. As a result, Tectonic was awarded damages against the township in the amount of $554,000. The court then considered the township’s claim against the engineer and held: “It seems to me that if the [Engineer] had the obligation to oversee the call for tenders and review them, it had, as part of that obligation, the responsibility to at least identify if not outright reject the bid of the [successful bidder] as non-compliant, or recommend the owner seek legal advice in that regard. … The [Engineer] failed to identify the [successful bidder’s] bid as non-compliant … Consequently, in recommending the [successful bidder’s] bid to the owner, [the Engineer] held it out as compliant. … I consequently find the [Engineer] liable to [the Township] for the full amount of their damage.”

In Stanco Projects Ltd. v British Columbia (Ministry of Water, Land and Air Protection), a decision of the British Columbia Court of Appeal in November 2006, the defendant Ministry hired the engineer to pre-qualify contractors, prepare the tender packages, and recommend the award of a contract for an upgrade of a water system in Cypress Provincial Park. After bid opening the engineer realized that the bid documents failed to request a key price component. The engineer approached each of the bidders and commenced a process of what it characterized as “negotiations,” but which the court viewed as “bid shopping.” Ultimately the engineer recommended that the Ministry should award the contract for the water system to a bidder who was not the low bidder when the bids were opened, but who provided a more favourable price as a result of subsequent “negotiations.” The low bidder, Stanco Projects Ltd., brought an action for damages against the Ministry, which in turn brought a claim against the engineer for negligence.

The British Columbia Court of Appeal reviewed the engineer’s conduct, including its failure to properly draft the bid documents as well as the “negotiation” activities, and found that the engineer’s conduct had caused the Ministry to award Contract B to a non-compliant bidder and thereby breach its Contract A obligations to Stanco. As a result, the engineer was liable for the damages the Ministry paid to Stanco.

There appears little doubt that engineers who provide tendering services to their clients will be held responsible where the client suffers damages as a result of the engineer’s act or omission in relation to tendering.

Does that mean engineers should stop providing such services? Not necessarily. But, it does suggest that engineers should consider “sub-contracting” the tendering services to those who have the expertise, such as lawyers practising procurement law. Alternatively, engineers could hire a procurement lawyer to develop “template” bid documents that could be used on different projects.

Otherwise, the answer to my colleague’s question could be, “a lawyer does not do engineering, but an engineer will (at least sometimes) practise law.” cce