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March 2007
Featured article is with the permission of McInnes Cooper’s Construction Law Updates www.mcinnescooper.com
Tendering – The Supreme Court of Canada’s Latest Pronouncement
John Kulik (February 6, 2007) with the assistance of Chris Keirstead
On January 25, 2007, the Supreme Court of Canada rendered its most recent decision on tendering in the case of Double N Earthmovers Ltd. v. City of Edmonton, 2007 S.C.C. 3. As will be seen, the court attempted to clarify the duties of an owner when faced with a bid that is compliant on its face but may not, in fact, be compliant based on information received by the owner outside the tendering process.
In 1986, the City of Edmonton put out a call for tenders for the supply of equipment and operators to move refuse at a landfill site. One of the stipulations of the tender was that all pieces of equipment were to be 1980 models or newer. The Conditions of Tender stated, in part, that (1) bidders must provide serial numbers and city licence registration numbers for each piece of equipment; (2) failure to comply may invalidate the bid; and (3) that the City reserved the right to reject any tenders and to waive any informality.
In its bid, Sureway Construction Ltd. (“Sureway”) listed a 1980 bulldozer as Item 1 and a ‘1977 or 1980 Rental Unit’ (bulldozer) as Item 2. The City awarded the contract to Sureway and insisted on compliance with the 1980 model requirement. When Sureway subsequently indicated that it would be supplying a 1979 model bulldozer, the City did not pursue the matter further. Although Sureway eventually replaced this unit, some of the work was performed by pre-1980 equipment.
An unsuccessful compliant bidder, Double N Earthmovers (“Double N”), claimed that the City breached the duties owed to it under the tender by accepting a non-compliant bid. Double N sued the City for the profits it would have realized had it been awarded the equipment contract. Double N had informed the City that Sureway did not own any 1980 or newer equipment before the equipment contract was awarded, but the City did not investigate.
The trial judge dismissed Double N’s action and the Alberta Court of Appeal upheld that decision. The Supreme Court of Canada, in a narrow 5-4 decision, dismissed the appeal and found as follows:
- Contract A (the tender/bidding contract) contains implied terms that owners will only accept compliant bids and will treat all bids fairly and equally.
- The tender documents control the contractual obligations of the parties to a tender (i.e. contain the terms of “Contract A”).
- An allegation raised by a rival bidder does not compel an owner to investigate.
- An owner has to weigh bids on the basis of what is actually in the bid at the time of the tender closing and not on the basis of subsequently-discovered information.
- Where an owner undertakes a fair evaluation and enters into the actual working contract (“Contract B”) on the terms set out in the tender documents, Contract A is fully performed. Thus, any obligations on the part of the owner to unsuccessful bidders have been fully discharged.
There were two main issues in this case. The first issue was whether the bid was compliant. The majority found that because Sureway promised a 1980 model bulldozer on the face of its bid (Item 1), the obligation was enforceable by the City and the bid was therefore compliant. The majority of the Court held that the 1977 or 1980 rental unit (bulldozer) (Item 2) qualified because the requirement for serial and registration numbers was a formality which could be waived under the terms of the tender.
The second issue was whether the City had a duty to investigate as to whether Sureway’s bid was compliant. The majority held that the City had no duty to look beyond the face of the bid to ensure compliance. Since each bidder was legally obliged to comply if its bid was accepted, there was no reason why bidders would expect an owner to investigate whether other bidders would comply. Further, there was neither an express nor implied obligation in the tender documents to investigate the content of tenders prior to acceptance. Thus, the City had no duty to investigate whether Sureway would or could, as a matter of fact, comply with its own bid.
In a dissenting judgment, a number of members of the Court suggested that there is at least one potential problem with the majority decision. The minority suggested that a bidder may submit a bid which is ambiguous or deliberately misleading but compliant on its face in some respects, secure in the knowledge that if it is awarded Contract B, it will be in a position to renegotiate essential terms of the contract. And an owner could reason that it may be in its best interests not to resolve any ambiguity before awarding Contract B, since at that time all Contract A obligations towards other bidders will terminate and it can then enter into renegotiations with the successful bidder without fear of liability. This approach would not be consistent with a fair and open tendering process.
Over the past 25 years or so, ever since the Supreme Court of Canada’s decision in Ron Engineering, there has been a decided shift in favour of contractors with respect to rights and obligations in tendering situations. The Supreme Court of Canada’s ruling in Double N is the first decision in some time which favours owners in that it limits their duties to bidders in evaluating tenders. As the minority of the Court pointed out, the Double N decision may create an opportunity for unscrupulous owners and/or bidders to circumvent the principles of fairness and openness in tendering. It remains to be seen how the Courts will deal with these potential problems as new cases arise.
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