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More Clarity on the "Complex Law of Tenders"?

4 minute read

The Court of Appeal for Ontario issued a decision on a tender case in September 2014 which may or may not assist with future tender cases. In Rankin Construction Inc. v. Ontario, 2014 ONCA 636 (CanLII), the appeal court looked at whether a mere formality in compliance with tendering instructions was sufficient to refuse to accept the lowest bid. The court also considered whether an investigation into a rival bidder's allegation of non-compliance is permissible.

In the decision, the court's comments recognize the complexity of the law of tenders and comment on problems that arise within tendering processes. There is recognition of difficulties that can arise for bidders with broad exculpatory clauses substantially reducing the ability to challenge problems with the tendering process. In the case, the court seems to recognize the challenges of resolving disputes where the tendering instructions and documents are not clearly worded with comments hoping that the Ministry of Transportation (MTO) will change its documents for future tendering processes. In the documents at issue, there was no definition of what was or was not a “formality” and there appeared to be a requirement to advise of non-compliance within 10 days which would suggest that the known bid would be known 10 days after opening, yet the bids were not to be accepted until 30 days.

Rankin Construction submitted a tender based on a 275 page invitation to tender with instructions to bidders containing many terms to be complied with by bidders. The tender by Rankin was the lowest bid. The second lowest bidder complained to the MTO that Rankin's bid was non-compliant. The MTO was cautious and investigated the complaint and sought legal advice before deciding how to proceed. The MTO found out that Rankin had mistakenly failed to disclose $50,000 in value of steel, which, added to their bid still left the bid as substantially lower than the second lowest bid. The MTO told Rankin that the bid was non-compliant.

The Court of Appeal upheld, for different reasons, the dismissal by the trial judge of the claim for loss of profits. There was a contract formed when the tender was submitted between Rankin and MTO, an implied term of which was that the tender would not be accepted if any non-compliance was more than a formality. There was no duty to investigate complaints of non-compliance, but the court held that the MTO could (contrary to Rankin's argument) investigate. The MTO could waive non-compliance that was only a formality. The documents did not define “formality”, but the mistake to mention $50,000 value of steel amounted to a formality as it did not change whether it was the lowest bid and it arose from Rankin's mistake about whether domestic steel could be used yet MTO always knew domestic steel would not be used. The Court of Appeal commented that the MTO's cautious approach was reasonable and understandable in the context of the complex law of tender.

The instructions to bidders contained a broad exculpatory clause that was seen by the court to be a commercial response to the increased litigation faced by owners arising out of the acceptance, and corresponding non-acceptance, of bids. The exculpatory clause prevented the claim. The Court of Appeal comments that sophisticated parties such as bidders are free to choose not to submit a tender where there is a broad exculpatory clause. The court suggests that market forces would drive owners to change the exculpatory terms if enough bidders would refuse to submit bids.

Bidders can learn from this case to carefully assess whether to bid or place much hope of obtaining lost profits in a failed bid where there is a broad exculpatory clause.

Owners can learn that cautious steps, along with an exculpatory clause, may assist the owner to defend itself rather than having the drafting of their own tendering documents held against them.

We can all learn that it appears everyone, even appeal judges, agree that tendering law is complex and the increased litigation in this area has caused many reactions and problems.

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Carolyn Brandow

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