*This article was originally published in Frontline Defence,
published by Beacon Publishing Inc., April, Issue 2, 2012.
The Legal Front*
It is the moment which every bidder dreads – discovery
of a mistake in the irrevocable tender price they have just
submitted that could greatly reduce or eliminate the profit they
hoped to realize if awarded the contract.
In that panicked moment of discovery, a bidder's mind
feverishly considers every conceivable option to avoid being held
to that bid price.
Chief among these will be a formal request to withdraw the bid.
Yet the majority of RFPs expressly prohibit withdrawal after
Even if a bidder refuses to honour their flawed bid price, they
may still be on the hook for the difference between the price
submitted and the next lowest bid price – effectively
paying a prospective client to do business with a competitor
– a result as humiliating as it is costly. What, then,
are your options? If luck is on your side, the price mistake will
be patently obvious. When this happens, a Court might allow the
bidder to walk away from the procurement without having to perform
the contract or pay compensation.
In other cases, a bidder might be able to claim that its bid was
non-compliant. Courts sometimes allow bidders to avoid having to
perform the work for the flawed price, but only if it is clear that
their bid was in non-compliant with a mandatory requirement.
In one case, Graham Industrial Services Ltd v. Greater
Vancouver Water District, the bestpriced bidder realized that
it made a $2,000,000 mathematical error. When the contract
authority refused to allow it to withdraw its bid, the bidder
claimed its bid couldn't be accepted because it was materially
non-compliant. The B.C Court of Appeal agreed.
Such "exit ramps" are not always available and this
type of defense should only be asserted when all other legal
avenues are closed off.
To illustrate this point, take the recent case from the Manitoba
Court of Queen's Bench in Manitoba Eastern Star Chalet Inc.
v. Dominion Construction Co. Inc., which demonstrates this
perilous area of procurement law.
In Manitoba Eastern Star, Dominion responded to an RFP
for construction services. After the evaluation of proposals,
Dominion was advised it was the low bid. In any other context, it
would have been the best possible result – but
Dominion's low bid price was the result of a mathematical error
caused by the type of computer software it had used to estimate
costs. The error, while substantial, was not obvious on the face of
Dominion's first move was to advise Eastern Star that it was
withdrawing their bid before being awarded the contract. But,
relying on the explicit wording of the RFP, Eastern Star refused
telling Dominion to either honour the price or pay the difference
between it and the next lowest bid.
Dominion then, in an attempt to shield itself from any resulting
liability, asserted that its bid had been non-compliant with the
Instructions to Bidders found in the RFP.
The Court acknowledged that there could be cases where
non-compliance could be relied upon by a bidder to avoid liability.
The determining factor in such cases will be whether the
noncompliance was both patent and material. Patent in the sense
that the purported non-compliance was obvious on the face of the
bid, band material in the sense that the failing was in respect of
an important or essential element of the RFP.
Absent these factors, where a defect in the bid is either latent
and/or nonmaterial, the procuring entity is entitled to rely upon
the bid and a bidder can be forced to honour their obligations
thereunder. Put another way, the test is still substantial
compliance, not strict compliance.
In the end, the Court found that the defects in Dominion's
bid were non-material Consequently, it was ordered to pay the
difference between the bid price it proposed, and what Eastern Star
ultimately paid to complete the construction project.
While this decision did not help Dominion avoid the fallout from
their mistake, it offers an exit strategy for future bidders who
find themselves in a similar bind. After all, if a bid has one
mistake – who says it won't have more?
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