Canada: Legal Front* (Defence And Security Industry April 2012)

Last Updated: March 29 2012
Article by Jack Hughes

Most Read Contributor in Canada, September 2016

*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 bid-closing.

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 the bid.

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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