Canada: Tendering: A Contractor’s Rights and Obligations with Respect to Subcontractor Bids

Last Updated: April 11 2003
Article by Kenneth Crofoot

The general contractor bid contains an amalgamation of its own estimating and pricing with that submitted by its subcontractors. The Courts have struggled with the issue of determining when the submission and acceptance of a contractor bid requires the contractor to enter into a subcontract with a particular subcontractor. No subcontractor wants to submit a bid which is carried by the general contractor to achieve acceptance, only to have some new party show up to undercut its price and obtain the subcontract. The Courts have basically considered the issue as one of determining when the tender terms and circumstances require the contractor to enter into a bid with a low bidding subcontractor or alternatively, the subcontractor carried in the general contractor’s bid.

No consideration of this issue is complete without a review of the recent Supreme Court of Canada decision in Nayler Group v. Ellis Don Construction (2001), 204 D.L.R. (4th) 513, in which Ellis Don carried the Nayler bid in its contract, despite the fact that Nayler had an in-house union and there was an outstanding Ontario Labour Relations Board ("OLRB") decision pending as to whether Ellis Don would have to deal with an IBEW subcontractor. When the OLRB decision was released confirming Ellis Don’s obligation to use only electrical subcontractors affiliated with the IBEW, Ellis Don attempted to offer the subcontract to Nayler based upon the condition that it align itself with IBEW. Nayler refused and Ellis Don then offered the work to another IBEW subcontractor for roughly the same price as had been bid by Nayler. The trial judge relied upon a line of cases, discussed further below, as the rules of contract formation, i.e., that there could be no contract until Ellis Don had communicated its acceptance of Nayler’s bid to Nayler, which had never been done. The trial judge found that the contract for electrical work had been frustrated by the OLRB decision, which precluded Ellis Don from contracting with a non-IBEW subcontractor. The Court of Appeal, however, allowed the appeal on the basis that in exchange for binding itself to an irrevocable bid, Nayler acquired the right to be awarded the contract. The tender terms only allowed Ellis Don not to award the contract if there was a reasonable objection to the subcontractor. The Court found that Ellis Don’s objection was not reasonable because it had "shopped" Nayler’s bid and had failed to attempt to negotiate with the OLRB to allow the contract to proceed with Nayler.

In the Supreme Court of Canada, the Court accepted Ellis Don’s argument that Ellis Don was not automatically obligated, upon acceptance of its bid, to award the contract to Nayler. In order for a construction contract to arise, Ellis Don had to notify Nayler of the acceptance of the subcontract bid. However, the Court also found that Ellis Don was obligated to notify Nayler of the acceptance of its subcontract bid unless it had a reasonable objection to the contract with Nayler. The Court found that there was no frustration of the contract between Ellis Don and Nayler because the OLRB decision was a foreseeable outcome to the parties at the time of the tender. The Court found Ellis Don’s decision to carry Nayler instead of an IBEW contractor was done to assure itself a low bid and that it could not, therefore, escape from its obligation to Nayler merely because the OLRB decision had gone the wrong way. The Court, therefore, found that Ellis Don had not demonstrated to the Court that its objection to Nayler was reasonable.

The important result of Nayler is that most invitations to tender which require the identification of chosen subcontractors will result in an obligation by the contractor to award the contract to the named subcontractor as the result of Nayler. The only issue is whether the general contractor can demonstrate a reasonable objection after it has named a particular subcontractor. Nayler seems to have suggested that the basis for such a rejection would have to be based on some unknown issue which had arisen subsequent to the naming of the subcontractor, such as some inability to perform or a previously unknown financial problem.

The Supreme Court of Canada did not disagree with the general proposition that the subcontract only arises when the general contractor notifies the subcontractor of acceptance. As a result, it may still be possible that the tender terms permit the general contractor more latitude than was available under the tender terms in Nayler to substitute another subcontractor. It is necessary to closely review the terms of the invitation to tender to determine the parameters. There are a number of older cases which hold that the mere effect of carrying a subcontractor’s price in a bid did not constitute an acceptance, conditional or otherwise, of the subcontractor’s bid and did not create an obligation on the part of the contractor to award the subcontract to the subcontractor whose bid was carried. (See Vipond Automatic Sprinklers v. E.S. Fox (1996), 27 C.L.R. (2d) 311, Bate Equipment v. Ellis Don (1992), (Ont.Gen.Div.) 2 C.L.R. (2d) 157 and Derrick Concrete v. Central Oilfield (1994), 17 C.L.R. (2d) 120 (Alta.Q.B.).) All these cases may still be applicable where the invitation to tender terms can be distinguished from Nayler to provide a latitude for the general contractor to choose a subcontractor other than that carried in its bid. One can expect that where a bid shopping process has occurred however, the Court will not be particularly sympathetic to the contractor’s position unless the invitation to tender terms are very clear that such a process was contemplated throughout.

Bid Depositories

In order to limit bid shopping with respect to subcontractor bids, many tenders utilize the facilities of a bid depository. A bid depository is a central facility, usually run by a local construction association, where the subcontract bids are filed and are available to all general contractors bidding. The invitation to tender typically requires that the bid depository be utilized and that its rules be applicable with respect to subcontracts. The rules of bid depositories are quite standard and usually require the general contractor to utilize the services of a subcontractor’s bid which its utilizes. The invitation to tender will usually require the general contractor to name the subcontractor whose bid it has utilized. The bid depository rules also provide that the general contractor is required to award the subcontract in accordance with the invitation to tender documents. If CCDC contracts are in use, for instance, the only basis not to award the subcontract to a subcontractor whose bid is carried is if either the contractor or the owner have a reasonable objection under paragraphs 3.8.5 and 3.8.3, respectively. As a result, in most cases, Nayler has meant that the contractor can no longer take the position that its obligations to the carried subcontractor only arise when the acceptance letter has been sent. The sending of the acceptance letter, though required, is not a significant contractual event because the general contractor may very well be obligated to send it.

Once a bid depository is specified as required, all parties in the process must follow the rules. In Ken Toby Ltd. v. B.C. Building Corp. (1997), 34 C.L.R. (2d) 81 (B.C.S.C.), the plaintiff Subcontractor was the only bidder for masonry work. The owner issued a post-tender addendum requiring a cash allowance to be substituted due to its concern that the single bid was too high. As a result, the plaintiff’s bid no longer had to be carried and the plaintiff was not awarded the subcontract. The owner’s addendum was found to have breached the rules of the bid depository. The owner was considered to have owed the subcontractor a duty of care and was found liable to the subcontractor. An owner therefore should not specify use of a bid depository if it is not prepared to abide by the depository’s rules.

There is no doubt that the use of a bid depository and the ability to incorporate the bid depository rules is one prudent method to police dealings with respect to subcontractor bids and to clarify the parties’ respective obligations.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions