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 Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

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