Canada: Owners’ Duties In The Tendering Process

The recent decision of the Supreme Court of Canada in the case of Double N Earthmovers Ltd v. Edmonton (City)¹ provides guidance from our highest court about the extent of owners’ duties in the tendering process. The court confirmed its earlier decisions holding that there was a duty to accept only compliant bids and a duty to treat all bidders equally and fairly. However, the court denied that these duties require an owner to investigate an apparently compliant bid, even when the owner has knowledge of suspected non-compliance.

The Double N case involved a bidder ("Sureway") who deceived an owner ("Edmonton") into accepting its bid as compliant with the tender specifications, when in fact it was not. The tender called for bidders to provide certain heavy equipment for use at a landfill site. According to the tender, the equipment had to be of 1980 manufacture, or newer. Sureway represented to Edmonton that its equipment met this requirement, when in fact one unit bid was of 1979 manufacture.

On the face of it, Sureway’s bid appeared to be compliant. However, a rival bidder, ("Double N") notified Edmonton of its suspicions concerning the Sureway equipment after the bids were opened but before the award of the contract. Edmonton did not investigate the Sureway equipment for compliance with the 1980 year of manufacture requirement, although it had reserved the right in the tender specifications to do so. Instead, Edmonton entered into negotiations with Sureway which was the low bidder. Such negotiations were expressly permitted by the tender specifications. Edmonton subsequently awarded the contract to Sureway. After the contract was awarded Sureway was required to register its equipment for use under the contract with Edmonton. At this point the deception was discovered by Edmonton, but a decision was made to do nothing about it, even though Edmonton had the right under the tender conditions to cancel the contract because Sureway did not comply with the tender specifications.

Double N, which had been the second low bidder, sued Edmonton for damages for breach of the contract created by the submission of a valid bid (referred to as Contract A in the case law). The action was dismissed at trial. The dismissal was upheld on appeal. Both courts found that Sureway’s bid was compliant on its face and that Edmonton had no duty to investigate, even though on notice of suspected non-compliance.

By a narrow majority of 5 – 4 the Supreme Court of Canada agreed with the lower courts and dismissed the appeal. All judges of the Supreme Court accepted that there were two implied terms of Contract A obliging an owner: 1. to accept only compliant bids; and 2. to treat all bidders equally and fairly.

The majority (Abella, Rothstein, LeBel, Deschamps and Fish J.J.) found that the Sureway bid suffered from an informality as to specified equipment. This informality, in the opinion of the majority, was not material to the price or performance of the contract to be awarded under the tender (referred to as Contract B in the case law) and Edmonton, under the terms of the tender, was entitled to waive the informality and treat the bid as compliant. The majority found that there was no duty on Edmonton to investigate Sureway’s tender even though it had been notified by Double N of suspected non-compliance as to specified equipment.

The minority (Charron J., McLachlin C.J., and Bastarache and Binnie J.J.) found that the requirement that all units bid be 1980 or newer was a material term of the tender and that Edmonton had an obligation to take reasonable steps to ensure that Sureway’s bid was compliant. Edmonton’s failure to do so, in the opinion of the minority, was a breach of both the implied duty to accept only compliant bids and the implied duty to treat all bidders fairly and equally.

The majority also held that no impermissible bid-shopping occurred even though Edmonton obtained a negotiated price-reduction from Sureway on one of the unit prices by suggesting that Sureway lower its price to that quoted by another bidder whose bid had been disqualified. The court said that this was specifically allowed in this case because Edmonton had inserted a term in its tender conditions allowing it to negotiate with the lowest evaluated tenderer. The minority did not address this point.

Finally, the majority found that once Contract B was awarded it was open to Edmonton to waive the requirement for equipment which was of 1980 manufacture or newer. The court held that this was a matter between Edmonton and Sureway only. An unsuccessful bidder such as Double N, in the opinion of the majority, had no standing to challenge such a change because it was not a party to Contract B. The minority did not address this point either.

To summarize, the Supreme Court of Canada has provided the following guidance with respect to the duties of owners in the tendering process:

1. An owner has no duty to investigate an apparently compliant bid;
2. An owner may negotiate with the successful bidder if that right is one of the written terms of the tender;
3. An owner is free to negotiate changes to Contract B after it is awarded. This is private matter between the owner and the successful bidder.

As always, caution must be taken in applying the above principles to a given case. Courts have traditionally shown a profound dislike for the kind of deceptive tactics employed by Sureway in the Double N case. While lower courts are bound by decisions of the Supreme Court of Canada this does not prevent them from taking a different view if the facts of the case at hand are distinguishable from those in the higher court.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.