Canada: When Is A Bid Non-Compliant With The Tender Documents?

Since the decision of the Supreme Court of Canada in R. v. Ron Engineering and Construction (Eastern) Ltd.,  [1981] 1 S.C.R. 111 defined the "Contract A / Contract B" analysis for bidding and tendering construction projects, the courts have struggled with how "Contract A" is formed.  "Contract A" is, of course, the legal relationship between the proponent of a project and the bidders on the tender issued by the proponent. In the Ron Engineering analysis, Contract A is the "bidding contract" which is an offer that is accepted via compliance by the successful bidder with the instructions to the bidders, which allows the successful bidder to enter in to Contract B.  Contract B is the "construction contract" to build the project.

In 1999, the Supreme Court of Canada released its decision in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619, which confirmed that a bid in response to a request for tender must be compliant with the tendering documents to be accepted.   A bid cannot be accepted if it is non-compliant with the tender.  If the proponent of a project accepts a bid that is non-compliant with the tender, the proponent may be sued for damages by a bidder that was in compliance.

Since 1999, various courts have opined on what "compliance" really means.  The Supreme Court of Canada itself revisited "compliance" in Double N Earthmovers v. Edmonton (City), [2007] 1 S.C.R. 116.  In Double N, the four-member minority of the Court stated that "substantial compliance" was required:

The test for compliance in the tendering process is "substantial" rather than strict.  Estey, J.'s remark in Ron Engineering that it would be "anomalous indeed if the march forward to a construction contract could be halted by a simple omission" (p. 127) is often cited in support for the substantial compliance test. ... Although Estey, J. made this remark in reference to the Contract B stage, there is no doubt that these same considerations apply to the Contract A stage as well.  It would make tendering unworkable if an owner and the bidder were prevented from entering into contract based on an unchecked box.

Substantial compliance requires that all material conditions of a tender, determined on an objective standard, be complied with ...

Last fall, the Newfoundland Court of Appeal was faced with an appeal concerning the meaning of "substantial compliance".  In Cougar Engineering and Construction v. Newfoundland and Labrador, 2015 NLCA 45, Cougar Engineering sued the province for accepting what it claimed was a non-compliant bid. What had occurred was that the schedule of quantities and prices (or "SQP") form that was issued with the Tender Specifications included the following specifications for pipe sizes:

       1,    600 mm dia          [quantity]
       2,    900 mm dia          [quantity]
       3,    1050 mm dia        [quantity]

The project manager for the province thought that the commas in the SQP form were confusing and could have resulted, for example, in a bidder including a bid using 1,600 mm pipe instead of 600 mm pipe, which was intended.  In order to mitigate confusion, the project manager replaced the SQP form with a revised SQP form that used periods instead of commas. The revised SQP form was included in Addendum 1 to the Tender Specifications.

Trouble arose when the successful bidder used the original SQP form (with the commas) for its bid.  Cougar, the second lowest bidder used the proper revised SQP form (with the periods).  Cougar then sued the province for accepting a bid that did not comply strictly with the Tender Specifications as amended.

In other cases, courts have concluded that the use of a form other than the correct one can make a bid non-compliant: see, for example Steelmac Ltd. v. Nova Scotia (Attorney General) (2007) 61 C.L.R. (3d) 280 (N.S.S.C.), where a bid was submitted on a non-prescribed form that did not have the written assurances on the prescribed form that the court found were material; and Eastern Regional Health Authority v. Kannegiessar Canada Inc. (2015) Nfld. & P.E.I.R. 241 (Nfld. S.C.) where the bidder included a qualification on the prescribed form that the court held to be a non-compliant counter-offer.  

The trial judge in Cougar found that the use of the original (wrong) SQP form was not material and was simply an irregularity that did not affect the quantities or prices of the pipes to be supplied.  The use of the wrong form, in this case, was not unfair to the other, unsuccessful bidders including the plaintiff, Cougar.  Common sense prevailed, and the Newfoundland and Labrador Court of Appeal applied Ron Engineering and Double N and dismissed the appeal.

As the Cougar case illustrates, the key to the compliance analysis is unfairness to the other bidders.  While Cougar was technically correct that the form submitted by the successful bidder was not the correct one, it failed to prove that any unfairness either resulted or, importantly, could have resulted from the use of the wrong form. In application, compliance really means: Was it fair for everyone who bid?  A bidder's mistake will not automatically disqualify the bidder unless the mistake results in at least some kind of theoretical unfairness to the other bidders.

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.

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