Bid shopping can inadvertently happen in any organization, regardless of the industry sector. That's what happened in a recent case involving a smaller municipality in Nova Scotia. In the recent case of The Town of Port Hawskesbury v. Borcherdt Concrete Products Limited (decided in February 2008), the lowest bid exceeded the municipality's budget. The Town decided to do some of the work with its own forces. It seemed a practical and reasonable way to come in on budget.

The project involved the construction of bleachers for an arena that was part of a new civic centre worth $15 million. The Town's planned budget for the manufacture, delivery and installation of the arena bleachers was $169,092. Borcherdt Concrete, the plaintiff in the lower court and the only bidder, submitted a bid for $269,000. As soon as the bids closed, the Town scurried to find ways to install the bleachers at a price that fit within its budget. It solicited a quote from a third party for the supply of the bleachers and it decided to act as its own general contractor and have its staff install some of the bleachers. The Town finally informed Borcherdt Concrete that its bid had not been accepted. Borcherdt Concrete sued the Town alleging breach of contract and breach of an implied term of good faith and fairness in the tendering process.

Shop That Bid

Mr. Justice Scanlan found the Town in breach of its duty to ensure fair treatment of the only bid received. He said the process followed by the Town amounted to bid shopping, that by having its own forces perform the installation of the bleachers, the Town had awarded part of the work to a non-compliant bidder itself. The court endorsed the expansive definition of bid shopping adopted by earlier courts as "... conduct where a tendering authority uses the bids submitted to it as a negotiating tool, whether expressly or in a more clandestine way, before the construction contract has been awarded, with a view to obtain a better price or other contractual advantage from that particular tenderer or any of the others...." The trial judge awarded damages to Borcherdt Concrete in the amount of $68,536.

The Town argued that the privilege clause allowed it "to reject any and all tenders that, in its sole discretion, are not in the interest of the Town." In yet another case where the courts narrowly interpret the language of the privilege clause, the trial court explained how the "issues in this case go well beyond the rights afforded to the defendant [the Town] by the privilege clause." It added that the privilege clause "does not give unfettered discretion to simply disregard the rights and interests of the plaintiff in the tender process." The court dismissed the Town's plea about the futility of formally terminating the process with Borcherdt Concrete. By not formally terminating the process, the trial judge found that Contract A was still alive so the Town was under a duty to treat Borcherdt Concrete fairly.

The Court Of Appeal

The Nova Scotia Court of Appeal accepted the lower court's finding of facts and application of the law, but it reduced Borcherdt Concrete's damages award from $68,536 to $44,548, on the basis that Borcherdt Concrete would not have been awarded Contract B (the contract for the work).

The decision in The Town of Port Hawskesbury illustrates the importance of working with a well-drafted tender call document. As the Court of Appeal noted, there was nothing in the Town's tender documents that allowed it to renegotiate the scope of the work with a third party. The case also highlights the value of having a legal framework that is clearly defined within the tender call document to avoid having residual legal and fairness obligations restrict the margin of flexibility of a buyer at the end of the procurement process. Bid shopping can indeed happen to any organization, including those in the healthcare sector, but it can easily be avoided with a little knowledge and some careful drafting.

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