Canada: Be Careful Before Rejecting The Lowest Tenderer!

Last Updated: August 14 2017
Article by Alexandre Forest, Suzie Lanthier, Valérie Plante and Alexandre Sami

Most Read Contributor in Canada, October 2018

Overview

Municipalities are responsible for numerous infrastructures and often call for tenders to award contracts for work. The Cities and Towns Act1 provides that a municipal council may not award a contract to a person other than the lowest compliant tenderer without first obtaining authorization from the Minister of Municipal Affairs and Land Occupancy. Recent case law has confirmed the importance of this principle, but also the existence of remedies for disappointed lowest tenderers, both before and after the contract is awarded.

Public calls for tenders for municipalities

The main objective of a public tender is to obtain the best possible price in order to ensure the judicious use of public funds. However, municipalities considering contracting work must treat all tenderers fairly throughout the process so as not to favour any particular tenderer.

The case law stipulates that a project owner (e.g. a municipality) must reject a tender that is affected by a major irregularity, that is to say, an irregularity that, once corrected, would violate the principle of fair treatment of tenderers. 

When the lowest tenderer presents a so-called minor irregularity—that is to say, an irregularity that, once corrected, does not violate the principle of fair treatment of tenderers—the project owner may overlook this irregularity and award the contract to the lowest tenderer.2 However, the project owner has a certain discretion to reject a tender with a minor irregularity.

Recently, however, courts appear to be more severe with municipalities when they decide to reject the lowest tenderer due to a minor irregularity.

A discretion that is not immune to review

In the case of Entreprise TGC Inc. v. Municipalité de Val-Morin,3 the municipality of Val-Morin rejected the lowest tenderer because some of the unit prices presented in its tender were not proportionated to the costs of the work to be carried out, which ran counter to one of the requirements of the call for tenders' specifications. The Court stated that although municipalities are not obliged to accept a tender containing a minor irregularity, their decision to reject one of the lowest tenders may be reviewed if it was made arbitrarily.

In this case, the Court concluded that the tender compliance analysis was conducted with the aim of establishing that the tenderer was not compliant, following a previous unsatisfactory experience with this tenderer. The Court stated that fairness must benefit the lowest tenderer and, ultimately, all taxpayers, since it is precisely in their interest that the rules of public policy were established. As a result, the Court awarded damages in excess of $372,000 to the lowest tenderer for loss of profits.

However, it should be noted that the municipality of Val-Morin announced plans to appeal the decision, in particular with regard to the extent of the lost profits awarded to the aggrieved tenderer.

Prevention is better than cure

The TGC ruling therefore confirms that it is possible for disappointed tenderers to assert their rights and obtain compensation for losses incurred as part of a call for tenders where they were the lowest tenderer, but were unfairly rejected. This type of remedy is available after the call for tenders has been completed, but what about the possibility of taking action before a contract that is the subject of a call for tenders is awarded?

Gowling WLG recently had the opportunity to intervene in a case that raised such a question. The dispute was between Groupe CRH Canada Inc. (hereinafter "Demix") and the City of Montréal.4 In this case, following a call for tenders, the City of Montréal did not retain the services of the lowest tenderer, Demix, on the grounds that its tender was not compliant, since it did not contain proof of experience with two contracts with a minimum value of $10,000,000 executed within the last five years. In fact, Demix did indeed have such experience, but because of the ambiguity in the wording of this requirement in the call for tenders, it did not respond to the criterion in the manner expected by the City. Demix hastened to ask the Court to issue an interim injunction ordering the City to postpone the award of the contract to another tenderer. The Court allowed Demix's request and ordered the City of Montréal not to award the contract before the judgment on the substance of the case.

In its judgment on the merits,5 the Court was of the opinion that the irregularity alleged against Demix was minor. Since it had been remedied in good time, the Court declared that Demix was the lowest compliant tenderer. Thus, the contract was awarded to Demix.

This case is all the more interesting in that it confirms the relevance of seeking injunctive relief before the contract is awarded to another tenderer. Such a remedy saves taxpayers the costs of a claim for compensatory damages initiated once the contract has been awarded, if the disappointed tenderer succeeds.

Conclusion

Concerned about the reasonable use of public funds, the courts are sending a clear message to public bodies calling for tenders. They cannot hide behind their discretion, acting arbitrarily and placing the taxpayers' interests second by imposing overly rigid administrative constraints, under penalty of being ordered to pay large sums to the aggrieved tenderers. In this context, choosing to act upstream, before the contract is awarded, can be a major advantage for contractors, who will avoid the long delays of an action for damages; but it is even more advantageous for the taxpayers, who save if the lowest tenderer is awarded the contract, instead of having to pay damages.

Footnotes

1 Cities and Towns Act, CQLR c C-19.

2 Norgereq ltée v. Ville de Montréal,

3 Entreprise TGC Inc. v. Municipalité Val-Morin, 2017 QCCS 2616 ["TGC"].

4 Groupe CRH Inc. (Demix Construction) v. Montréal (Ville de), 2016 QCCS 1183.

5 Groupe CRH Inc. (Demix Construction) v. Montréal (Ville de), 2016 QCCS 2332.

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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