Canada: A Bidders' Inexcusable Error Does Not Prevent It From Claiming A Higher Price From The Client Requesting The Work

Last Updated: July 26 2019
Article by Laurent Debrun

Construction N.R.C. inc. vs. Loiselle inc. et al.  2019 QCCS 1440 (The Honourable Chantal Lamarche)

 

The City of Salaberry-de-Valleyfield retained the services of the engineering firm CIMA to develop plans and specification and grant contracts. CIMA selected the lowest bid, that of the Defendant Loiselle. Loiselle therefore won the contract to build Industrial Boulevard as a general contractor. The work included burying conduits used by Hydro-Quebec and Bell to run their cables. 

Loiselle sub-contracts this work to the Plaintiff NRC. A dispute quickly arose as to the interpretation of the specifications with respect to the unit of measure on which the installation price of the conduits is based; the bidder was basing its calculation on linear meters of conduit, whereas the City believed that the price offered in the tender and accepted by the bidder would be per linear meter of duct bank. The difference in price is considerable. The bidder agreed to carry out the work under protest, reserving the right to claim the difference in price from the client requesting the work, namely the City.

The court must interpret the contract because one of the parties claims that it is ambiguous. Even clear texts can be ambiguous. When faced with ambiguity, a contract is subject to the general rules of interpretation. The court rejected the argument of the lowest bidder that the tender documents are ambiguous. The unit of measure to calculate the price in the tender is not the one put forward by the bidder but is rather the price claimed by the City and CIMA. The bid was prepared without consulting the plans; moreover, the persons who prepared the bid were not the same ones as those who examined the tender documents.

As soon as the lowest bidder discovered a major difference in price with that of the other bidders, he consulted the plans and realized his error. For the court, this showed that the documents were crystal clear. Even if the court determines that the bidder made an inexcusable error when filing his bid, the court will decide that ultimately, the City and CIMA breached their obligation of good faith for fraudulent non-disclosure. Why?

If inexcusable errors cannot be the basis of a defect of consent, this statement must be qualified when the co-contracting party is not acting in good faith at the time the contract is signed, for example by surprising the other party or failing to properly inform them. This constitutes fraudulent non-disclosure. Failing to divulge to the lowest bidder the existence of a material error in its bid may constitute misconduct. In Fédération des caisses populaires Desjardins du Québec vs Services informatiques décisionOne (2004 RJQ 69), the Court of Appeal ruled that the person inviting bids is obligated to inform the bidder of the information it had received, namely that the partnership with a third party on which viability of the lowest bidder is based would never had occurred and, as such, the bid could not be fulfilled. Instead of allowing the bidder to set out on an adventure that would likely cause it damages, the other party was required to notify the bidder prior to accepting the bid.

An enforceable contract cannot be established based on the acceptance of a bid in bad faith. Qualifying the behaviour of the client requesting the work as such justified the objection at law of a claim for payment of the difference in price between the awarded contract and the contract that the client requesting the work in Desjardins was required to grant to a third party. The courts will not allow anyone from taking advantage of disloyal behaviour.

In this case, the City knew that the lowest bidder's price was ridiculously low and therefore the result of a clear error. CIMA knew it and still recommended the contract to the City. The City therefore committed the same offence as CIMA, but the latter was required to pay damages as the guilty agent. Both committed fraudulent non-disclosure and breached their obligation of good faith by awarding a contract at a ridiculously low price, knowing that it would have been impossible to fulfil had it not been for the error of the lowest bidder.

In this case, the remedy is not to void the contract since the bidder had chosen to carry out the work under protest; the court chose to award, as damages, a portion of the difference between the price set forth in the bid at issue and the price of the second lowest bid (and not the requested price, namely the alleged actual cost of the work). 

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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