This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
The February 2015 ruling of the Newfoundland and Labrador Supreme Court in Eastern Regional Health Authority v. Kannegiesser Canada Inc. upheld the government’s rejection of a bid that proposed alternate performance methods in a tendering process for the provision of laundry equipment. As the Court found, the alternate bid constituted a counter-offer under the Contract A process contract and the government had no choice but to reject that bid as non-compliant under those rules:
THE LAW
As a starting point, I cite from Newfoundland and Labrador v. Marine Contractors Ltd., 2014 NLTD(G) 21 at paras. 20-22, where my colleague, Faour, J. summarized the contractual relationships that arise from tendering as established by the Supreme Court of Canada in R. v. Ron Engineering Construction (Eastern) Ltd. [sic.], [1981] 1 S.C.R. 111:
A tender call raises the concept of two separate contracts, termed Contract A and Contract B. Contract A is formed when, in response to a tender call, a bidder submits a bid which is compliant to the specifications. The terms of Contract A are that a compliant bid is irrevocable until a selection has been made, and that all of the bidders will be subject to the same rules. The critical element in the formation of Contract A is the submission of a compliant bid.
Contract A concerns the obligations arising from the tender call itself. Essentially, its terms ensure that the process will be fair to bidders and the owner who calls the tender. The requirements under Contract A are that any bidder who is compliant with the terms of the tender call is entitled to be considered. If the bid is not compliant, then Contract A is not formed in respect of that bidder, and must be rejected.
Contract A is distinguished from Contract B, which is the contract that will be entered into with the successful bidder. The terms associated with Contract A are to ensure the integrity of the bidding system itself, while the jurisprudence surrounding Contract B relates to the contract which is the subject of the tender call.
Also of assistance is the text by Paul Emanuelli, Government Procurement, 3rd ed. (Markham: LexisNexis Canada Inc., 2012), in which Emanuelli explains, at 295, that:
Under the common law tendering regime, if a tender is non-compliant, the bidder is deemed to have failed to meet the basic requirements necessary to “accept” the purchaser’s Contract A offer. Under this analysis, Contract A is never formed. The purchaser owes compliant bidders a duty to reject the non-compliant tender.
The Court cited the Supreme Court of Canada’s 2007 tender compliance decision in Double N Earthmovers v. Edmonton (City), which involved a 20-year lawsuit under a Contract A process contract over a bid compliance issue, and then cited the following legal principles that applied to non-compliant bids under those bidding rules:
In addition to Double N, I rely upon Emanuelli’s summary of the principles that relate to the duty to reject non-compliant tenders:
1. In a formal binding bidding process, the purchaser owes compliant bidders a duty to reject all non-compliant bidders.
2. A key issue is the standard by which compliance is assessed. The two possibilities are strict compliance and substantial compliance. Both standards are fairly strict but the substantial compliance standard allows the purchaser a limited discretion to waive minor non-material irregularities in a tender and holds that:
a. a tender can contain simple omissions or irregularities but remain capable of acceptance if it substantially complies with the tender call requirements;
b. a tender may not meet the substantial compliance standard if a material fact has been omitted or if the meaning of the tender is unclear; and
c. in relying on a substantial compliance standard, mischief should be avoided and the integrity of the bidding process should be preserved.
3. Where a tender call is silent regarding the standard of compliance, that standard may in certain circumstances be implied to be a substantial compliance standard. However, this is not always the case. Purchasers should therefore expressly state the standard by which they intend to measure a tender’s compliance with tender call requirements.
4. There are many types of non-compliance. They can be as varied as the compliance standards established by a purchaser in its tender call. Some of the recurring types of non-compliance include contractual and formal non-compliance, procedural non-compliance and technical non-compliance.
5. Tender compliance should be assessed based on the state of the tender at the tender submission deadline.
6. A purchaser is entitled to rely on a bidder’s representations of compliance and is not necessar[il]y required to investigate allegations of non-compliance raised by competing bidders during the tendering process.
7. To facilitate the proper assessment of compliance, a tender call should clearly distinguish between tender compliance standards post-bidding procedural requirements, and contract performance standards.
8. A purchaser cannot allow a bidder to repair a non-compliant tender or improve a tender after the tender submission deadline or allow a non-compliance tender to be cured through contract performance.
The Court found that in a Contract A bidding process, a conditional bid constituted a counter-offer that rendered a bid non-compliant and legally invalid:
ANALYSIS
Counsel are largely in agreement that this case requires consideration of whether Kannegiesser’s bid contained “(q)ualifications, reservations, conditions or out-of-scope alternative proposals” that would lead to the conclusion that Kannegiesser failed “to accept the purchaser’s offer to enter into Contract A and is found to be making a counter-offer that renders its tender non-compliant” (Emanuelli at 321)
The Court determined that the alternative performance method proposed by the bidder constituted a non-compliant, out-of-scope proposal:
Further, relying on Emanuelli’s text at 321, Kannegiesser’s commentary contained “qualifications, reservations, conditions or out-of-scope alternative proposals” that amount to a counter-offer. This renders the bid non-compliant.
As this case illustrates, the Contract A bidding process rules typically do not permit the acceptance of alternative proposals. Purchasing institutions that are seeking creative solutions from suppliers should therefore avoid those process rules and instead use flexible negotiated Request for Proposals formats that operate under traditional contract law and allow for the evaluation and award to suppliers that propose the best solution.
