This article is an excerpt from Government Procurement, which is available for purchase.
In its February 2015 decision in Eastern Regional Health Authority v. Kannegiesser Canada Inc., the Newfoundland and Labrador Supreme Court – Trial Division upheld the government’s decision to reject a bid on the basis that it contained proposed alternative performance methods that amounted to a non-compliant counter-offer. The case dealt with a tender call for the acquisition of central laundry equipment. The plaintiff bidder brought a legal action challenging its rejection. The court summarized the relevant law as follows:
THE LAW
19 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 v. Construction (Eastern) Ltd.,[1981] 1 S.C.R. 111:20
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.
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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.
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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.
20 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.After citing the Supreme Court of Canada’s Double N Earthmovers v. Edmonton City) as a leading authority on the issue of tender compliance, the court adopted the following principles relating to the duty to reject non-compliant bids:
33 In addition to Double N, I rely upon Emanuelli’s summary of the principles that relate to the duty to reject non-compliant tenders:
In a formal binding bidding process, the purchaser owes compliant bidders a duty to reject all non-compliant bidders.
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 tender can contain simple omissions or irregularities but remain capable of acceptance if it substantially complies with the tender call requirements;
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
in relying on a substantial compliance standard, mischief should be avoided and the integrity of the bidding process should be preserved.
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.
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.
Tender compliance should be assessed based on the state of the tender at the tender submission deadline.
A purchaser is entitled to rely on a bidder’s representations of compliance and is not necessarily required to investigate allegations of non-compliance raised by competing bidders during the tendering process.
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.
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-compliant tender to be cured through contract performance.
In its subsequent analysis of the issue, the court recognized that qualifying statements or counter-offers contained in a bid can render that bid contractually non-compliant and legally incapable of acceptance:
ANALYSIS
34 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)In applying the governing principles to the facts of the case, the court determined that the rejected bidder had submitted content in its bid that rendered is bid non-responsive to the solicitation requirements since it proposed alternative methods of performing the required work:
43 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.
The court ultimately determined that accepting the alternate bid would be unfair to other bidders:
45 Allowing Kannegiesser to deviate from Eastern Health’s requirement that the vendor was to provide the metering equipment would not only offend the Tender’s requirement of a turn-key result but would also result in unfairness to other bidders who, if they had had the chance to bid in this alternative manner, may have bid on different terms.
This decision illustrates how the duty to reject non-compliant bids restricts the ability of a purchasing institution to consider alternate performance methods proposed by competing bidders when using a Contract A bidding process.
