This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its March 2008 decision in Aloia Bros. Concrete Contractors Ltd. v. Richmond Hill (Town), the Ontario Superior Court of Justice dismissed a low bidder claim and allowed the municipality to cancel its bidding process without liability after receiving a single overbudget bid. The case involved an Invitation to Tender (ITT) for a road construction project where the sole bidder submitted a $1.6 million bid which was rejected by the municipal council. The bidder sued for its lost profits, arguing that the municipality had relied on undisclosed budgetary considerations to cancel, but the Court rejected the claim, finding that the Town was not liable for cancelling due to undisclosed budgetary constraints and was not required to negotiate with the sole bidder to seek price improvements:
It is the plaintiff’s position that the duty to act fairly was breached by the defendant when it failed to disclose the amount of money it had budgeted for this contract. I find that there was no duty owed to bidders to reveal the amount budgeted by Town Council for the project. Even if there was such a duty owed, in this case, after having done its estimates of costs to do the contract, the plaintiff’s costs exceeded the defendant’s budget amount. In such case, the plaintiff would not have tendered.
The plaintiff’s position is that there was a duty to negotiate on the part of Town Council. There is no legal basis for this position. The defendant’s procurement by-law No. 221-04, provides that all procurement matters in excess of $500,000.00 fall within the jurisdiction of town council. Part 5 of the by-law provides that the Manager of Supplies and Services may enter into negotiations in certain circumstances, as set out therein. Part 5 must be read in conjunction with Part 4, i.e. the Manager of Supplies and Services may negotiate in respect of those contracts in which he is authorized under that part of the by-law. The by-law does not provide that Town Council has a duty to negotiate in respect of those matters solely within its jurisdiction.
In any event, in this case, it is highly unlikely that negotiations between the plaintiff and defendant would have resulted in the parties reaching an agreement. The plaintiff’s bid exceeded the budget for this project by $321,190.00 or 21.6 per cent. It is the plaintiff’s evidence that if he had received the contract based upon his estimate of costs and his bid, he would have realized a profit of approximately $166,000.00. With a difference of $321,190.00 between the budget and the bid, it is highly unlikely that the defendant would have agreed to pay more than its budget and, as well, highly unlikely the plaintiff would reduce his price and put itself into a loss position.
As well, it is clear on the evidence that the plaintiff at no time asked to negotiate the price. The plaintiff appeared before the Committee of the Whole and Council on separate occasions. On those occasions, the plaintiff was of the view that since it was lowest bid, it was entitled to the award of the contract.
As this case illustrates, cancellation decisions attract the risk of legal challenge, even when those decisions are made for valid budgetary reasons. Purchasing institutions should therefore proceed with caution and explore all other reasonable options before deciding to cancel a tendering process.
