This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In a September 2015 ruling Winbridge Construction Ltd. v. Halifax Regional Water Commission, the Nova Scotia Supreme Court found that the Halifax Regional Water Commission accepted a non-compliant bid from a bidder that failed to attend a mandatory pre-bid meeting. The bid dispute involved a tendering process for a wastewater treatment facility upgrade project. The Court summarized the applicable law regarding tender compliance under the Contract A process contract as follows:
Emanuelli, in Government Procurement, at ch. 6, synthesizes thoroughly the governing principles respecting the duty to reject non-compliant tenders. He states:
As the Supreme Court of Canada noted in its November 2000 decision in Martel Building Ltd. v Canada, the implied duty to reject non-compliant tenders is one of the cornerstones of a formal bidding process:
…
The law is clear. In a formal binding bidding process, a purchaser is under a duty to reject non-compliant tenders.
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.
… While this duty may be simple to state in principle, it can be complicated to apply in practice.
The chapter analyzes the duty, and organizes the governing principles into eight categories, four of which are relevant to this analysis.
First principle is that in a formal binding bidding process, the owner owes compliant bidders a duty to reject all non-compliant bidders.
The second governing principle deals with the key issue of the standard by which compliance is assessed. Emanuelli states that the two possibilities are strict compliance and substantial compliance. Both standards are fairly strict, but the substantial compliance standard allows the owner a limited discretion to waive minor non-material irregularities in a tender. As set out by the British Columbia Court of Appeal in British Columbia v SCI Engineers and Constructors Inc., [1993] B.C.J. No. 248, the substantial compliance standard contains three elements:
i. A tender can contain simple omissions or irregularities, but remain capable of acceptance if it substantially complies with the tender call requirements.
ii. 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.
iii. In relying on a substantial compliance standard, mischief should be avoided and the integrity of the bidding process should be preserved.
This governing principle was applied in Maritime Excavators (1994) Ltd. v Nova Scotia, [2000] N.S.J. No. 85, where the court held that the non-compliance in question must be material in order to constitute a non-compliant tender incapable of acceptance. The court held that non-compliance alone was insufficient. The non-compliance had to be material. The onus of establishing that non-compliance was not material was on the owner.
Relevant to this case is the analysis in Kinetic Construction Ltd. v Comox-Strathcona, 2004 BCCA 485 (“Kinetic”). The Court of Appeal upheld a trial court decision that found the owner was within its rights when it bypassed a plaintiff’s low bid in favor of a higher, non-compliant tender. The decision turned on the existence of a privilege clause that expressly reserved the right in the tender documents to accept a non-compliant bid.
The reservation in the tender documents in Kinetic of the right to waive minor errors or immaterial non-compliance did not suffice to justify acceptance of a materially non-compliant bid. The decision emphasized the importance set out in several Supreme Court of Canada decisions that any privilege clause, or interpretation of whether non-compliance was material, depends upon the interpretation of the privilege or exclusion clauses in the context of the tender documents as a whole.
In Double N, the Supreme Court of Canada upheld, in a split decision, a determination by the British Columbia Court of Appeal that a duty to reject a substantially non-compliant tender does not survive the expiry of a Contract A. The significant but unique contractual circumstance in that case was that the non-compliance was latent (the age of the equipment proposed to be used by the successful bidder), ergo, the owner could not determine the non-compliance from the bid documents. I infer that the conclusion in Double N would not likely have been the same if the material non-compliance had been patent.
In Halifax v England Paving and Contracting Limited, 2009 NSSC 224, the court applied the substantial compliance standard. It held that a low bidder’s failure to submit a pricing schedule, when the tender documents called for a unit price contract, constituted a material non-compliance, and obliged the owner not to consider the bid.
There are many types of non-compliance. As Emanuelli writes, they can be as varied as the compliance standards established by an owner in its tender documents. Emanuelli identifies three categories of non-compliance, which he emphasizes are simply useful reference points and are not water-tight compartments or exhaustive.
One type is contractual or formal non-compliance. This non-compliance arises most frequently where a bidder qualifies the bid, or effectively makes a counteroffer in response to a tender call. Where a bidder imposes conditions on a tender which effectively constitute a counter-offer, there is no meeting of the minds and no Contract A can be formed.
Similarly, where the contents of a bid contain ambiguities such that the final bid price cannot be determined, then the bid is not capable of creating a Contract A. A Nova Scotia decision representative of this type of non-compliance is Steelmac Ltd. v Nova Scotia, 2007 NSSC 156, where the court upheld the owner’s decision to reject a low bidder’s tender for non-compliance because the tender call prescribed the use of a particular form and the bidder submitted its bid on the wrong form. The bid did not contain the bidder’s declaration in a way that would create a contract between the bidder and the owner.
In Tercon, the tender documents clearly prohibited award of the contract to a joint venture. The successful low bidder constructed their bid in a manner that it did not appear, but was in reality, a joint venture. The bid was therefore non-compliant in a material way and the defendant government could not accept the non-compliant bid.
A second category of non-compliance is procedural non-compliance. This involves consideration of the bidder’s adherence to the procedural rules in the particular tender call. Procedural matters usually attract a strict compliance standard. Owners are required to disqualify bidders who do not follow the rules. The need for strict procedural standards has been held by the Supreme Court of Canada to be necessary to protect the integrity of the tendering system.
An example of procedural non-compliance is the Admiral Roofing decision. The court rejected the bidder who was late for a mandatory pre-bid site visit. One aspect of the tender documents in the Admiral Roofing case that distinguishes those documents from the Tender Documents in this case is that, in Admiral Roofing, the clause containing the mandatory site meeting expressly specified that failure to attend and register would lead to the non-acceptance by the owner. That clause does not exist in this case.
A third category of non-compliance is technical non-compliance. This usually deals with the technical merits of the tender or the bidder’s qualifications. This category is not relevant to the case at bar.
After summarizing the relevant law, the Court decided that the Commission breached the tendering process rules by allowing the bidder a second opportunity to attend a site meeting without first formally amending the bidding process rules to notify other potential bidders of the rule change. This procedural irregularity was fatal to the bidding process and to the low bidder’s eligibility to submit a valid bid.
