This article is an excerpt from Government Procurement, which is available for purchase.
As recent cases have shown, the improper drafting of specifications can lead to downstream legal entanglements during the procurement process. The following examples highlight the importance of properly scoping specifications so they line up with budget limits.
In its decision in Stanco Projects Ltd. v. British Columbia (Ministry of Water, Land and Air Protection), the British Columbia Supreme Court found the government liable for bid shopping due to post-bidding price reduction negotiations conducted by the provincial government after all of the bids came in over budget. The case involved a tender call for a water system upgrade project at Cypress Bowl Provincial Park. The project contemplated the installation of two water tanks but after the tenders were opened a decision was made to proceed with just one tank due to budget constraints. The tender call did not contemplate the severance of the contract and failed to ask for separate pricing for each tank. The low bidder was asked by the government’s external advisors to provide a lower single tank price under an improvised post-bidding process that was referred to as an “Offer of Credit.” The government wanted the low bidder to offer a pro-rated one tank price based on the original two-tank price. However, due to the loss of volume discount, the low bidder was not prepared to offer the same unit pricing on a one tank project that it had offered on a two tank project.
One of the low bidder’s competitors was told the low bidder’s price and was allowed to submit a follow-up bid for the single tank. When it found out that other bidders were re-bidding, the plaintiff refused to engage in any further price discussions. The contract was ultimately awarded to one of the low bidder’s competitors. The low bidder filed a lawsuit for its lost profits. The trial court recognized that the law of tenders prohibits purchasers from seeking irrevocable bids and then engaging in post-bidding price reduction negotiations. As the court stated, this type of bid manipulation “is repugnant conduct which has no legitimate place in the proper operation of the tendering paradigm”. The court awarded the low bidder lost profit damages. This decision was subsequently upheld by the British Columbia Court of Appeal. As this case illustrates, the formal tendering process does not permit the safe re-scoping of project specifications after the receipt of binding bids.
The decision of the Newfoundland and Labrador Supreme Court in CMH Construction Ltd. v. Victoria (Town) offers a similar cautionary tale. The municipality received a single over-budget bid for its Victoria Municipal Centre renovation project. It then re-scoped the project, dividing it into three separate contracts and directly awarded those contracts to other suppliers. The original low bidder sued. In finding the municipality liable for bid shopping, the court was highly critical of the municipality’s initial specifications. The court found that those specifications were unrealistic in light of the project budget and that this unrealistic project scoping had caused the over-budget bid situation:
Victoria clearly has the right to set the terms of its tender call. Victoria also has the right not to award the work or to reject CMH’s bid in reliance on the privilege clause if it cannot afford the bid cost. However, in so doing, it must treat compliant bidders, with which it has formed a Contract A, fairly. Fair treatment in this case involves a recognition that budgetary concerns do not relieve an owner from its obligation to treat bidders fairly, and that its reasons for not awarding the work are subject to judicial review (see Rockwood and Crown Paving). In reviewing the circumstances leading to Victoria’s reason for rejecting CMH’s bid, it is clear that CMH’s bid exceeded the project budget because Victoria provided specifications in the Tender call which did not realistically permit a bidder to bid within the project budget. In this case, Victoria set Tender specifications for the work and materials far in excess of what its budget could cover.
The court also found that the municipality’s post-bid solution of dividing up the original project while the original bid remained valid and seeking follow-up bids from other contractors constituted bid shopping and breached the duty of fairness owed to the original bidder.
As these cases illustrates, budgetary constraints do not give purchasers free licence to safely engage in post-bid improvisations, scope re-adjustments and parallel bidding processes. Before going to tender, purchasers should therefore ensure that their project specifications are properly scoped to fall within their budget limits or select flexible tendering formats that permit post-bid price adjustments.
