This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its 2003 decision in Goodfellow’s Trucking Ltd. v. New Brunswick, the New Brunswick Court of Queen’s Bench found the purchaser liable for failing to properly disclose soil conditions in relation to a highway construction project. When it issued the tender call, the New Brunswick Department of Transport was aware of poor soil conditions that could adversely impact the project and increase the contractor’s costs. It failed to disclose those conditions.
The Court rejected the Department’s reliance on a general policy against disclosing such information, finding that this internal policy did not extinguish its duty of care or trump its duty to act fairly and in good faith:
In the case before me it is submitted that the Province made a policy decision not to disclose the water or moisture on its tender call — soil profiles. I believe, as do others, that a policy decision does not eliminate the prima facie duty of care …. Nor do I believe a policy decision trumps the duty of acting in fairness and good faith. There is no question that the clauses in the contract and standard specifications…are specific. But I believe the Court has an obligation both to the process and this particular tender to require the Province to disclose the very important fact of moisture and water. I acknowledge that there may be circumstances when the disclosure will not be required because the moisture is not significant but that is not the situation in this case.
This failure on the part of the Province resulted in the soil profiles being substantially different from the actual soil conditions on the Woodstock side of the project. In my opinion, the information was readily available to the province and in fairness ought to have been disclosed. This duty of care owed by the Province to the company has been breached and the Company has been damaged.
The Court awarded the plaintiff contractor over $226,000 in damages for the breach of the disclosure duty. The New Brunswick Court of Appeal subsequently upheld this finding of liability.
This case provides a good example of the disclosure duties and liabilities that can apply to purchasers during the tendering process. Purchasers are typically under a duty to disclose material information about the contemplated contract to all bidders. The failure to do so can create liabilities, give rise to litigation, and cause significant problems in contract performance. The cases on point have reflected the following governing principles:
- A purchaser should disclose all material information about the contemplated contract including information that could influence a bidder’s decision to bid or influence the price the bidder quotes in its tender.
- A purchaser should disclose any unusual or dangerous conditions that it is aware of and cannot typically avoid these duties by creating internal policies against disclosure.
- Tender call information should be correct and complete and be provided with the average bidder in mind. Tender call specifications should be drafted clearly and coherently.
- A purchaser should clearly disclaim any information that may be unreliable; however, disclaimers may not guard against inaccuracies or misrepresentations.
- A purchaser will be expected to honour the representations it makes during the tendering process, including the representations it makes regarding its roles and responsibilities during contract performance.
- A purchaser’s external advisors may also be liable to prejudiced bidders for failing to meet disclosure duties; however, any residual liability not allocated to the external advisors will tend to flow back to the purchaser.
As the cases illustrate, the bidding process is fraught with hidden risks and potentially significant liabilities for purchasers who fail to meet their disclosure duties.
