This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its December 2011 ruling in Manitoba Eastern Star Chalet Inc. v. Dominion Construction Co., the Manitoba Court of Queen’s Bench ordered a low bidder to pay $500,000 in damages after that bidder walked away from its bid due to a pricing error. The dispute dealt with a construction project in Winnipeg, Manitoba. The low bidder claimed that it made a substantial error in its $2.45 million bid. However, the Court found that the error was not obvious on the face of the bid and that the bid was therefore legally valid and eligible for acceptance, thereby making the bidder bound to its bid. The Court summarized the relevant law under Contract A bidding process rules as follows:
A useful summary may be found in the treatise of Paul Emanuelli, Government Procurement, 2d ed. (Markham, Ont.: LexisNexis Canada Inc., 2008) at 499, wherein he set out the governing principles related to those circumstances where a bidder has endeavoured to renege on its tender based upon mistake or non-compliance:
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In a formal legally binding bidding process, a bidder is typically under a duty to honour its tender if it is selected by the purchaser. A bidder that fails to honour its tender may be liable for the difference between its tender and the next-best bid.
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A non-compliant tender is generally seen to be incapable of acceptance and a non-compliant bidder is therefore generally not liable for failing to honour its tender.
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In cases where the bidder has alleged that it made a mistake which rendered its tender non-compliant and incapable of acceptance, the courts have tended to distinguish between tenders containing patent and latent errors:
a. Tenders containing patent errors (that are apparent to the purchaser on the face of the tender) are typically held to be legally incapable of acceptance and bidders are therefore typically not liable for failing to honour such tenders.
b. Tenders containing latent errors (that are not obvious to the purchaser) are generally seen to be capable of acceptance and bidders may be liable for failing to honour such tenders. -
In instances where the selected bidder fails to honour its tender in a timely fashion, purchasers may be entitled to rescind the selection of the tender and proceed with the selection of the next-best bid. However, purchasers should be careful to confirm that the selected bidder is actually refusing to honour its tender before rescinding the selection.
The low bidder was therefore liable for failing to enter into the construction contract with the owner for the amount stated in its bid since the error in question was a non-apparent latent error and the bid was therefore still legally valid.
As this case illustrates, the outcome of Contract A bid disputes will often turn on the fine legal technicalities relating to tender compliance. While the Contract A rules allow the purchasing institution to obtain a financial remedy by calling on the bid security if a bidder refuses to honour its bid, those Contract A rules also give bidders the right to seek monetary remedies against the purchasing institution. While these Contract A rules may apply at common law in many Commonwealth jurisdictions, those principles have not been applied universally across all jurisdictions.
