This article is an excerpt from Government Procurement, which is available for purchase.
In its September 2015 decision in Winbridge Construction Ltd. v. Halifax Regional Water Commission, the Nova Scotia Supreme Court found that the Halifax Regional Water Commission improperly accepted a non-compliant bid. However, the court rejected the lost profit claim brought by a competing bidder after determining that, even if the low bid had been rejected, the Commission would not have selected the plaintiff’s bid since it was significantly higher than the Commission’s approved budget.
The case dealt with a tender call for an upgrade project at a waste water treatment facility. The Commission accepted a low bid valued at $1.8 million. Winbridge Construction submitted the second-lowest bid at $2.2 million. It sued the Commission, alleging that the winning bid was non-compliant and that it should have been awarded the contact. The court agreed that the low bid was non-compliant but rejected the lost profit claim after finding that the plaintiff failed to prove that it would have been awarded the contract had the low bid been rejected.
With respect to the non-compliance issue, the court found that the low bid was improperly accepted since that bidder failed to attend a mandatory pre-bid site meeting. In its detailed analysis of the non-compliance issue, the court summarized the law as follows:
34 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.35 The chapter analyzes the duty, and organizes the governing principles into eight categories, four of which are relevant to this analysis.
36 First principle is that in a formal binding bidding process, the owner owes compliant bidders a duty to reject all non-compliant bidders.
37 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.
38 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.
39 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.
40 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.
41 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.
42 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.
43 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.
44 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.
45 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.
46 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.
47 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.
48 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.
49 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 its summary of the law, the court concluded that the Commission had acted improperly in permitting the low bidder a second site meeting opportunity without issuing an addendum notifying other bidders. It also held that the low bidder’s procedural non-compliance rendered its bid materially non-compliant and legally ineligible for acceptance:
50 I conclude that the failure of L&R to attend the mandatory site meeting of March 25th made its bid procedurally non-compliant. The tender package described the March 25th site meeting as mandatory. Failure to attend the mandatory site meeting of March 25th made L&R’s bid materially non-compliant.
However, the court ultimately determined that the plaintiff was not entitled to its lost profit claim since, even if the low bidder has been properly rejected, it was not likely that the contract would have been awarded to the plaintiff with its significantly higher bid:
113 As noted, the defendant could exercise discretion with respect to the criteria to be used in evaluating tenders and awarding contracts. That discretion specifically included, but was not limited, to price. I conclude that the plaintiff’s bid was so significantly above the amount budgeted for the Project, and for which it had approved funding, that the gap between the plaintiff’s bid and the funds available would not have been closed, even if the defendant in the exercise of its absolute discretion had decided that the Project as bid had sufficient value on a business-case analysis, and had considered the approved funding, the likely contingency allocation, and the right of the defendant to transfer surplus funds from other capital projects up to the sum of $250,000.00.
114 There was no evidence before the court that, if the defendant had conducted an internal review as a result of the significant amount by which the plaintiff’s tender exceeded the budget, the defendant would have or would likely have determined that the plaintiff’s tender for the Project on a reassessment would have merit on a business basis.
The court ultimately found that the Commission would have cancelled the project rather than obtaining additional funding and proceeding with the plaintiff’s over budget bid:
122 On the all evidence, I conclude that there is no merit to the submission that the Project had to proceed in 2010, or would likely have proceeded as tendered. By reason of the significant amount by which the plaintiff’s tender exceeded the budget and approved funding, the court is satisfied that the project would not have been awarded to the defendant as bid. Because of the significant amount by which the bid exceeded the approved funding, I conclude that the defendant would not have negotiated with the plaintiff. If the Project had been re-scoped (that is, reduced in scale), I conclude that it would not have been awarded to the plaintiff, but would rather have been retendered, because of the significant amount by which the plaintiff’s tender exceeded the approved funding.
123 Based on the evidence of all of the defence witnesses, I am satisfied that even if the defendant could have applied to the UARB for additional funding to award the plaintiff the contract in accordance with its bid, it would not have done so. There is no evidence whatsoever that the plaintiff’s bid merited award of the contract on a business case analysis.
124 The plaintiff’s second suggestion was that the defendant’s two million dollar budget was based on a 2008 cost estimate by CBCL Engineering and that, because it was two years old, it was an unreasonable basis upon which to establish a budget, obtain funding approval, or evaluate the plaintiff’s bid on its merits. There was no evidence before the court of any substantial change in the cost of this kind of construction in the two-year interval between the time of the estimate and the time of the tender call. With the benefit of hindsight, we know that the project was in fact completed for $24,000.00 under budget. There is no basis upon which the court could infer or conclude that the budget prepared by the defendant and for which it received approved funding from the UARB was unreasonable.
As this case illustrates, even if a bidder can prove a breach of the tendering rules, it is not automatically entitled to a remedy, but must also establish that the tendering breach cost it the contract award. In this case the court dismissed the claim after finding that the Commission’s budget estimate was reasonable and would have precluded an award to the plaintiff. However, as this latter part of the court’s reasoning underscores, an over-budget bid defence remains subject to judicial scrutiny regarding the credibility and reasonableness of the initial budget setting decision. Had the budget estimate been unreasonably low, the outcome of this case could have been significantly more costly to the Commission.
