This article is an excerpt from Government Procurement, which is available for purchase.
The Supreme Court of Canada’s January 2007 five-to-four split decision in Double N Earthmovers Ltd. v. Edmonton (City) serves as a perfect case study to illustrate the contentious nature of tender compliance disputes. The case involved a City of Edmonton tender call for refuse removal services that required contractors to use equipment dated 1980 or newer. The Supreme Court was deeply divided on whether the city had a duty to confirm allegations that the winning bidder’s equipment did not meet the required standard. The majority decided that the city could take the winning bidder’s assertions of compliance at face value without further investigation. The minority disagreed, finding that this undermined the integrity of the tendering process by allowing a deceitful bidder to win a contract based on an inaccurate tender.
Under Canadian law, the parties in a formal tendering process create a preliminary contract, known as Contract A, which governs the competitive phase of the procurement process from the time that tenders are submitted until the award of the tendered contract, which is referred to as Contract B. Under Contract A, the purchaser owes compliant bidders an implied duty to reject non-compliant tenders. Contract A gives competing bidders legal standing to sue purchasers for contract awards made to non-compliant bidders. The plaintiff, Double N Earthmovers, raised the alleged non-compliance of its competitor prior to the award of the contract. The city failed to investigate this allegation and awarded the contract. When it later discovered that the winning bidder had misrepresented the date of its equipment, the city waived the requirement and proceeded with the performance of the awarded contract. Double N Earthmovers sued. Twenty years later the case culminated with a controversial Supreme Court split decision.
The five-judge majority held that the city was not under a duty to investigate the allegations of non-compliance, stating that “contrary to Double N’s suggestions, allegations raised by rival bidders do not compel purchasers to investigate the bids made by others. This would encourage unwarranted and unfair attacks by rival bidders and invite unequal treatment of bidders by purchasers. This would frustrate, rather than enhance, the integrity of the bidding process.” The majority concluded that the city was not aware of the winning bidder’s deceit until after the contract was awarded and found that by this point in the process, the issue was a matter to be dealt with between the purchaser and bidder. Competing bidders no longer had standing to challenge the process under Contract A since Contract A came to an end once Contract B was awarded.
The four-judge minority found that this result seriously undermined the integrity of the tendering process, stating that the case was a “cautionary tale of a tendering process gone badly wrong. Although in some business contexts parties might decide to turn a blind eye to contractual inaccuracies and ambiguities, the tendering process is different. It is a process in which fairness and integrity are of paramount importance.” The minority concluded that the city was under a duty to confirm the compliance of a tender, noting that the “obligation to accept only a compliant bid would be meaningless if it did not include the duty to take reasonable steps to ensure that the bid is compliant. In my view, checking the equipment particulars – particulars which the city itself called for – against its own records was one such reasonable step the city was obliged to take in evaluating the bids for compliance. I agree with the trial judge’s conclusion that, if there was such a duty, the city was negligent in failing to check its own records.”
The minority found that this failure to investigate encouraged dishonesty in the tendering process, stating that a “bidder can submit a bid that is either ambiguous or deliberately misleading but compliant on its face in some respects, secure in the knowledge that if it is awarded Contract B it will be in a strong position to renegotiate essential terms of the contract.” To support its point, the dissenting judgment noted that the city failed to enforce the relevant contractual requirement, thereby allowing a deceitful bidder to win a contract award based on an inaccurate bid and then reap the rewards of that deceit.
As this controversial case illustrates, tender compliance is a certified danger zone, fraught with inherent risk and uncertainty. To reduce their risk, purchasers should exercise a high degree of diligence when establishing tender compliance requirements. The fact that the city waived the requirement once the contract was awarded begs the question of why it was included as a tender compliance requirement in the first place. While the contract award was ultimately upheld, fighting a twenty year legal battle to defend a tendering process based on an unnecessary tender compliance requirement is a far cry from victory for either the purchaser or the taxpayer. To help avoid the risk and uncertainty of similar future controversies, tender call drafters would be wise to limit their compliance requirements to those essential minimum requirements that are capable of a clear and objective assessment at the time of tender submission.
