This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its May 23, 2018 decision in C.F. Construction Ltd. v. Town of Westville, the Supreme Court of Nova Scotia found the Town of Westville liable for improperly rejecting a low bid. The case dealt with a tender call for a sewer system upgrade project. The Town received four bids in the amount of $572,200, $674,000, $845,000, and $1,132,000, respectively. The Town rejected the low bidder as non-compliant and awarded to the second-lowest bid. The low bidder sued. The case turned on the post-bid discussions between the Town and the low bidder, and on the issue of whether the low bidder’s price was based on using a pre-cast concrete wet well as required in the specifications, or whether the low bidder planned on using an unapproved alternative approach based on a cast-in-place concrete wet well.
As the judgment summarized, the pre-cast approach set out in the specifications called for a prefabricated wet well that would have to be delivered to the location and installed, which posed some logistical issues due to overhead power lines at the location, whereas the cast-in-place alternative would allow the concrete to be poured on location. This would require the engineering of a mold but would simplify delivery and installation.
While both parties agreed that the alternative approach was discussed by telephone when the low bidder was approached by the Town as the presumptive winner, the low bidder maintained that its bid was always based on the pre-cast method and that it had simply inquired on the alternative approach to see if it could be approved as a change order to deal with the onsite problem of the overhead power lines. However, the Town, who was already concerned that the low bidder’s bid was significantly lower than the other bidders, interpreted these discussions to mean that the low bidder had based its bid on the alternative approach and that its low bid was therefore non-compliant.
The Town took the position that it was entitled to investigate the compliance of the bid and that it was under a legal duty to reject the low bid upon discovering that the pricing was based on an unapproved alternative construction method, since this constituted a counter-offer and rendered the low bid non-compliant:
The Town says the tender documents set out the only valid procedure for bidders to request alternatives to specified products before close of bids. C.F. did not use this procedure to request that a cast-in-place wet well be deemed an approved equivalent to a pre-cast wet well. The Town says that by submitting a bid priced to include an alternative product without prior approval, C.F. did not accept the terms of the Town’s Contract A offer, but rather submitted a counter-offer or a qualified bid. In Winbridge, supra, Warner, J. described counter-offers and qualified bids as examples of contractual or formal non-compliance:
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.
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.
However, the low bidder argued that its bid was compliant when submitted and that it could not be deemed non-compliant based on the undisclosed post-bid considerations and procedures applied by the Town:
C.F. submits, and the Town does not dispute, that C.F.’s bid met the terms and conditions of the instructions to bidders, and that C.F. properly completed the bid form. C.F. says there was no requirement for a bidder to demonstrate how it priced individual components of the work in calculating its lump sum bid price, and the Town breached its duty of fairness by evaluating C.F.’s bid on the basis of this undisclosed criteria.
The Court agreed. It determined that the Town’s original concern that the low bid was abnormally low led the Town to misinterpret its discussions with the low bidder and assume that the low bidder had bid based on an unapproved alternative approach:
There is no evidence that Mr. Jensen ever designed a cast-in-place concrete wet well or took any other step to determine how much a cast-in-place structure would cost. The only rational inference is that Paul Jensen intended to acquire and install the pre-cast concrete wet well specified in the tender documents, and priced C.F.’s bid accordingly. Having made that inference, I cannot accept that he told Mr. Browning that C.F.’s bid price included a cast-in-place wet well. For him to have done so would defy all logic. To be clear, I accept that Mr. Browning sincerely believes in the accuracy of his own recollection of the conversation with Mr. Jensen. I find, however, that he misunderstood what Mr. Jensen communicated to him.
I find that Oliver Browning assumed that something was amiss with the C.F. bid from the moment he saw that it was substantially lower than the other three bids. He was not aware that Craig Fraser had instructed Paul Jensen to “bid as low as possible and still make money”. In my view, Mr. Browning’s belief that the tender was abnormally low likely led him to misinterpret Mr. Jensen’s comments.
The Court also ruled that the post-bid discussions were irrelevant since the bid was compliant on its face when it was submitted and contained no conditions that would render it a counter-offer and therefore non-compliant:
Even if I accepted Oliver Browning’s version of the conversation with Paul Jensen, however, I would still find that C.F.’s bid was compliant when it was submitted, thereby creating Contract A. In Winbridge Construction Ltd. v. Halifax Regional Water Commission, 2015 NSSC 275, 2015 CarswellNS 811, Warner J. adopted the following passage from Paul Emanuelli’s Government Procurement, 3d ed. (Markham: LexisNexis 2012) on the issue of compliance:
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.
The Court ruled that the Town misapplied the duty to reject a non-compliant bid based on a flawed understanding of the facts:
The law is clear that compliance is to be measured objectively at the time the bid is submitted. This approach safeguards the integrity of the bidding process by preventing bidders from escaping their obligations on the basis of a calculation error or other subsequently discovered information. The C.F. bid, when measured objectively, was compliant with the terms of the tender call when it was submitted on October 9, 2014, and Contract A came into existence between the parties. As soon as C.F. submitted its bid, it was legally obliged to perform the work required by the bid documents, including the provision and installation of a pre-cast concrete wet well, for $572,000, if the Town accepted its bid. By disqualifying the C.F. bid on Mr. Browning’s understand of how C.F. priced an individual component of its lump sum bid price, the Town breached its duty to treat all bidders fairly and equally.
The low bidder was therefore awarded $356,000 in lost profit damages due to the improper rejection of its bid.
As this case illustrates, while purchasing institutions may be under a duty to reject non-compliant bids, they must first confirm that the bid in question is in fact non-compliant. Engaging in post-bid evaluation improvisations based on undisclosed evaluation criteria and unstructured oral communications is a high-risk approach to determining bid compliance. To better ensure the defensibility of contract award decisions, tender compliance requirements and pre-award conditions and procedures should be based on transparently applied criteria and processes.
