RC106 MayJune2023 - Magazine - Page 24
ALL’S FAIR IN THE
What are an owner’s obligations when faced with deficient bids?
by H. David Edinger, Mollie Deyong and Sharla Johnson
H. David Edinger
is a Partner in the
Practice Group at
Reynolds Vogel LLP.
Mollie Deyong and
Sharla Johnson are
Associates in the
Practice Group at
Reynolds Vogel LLP.
Overview of the tendering process
Tendering is the process by which a party that
wishes to enter into a contract for goods or services on a
project, typically the owner of the project, solicits binding
offers with a view to obtaining the best price and most
favourable terms.1 A “bid” and a “tender” are interchangeable terms for offers to enter into a contract on the terms
set out by the owner.2 The owner sets the terms by issuing
a call for tenders, which contains instructions that define
the terms under which bids or tenders will be accepted.3
Development of the bid or tender requirements and evaluation criteria requires owners to carefully consider the
requirements of a successful bid before issuing a call for
Prior to the deadline for submitting a bid, interested
parties review the owner’s tendering documents and
attempt to determine the cost of completing the work and
the price at which they are willing to fulfil the contract
requirements. Upon submitting a bid, a “Bid Contract” (or
“Contract A”) is formed. This Bid Contract renders the bid
irrevocable and, subject to the terms of the tender, obliges
the owner to accept the lowest bid that complies with
the specifications in the tendering documents.4 Once the
owner has selected the lowest bid, the parties enter into a
“Construction Contract”5 (or “Contract B”) which governs
the completion of the project.6
A general constraint imposed on owners by the common law when reviewing bids or tenders for compliance
or when evaluating them is a duty of fairness owed to
all bidders under the Bid Contract.7 This duty of fairness
is an implied contractual term, the content and scope of
which depends on the terms of the tender documents.8
Regardless of the terms of the tender documents, the duty
of fairness is an obligation to treat all bidders equally, and
not arbitrarily or capriciously, and in accordance with the
stated selection procedure.9
Mistakenly deficient bids
To select a successful bid, the owner must evaluate the
bids using the criteria set out in the tendering documents.
RENEW CANADA – MAY/JUNE 2023
However, important factors sometimes fail to be identified in the tendering documents for a variety of reasons.
Bidders can also forget to include certain key information
when submitting their bid.
While the lack of some information may be inconsequential, if certain fundamental information is missing
the bid may be considered non-compliant and must be
eliminated from the competition in order to uphold the
owner’s duty of fairness to the other compliant bids.
It is also possible that one small error or omission
in the tendering documents may cause every bid to
be non-compliant. Although such a situation may also
coincidentally arise due to independent mistakes by each
bidder, it is more likely to arise when the owner has made
a mistake in the tender documents. Regardless of who is
responsible, the same legal principles apply. However, the
reason for the non-compliances will inform the appropriate response.
To stay within the rules of the duty of fairness and
avoid compromising the integrity of the tendering process, careful consideration of the common law of contract
Are the bids materially compliant?
The owner must first determine whether the deficiency in each bid is so fundamental that it renders the
bid non-compliant. When courts decide this, they first
analyze whether the bid was strictly compliant and then
whether the bid was substantially compliant in light of
the overall nature of the bidding process employed by the
owner, including the owner’s discretion clause and the
nature of the non-compliance.10
A discretion clause generally allows the owner to
waive minor or immaterial defects in substantially compliant bids. However, even where there is a broad discretion clause, courts will not allow the owner to proceed by
whim. The owner will be permitted to ignore immaterial
non-compliance but cannot ignore material non-compliance.11 In the case of immaterial non-compliance, the
owner can proceed to consider the non-compliant bids, although the owner should carefully and transparently document its process and rationale for determining that the
bids are materially compliant. If the bids contain material
non-compliances, the owner cannot ignore the non-com-
WNERS OWE A PROCEDURAL DUTY of fairness to all compliant bidders during the tendering process, but what
happens when all the bids are non-compliant?