In Procurement Law Basics Part 1, we covered the creation of Contract A and Contract B in a simple tendering process. In this Part 2, we start to look at one of the nuances that the courts have developed in deciding the contents of Contract A - the bidding contract.

MJB Enterprises

In 1999, the Supreme Court of Canada decided the case of MJB Enterprises Ltd. v. Defence Construction (1951) Ltd. This again was a straight forward tender case. However, in this case the tender price was partially comprised of unit prices. Bidders had to provide a single price for material for fill, and the owner had an option between two different types of fill that could be used in the contract at the end of the day. Each of these in practice would have a different cost, so bidders had to decide whether to bid the highest cost, the lowest cost or some average low cost, based on their experience. The lowest tender contained a note next to its unit prices clarifying that the prices were based on type 3 fill. The note clarified that if type 2 fill was required in a certain area, then an additional $60.00 per metre should be added to the price. Even at the higher price, this tender would have been the lowest price. The owner therefore treated this as a clarification to the tender and accepted it.

The SCC however held that the note was a qualification, making the tender invalid and that the owner did not have the right to accept an invalid tender. The tender document contained a clause saying “the lowest or any tender shall not necessarily be accepted”. The owner claimed that this gave it the privilege to accept any of the tenders, as it was clear that the lowest bid would not necessarily win. The SCC held that this provision did not go as far as the owner claimed.

Implied Term

The court pointed out that entering into a tender process can be expensive for bidders and therefore created a degree of risk. Bidders must prepare their tender document, put up the security and spend time in the process, with no guarantee of being awarded a contract at the end of the day. The court considered that no reasonable person would wish to expose themselves to that risk, if at the end of the day the owner had carte blanche to accept non-compliant tenders. The SCC therefore implied a term into Contract A that only a compliant bid would be accepted.

Privilege Clause

The privilege clause that the owner had relied on still had some validity. It meant that the owner did not have to accept the lowest tender price, but could take a “more nuanced view of cost than the prices quoted in the tenders”. For example, a tender with a slightly higher cost might provide a faster completion date or provide better value for money for the owner overall. However, there was nothing in the use of the word “cost” to suggest that the owner had the discretion to accept a non-compliant bid.

Coming up...

In the next installment of this series, we will consider the next clause implied into Contract A by the Supreme Court of Canada, an obligation to treat bidders fairly and equally.