January 19, 2007

Going through a legal battle can be a costly way to settle disputes arising from issues related to minor contractual issues and non-compliance with bid submissions.

Tendering

Non-compliance a sticking point in legal battles

Litigation an expensive way to settle issues

PETER KENTER

correspondent

In 1981, the Supreme Court of Canada’s decision in Ontario v. Ron Engineering changed the legal landscape of invitations to tender.

In that case, a bidder was prevented from revoking a bid on the grounds that the submission featured an omission. In the ensuing 25 years, a significant number of court cases have hinged on minor contractual issues, with compliant but failed bidders suing owners for lost profits because the winning bidder could be shown to be non-compliant.

“Most construction litigation is extremely expensive, but it doesn’t cost much to be heard in these cases,” says Christopher Hirst, a partner with Vancouver’s Alexander, Holburn, Beaudin & Lang.

“The litigation usually involves only a few small points, and the trial might last a week, so the damages you might be entitled to could be very significant compared to the cost of the trial.”

"Compliant in Canada means 100 per cent compliant to the words in the invitation to bid..."

Robert Worthington

Worthington and Associates

But there are exceptions.

The case of Double N Earthmovers Ltd. v. City of Edmonton was heard by the Supreme Court of Canada last summer.

Double N initially sued the City of Edmonton in 1986 because the city accepted a non-compliant bid from rival firm, Sureway Construction.

Although Sureway’s bid was lowest, the contract specified that all equipment used in fulfilling the contract must be from 1980 or newer.

The company’s equipment was later shown to be a 1979 model.

“Sometimes things move very slowly,” says Samuel Kravinchuk, a lawyer representing Double N. “It’s an embarrassment for my client.”

In other cases, a tiny omission provides a legal focal point. In Johnson’s Construction Ltd. v. Newfoundland (2000), The Newfoundland Supreme Court ruled that an owner had no right to accept a bid that was missing one unit price, because the owner had made this a condition of acceptance.

Owners are attempting to sidestep such legal perils by carefully wording their tender documents, says Robert Worthington, president of Surrey, BC law firm Worthington and Associates, and author of the Purchasing Law Handbook.

“Compliant in Canada means 100 per cent compliant to the words in the invitation to bid, both for the bidder and for the owner in the evaluation process. Some owners try to expressly claim the right to waive non-compliance, but isn’t that contrary to the rules?”

Worthington notes some large companies no longer accept competitive bids because the legal risk of a lawsuit arguing non-compliance is too great.

“A Shell or Imperial Oil working on a big Oil Sands project knows what it wants and knows what the price should be and avoids competitive bidding altogether. They’re just saying ‘we don’t want to get involved in these lawsuits.’”

Worthington says the law won’t stand still. “Some people will say they liked the rules when John A. MacDonald was a kid, but an appeals court will alter them. Although people apply constantly, the Supreme Court of Canada doesn’t hear many cases, but will step in every few years and restate the law, adjusting it but not reversing it.”

A decision in the Double N case is expected soon.

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