Maystar and the Integrity of the Tendering Process

Tender law has been determined more by common law than legislation. Four Supreme Court of Canada (“SCC”) cases form the basis of tender law in Canada: The Queen (Ont) v Ron Engineering, [1981] 1 SCR 111, MJB Enterprises Ltd v Defence Construction (1951) Limited, [1999] 1 SCR 619 [MJB Enterprises], Martel Building Ltd v Canada, [2000] 2 SCR 860 [Martel], and recently, Double N Earthmovers Ltd v Edmonton (City), [2007] 1 SCR 116 [Double N Earthmovers]. These cases enumerate some of the general principles of tender law.

There is an obligation on both the owner and bidder to comply with the terms and conditions of the tender document. Owners must act equally and in good faith towards all the bidders, especially during the tender evaluation process as established in Martel. The decision to accept or reject the tender should be based on criteria stated in the terms and conditions of the tender, expressly or impliedly. In MJB Enterprises, the Court held that there was an implied duty on the owner to accept only compliant bids. Double N Earthmovers ruled that the bids must be substantially compliant with all material conditions of a tender. If a bid does not substantially comply with the terms, then the owner cannot amend or waive the errors and accept the amended bid, as this would result in a breach of the duty of fairness towards the other bidders.

The decision in Maystar General Contractors Inc v Newmarket (Town), 2009 ONCA 675 [Maystar], reiterates all these basic principles and warns that not adhering to them can lead to a damages claim by the other bidders. The decision emphasized the importance of preserving the integrity of the fair bidding process. The court reasoned that it would not be advantageous for a contractor to submit bids for an expensive and time-consuming tendering process if the owner could simply circumvent the process and accept a non-compliant bid.

Background

In July of 2005, the Town of Newmarket issued a tender notice for the construction of a new recreational facility known as the “Stickwood Walker Recreation Facility” (“the Project”) and invited qualified contractors to bid on the project. Unofficially, Maystar was the lowest compliant bidder and Bondfield was the second lowest. Upon review of bids for compliance and accuracy, it was discovered that the Bondfield bid contained a discrepancy in their calculation. They used the wrong stipulated price to calculate the GST. When this arithmetic error was corrected, it reduced Bondfield’s bid to the lowest bid price. The Town amended Bondfield’s bid and accepted the corrected bid. Maystar brought a claim against the Town for breaching their duty of fairness towards Maystar and the other bidders by amending and accepting a competitor’s non-compliant bid.

Analysis

The main issue in Maystar, as per Feldman J.A., is whether the bid containing the price discrepancy substantially complied with the tender requirements and was therefore capable of being accepted by the Town. The Ontario Court of Appeal (“ONCA”) reaffirmed the application judge’s finding that due to the uncertainty in the price, the bid was non-compliant and thus was incapable of forming the basis of a contract. The court held that because the GST and the total cost of the work reflect a stipulated price that was different from the one on the contract, it was unclear which price Bondfield had intended. This was distinguished from Bradscot (MCL) Ltd v Hamilton-Wentworth Catholic District School Board, (1999) 42 OR (3d) 723, where the bid was certainly about the stipulated price, but contained an error in the paragraph with the GST.

Furthermore, the tender agreement did not contain any express or implied provisions that allowed the Town to amend the errors in the Bondfield’s bid so that it met the compliance requirements set out by the agreement. The Town was acting in the best interests of the citizens by accepting the lowest bid. However, by amending the incorrect bid, it breached its duty to the other bidders to treat them equally and fairly. Although the contract did not contain any express provisions allowing the Town to amend the bids, Feldman J.A. found that the Town was acting in good faith. Nevertheless, she held that a good faith defence was not available to a claim for breach of contract.

Decision

The court dismissed the appeal with costs of $30,000. By ruling in favor of Bondfield, the court reinforced the SCC’s doctrine of “integrity of the tendering process.” The ONCA held:

“the integrity of the tender process is essential in order to foster a fair and orderly bidding process where contractors will expend the time, effort and expense to bid, knowing they will be treated fairly and equally.”

An owner should not be able to circumvent the process and accept non-compliant bids. The courts held that a “public owner cannot undermine that process by purporting to accept a bid with an uncertain price, or to encourage contractors to believe that they can communicate with owners after the fact to clarify or explain inconsistencies in their bids.”

Implications for Owners

Both the owners and bidders are subject to the rules of the tendering process and the decision in Maystar has various implications for both parties involved. If owners breach the duty of fairness owed to the bidders, then it will lead to situations where bidders becomes too apathetic with the process to participate. With a decrease in participation, owners will not be able to take advantage of a competitive bidding atmosphere. Furthermore, it can result in an imbalance in negotiating power in favor of the bidder, where the owner will not receive the best and lowest bid, leading to a reduction in synergy and increase in costs.

By ruling in favor of the bidders, the court in Maystar encourages this synergistic bidding process. However, the implication of this decision for owners is to be extra-cautious when reviewing and evaluating bids for compliance and taking extra care to reject non-compliant bids. They should reconsider amending incorrect bids and should only do so if the contract expressly allows it. If there is any doubt in determining compliance, the owners should err on the side of the compliant bid instead of the non-compliant lower bid. Owners should take care to avoid negotiations or communication with one bidder over others after the bids are tendered to prevent an assertion of preferential treatment and bias. To reduce uncertainty, owners should expressly provide for the option to amend and clarify non-compliant bids in the tendering agreement.

Implications for Bidders

Even though the decision in Maystar ruled in favor of the bidders, it likewise has various implications for contractors bidding for a particular tender. Bidders should also be extra-cautious when submitting non-compliant or erroneous bids. The court in Maystar affirmed that even if the owners accept a non-compliant bid, courts will rule in favor of the compliant bid because of compelling public policy considerations, such as maintaining the integrity of the tendering process. Therefore, non-compliant bidders cannot rely on owners to amend and accept their substantially non-compliant bid. Such bidders should also avoid negotiations after the bids are tendered so as to maintain an unbiased, equal and fair process. As a general rule, bidders should double-check and all bids tendered to avoid any miscalculations. On the positive side, this decision favors those bids that were lower than intended because of arithmetic or clerical errors. These lower bids can be withdrawn due to non-compliancce and can save the bidder time and money because of a miscalculation.

Final Thoughts…

Many critics believe that this case is an indication that the Province of Ontario should set up clear guidelines and legislation on acceptable practices in tender law. Tender law deals with millions of dollars and large construction projects requiring a large influx of time, money and resources. Because of the magnitude of this undertaking, uncertainty should be limited and general principles should not be modified on a case-by-case basis. Perhaps it is time for the legislation to step in and clarify the process, setting out clear, standardized rules and regulations. With the Canadian economy recovering and the construction industry stabilizing and growing, there is more of a need now for tender law to be clear and predictable.