Summer Tendering Update: Reasonable Expectations And Negative Contingencies

A recent decision from the Alberta Court of Queen's Bench and Court of Appeal in Elan Construction considered and clarified two aspects of tendering law.

In Elan Construction Limited v South Fish Creek Recreational Association, 2015 ABQB 330, the Alberta Court of Queen's bench ruled that, despite the reservation of "sole and unfettered discretion" for the benefit of an owner when applying bid evaluation criteria, an owner could not depart from the reasonable expectations of the bidders which were formed by the terms and conditions of the tender documents. With that said, the Court of Queen's Bench found there were no damages to the wronged bidder considering the selected bidder had lost money on the project.

On appeal, in Elan Construction Limited v South Fish Creek Recreational Association, 2016 ABCA 215, the Court of Appeal confirmed the Court of Queen's Bench's decision on the interpretation of the "sole and unfettered discretion" clause but overturned the damages decision and awarded damages. The Court of Appeal confirmed that while a reduction in the quantum of damages for a successful claim for lost profits is possible, the breaching party must plead such defence and show compelling evidence to establish that events which resulted in lost profits or increases expenses of the initial winning bidder (negative contingencies) would have affected the losing bidder if they had won the tender.

Exercise of Discretion Cannot Depart from Bidders' Reasonable Expectations

Background

In Elan Construction, the South Fish Creek Recreational Association issued a tender for the expansion of a recreational complex. The tender included an evaluation matrix which allocated points to various elements, including contract price and date of completion.

The tender documents emphasized the significance of an August 1, 2011, completion date but did not make it a hard condition. In addition, the "Instruction to Bidders" included a provision to the effect that Fish Creek retained "sole and unfettered discretion" over the evaluation of the bids.

Elan Construction Limited submitted a bid with a completion date of August 1, 2011, and the lowest bid price. Chandos Construction Ltd. submitted a bid with a completion date of August 31, 2011. After receipt of the bids, Fish Creek implemented a points allocation system which assessed the bid based on how far the completion date was from the average date submitted by all bidders, which was September 5, 2011. This...