Tendering Law: A Call For A Return To Our Roots

Introduction

The purpose of this paper is to make some observations from the perspective of a project lawyer on the Canadian law of tender as it has developed over the past 30 years since the Supreme Court of Canada's seminal decision in R. v. Ron Engineering & Construction (Eastern) Ltd. ("Ron Engineering").1

It has been suggested that "[t]he law of bidding and tendering is a juxtaposition of the principles of fairness and transparency in the tender process and the freedom of parties to contract upon terms that they negotiate or agree upon."2 This view imputes to the tender process a fairness requirement that is generally not found in the law of contract in Canada. This fairness requirement is seemingly defined by reference to an idealized vision of tendering that apparently exists beyond the four corners of a set of tender documents. Some proponents of this view also advocate for an ancillary requirement of "transparency" in the common law of tender, supposedly so that tenderers can have confidence in the fairness of the evaluation of tenders and the selection of the successful tenderer.

The thesis of this paper is that such a juxtaposition is unnecessary, and, in fact, is causing unanticipated harmful side effects for tender processes. Tendering is simply a vehicle by which parties enter a private contract. Based on the authors' experience there is no compelling reason why a tender process in Canada should attract a separate duty of fairness or a requirement of transparency beyond that which the general law of contract provides. In fact, in our observation, to the extent Courts have implied into Contract A additional requirements of fairness and transparency in tendering beyond what was reasonably anticipated by the participating parties at the time of the tender closing, little has been achieved to "protect the integrity of the tender process". Rather, this progression away from a strictly contractualbased view of the law of tender is causing uncertainty and additional costs to both owners and tenderers, and ironically is providing opportunities for mischief, thereby promoting the very harm that the Supreme Court of Canada was trying to prevent in Ron Engineering.

In some decisions there are statements that have a flavour of "consumer protectionism", apparently based on a view that in a tender process there is an inherent imbalance of power between an owner and tenderers which the Court should adjust by the imposition of extracontractual duties. Based on our experience there is no such imbalance. That view ignores commercial realities, including the usual steps an owner follows in deciding to invite the market to enter a contract and in drafting tender documents. The owner does not take such steps in a vacuum. However, even if there were such an imbalance, in this commercial field, unlike in the consumer protection area and other areas where there is a concern for individual rights related to concentrated economic power, we submit it should be for the legislature, and not the Courts, to consider public policy issues and develop the appropriate law.

The Purpose of Tendering

As a starting point, it is useful to revisit the purpose of tendering. The entire tender process is about contracting - the purpose of a tender is for an owner to identify a party who will enter into a contract with the owner. That contract is a private law contract. Once the contract is formed, strangers to the contract have no standing. Tendering is only concerned with the award of an ultimate contract agreed to by the contracting parties.

Elements of Canadian Tender Law

Beginnings - Ron Engineering and Freedom of Contract

It is well known that the Supreme Court of Canada laid the modern, legal foundation for competitive tendering in 1981 in Ron Engineering.

In Ron Engineering, a tenderer sought the return of its $150,000 tender deposit after discovering that its submitted tender, which was the lowest tender submitted, mistakenly omitted $750,058 in costs. Under the terms of the tender documents, any party who wished to submit a tender was required to submit a tender deposit. The tender documents also contained specific provisions under which a tenderer's tender deposit could be forfeited. The owner could keep the tender deposit if a tenderer withdrew its tender after the submission date or if the owner selected the tenderer's tender and forwarded the construction contract to the tenderer, but the tenderer did not return the executed contract, required bonds, and other documents within seven days.3

The tenderer submitted a tender as required by the tender documents, including a certified cheque for the tender deposit. When the owner opened the tenders the tenderer learned that its tender was approximately $632,000 lower than the next lowest tender. On review, the tenderer identified that it had made an error in its price. That same day, the tenderer informed the owner in writing that it had mistakenly omitted certain costs, and requested permission to withdraw its tender. The tenderer, however, later changed its position, maintaining that it had not withdrawn its tender. Rather, it argued that, by law, the owner could not accept the tender once the owner received notice of the tenderer's mistake, thus entitling the tenderer to the return of its deposit. The owner determined that it would not accede to the tenderer's request and instead elected to send the construction contract to the tenderer for signature. When the selected tenderer failed to return the executed contract within seven days as specified in the tender documents, the owner awarded the contract to the next lowest tenderer and took the position that it was entitled to retain the first selected tenderer's tender deposit.4

The trial judge agreed with the owner after finding, among other things, that the tender was "filed [. . .] as intended to be filed" and that there was no "error on the face of the tender".5 The Court of Appeal for Ontario reversed on the basis that an owner could not accept a tender or refuse to return a tender deposit when a mistake in the tender has been "proven by the production of reasonable evidence"6 at some date after tender submission.

The Supreme Court of Canada disagreed, reasoning that the law of mistake did not give the tenderer relief in this context because at the critical time - the time of tender submission - the parties were not mistaken in their intentions and the mistake was not apparent on the face of the tender.

In analyzing the two parties' rights with respect to the disputed tender deposit, the Court set out its now famous "Contract A" / "Contract B" analysis. The Court started with the proposition that participation in the tender process was purely voluntary:

Here the call for tenders created no obligation in the respondent or in anyone else in or out of the construction world.7

It is not until a tenderer responds to a call of tenders that duties and obligations arise, based on the law of contract, and subject to the terms and conditions in the tender documents:

When a member of the construction industry responds to the call for tenders, as the respondent has done here, that response takes the form of the submission of a tender, or a bid as it is sometimes called. The significance of the bid in law is that it at once becomes irrevocable if filed in conformity with the terms and conditions under which the call for tenders was made and if such terms so provide. [ . . . ] The principal term of contract A is the irrevocability of the bid, and the corollary term is the obligation in both parties to enter into a contract (contract B) upon the acceptance of the tender. Other terms include the qualified obligations of the owner to accept the lowest tender, and the degree of this obligation is controlled by the terms and conditions established in the call for tenders.8 (emphasis added)

The Court emphasized that the parties were in agreement that the tenderer submitted its tender in compliance with the terms and conditions of the tender documents. Further, there was no indication at the time of submission that the tender contained a mistake. Thus, "contract A came into being", meaning that the "rights of the parties fall to be decided according to the tender arrangements".9 Under those terms, the tender deposit was "recoverable [. . .] under certain conditions, none of which were met" and also "subject to forfeiture under another term of the contract, the provisions of...