Two Recent Appellate Decisions Discuss Discretion And Privilege Clauses In A Competitive Bidding Process

The courts of appeal of British Columbia and Alberta have recently released decisions dealing with the effect of discretion and privilege clauses often used by owners in calls for competitive bids.1 Though privilege clauses and discretion clauses are different, they are related both in their purpose and in the way courts have sought to limit their effect in order to preserve the integrity of the tendering process. The way courts have done this has been to require that winning bidders must, notwithstanding any discretion or privilege clauses, be selected based on evaluation criteria that can be reasonably inferred from the tender documents themselves, as understood within the context of the needs and the reasonably ascertainable realities of the project.

Discretion Clauses

Discretion clauses permit bid evaluators to waive defects in any bid or tender document and accept such bids despite their non-compliance. In the absence of such a clause, those calling for bids must reject all bids that are non-compliant in any way, which can mean that good bids are rejected for trivial errors. When discretion clauses are used, work providers can waive defects, but only insofar as they are not material defects based on an objective reading of the tender documents at the time the bid is made.2

In Maglio, the discretion clause at issue read as follows:

4.8 The City reserves the right to reject any or all tenders, to waive defects in any bid or tender documents and to accept any tender or offer which it may consider to be in the best interest of the City. ...

The call for bids in that case required bidders to complete a preliminary construction schedule ("PCS") and included several indicators that timing was important to the project. What complicated matters, however, was that at the time the bids were submitted, the City did not have confirmed milestone dates because an archaeological assessment required by the Water Act and water level forecasts from BC Hydro were unavailable. As such, whatever PCS was submitted would have to be amended once the milestone dates were confirmed. The Plaintiff's (Maglio Installations Ltd.) bid complied with all requirements of the invitation to tender, including the requirement to submit a PCS. The winning bidder, however, failed to include a PCS. Instead, its bid stated it would submit a PCS after the City confirmed the milestone dates.

Maglio sued the City and sought summary judgment for breach of contract, alleging that...