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Legal Notes: Obligation to accept lowest bids varies by tender and jurisdiction

John Bleasby
Legal Notes: Obligation to accept lowest bids varies by tender and jurisdiction

A recent ruling by the Quebec Supreme Court gives rise to the question: What is the obligation for owners or contractors to accept the lowest project bid or to accept the second lowest should the first accepted bidder fail to perform?

Laws in Quebec are quite specific. Under Article J-2 of the BSDQ submission code established by the Association de la Construction du Quebec, the winning contractor on a project is obliged to award any subsequent subcontract to the lowest compliant bid.

However, this obligation became problematic for 4198191 Canada Inc. (Cama) when the subcontractor awarded specialty work under the BSDQ failed to show up on the scheduled start date, despite a valid and accepted lowest-bid agreement.

Cama was forced to seek another contractor to carry out the work in a timely manner in order to meet its own performance obligations, re-awarding the work to a company that had submitted the fourth-lowest bid. The contractor with the second-lowest bid took the case to court on the basis that it should have been awarded the contract instead.

The court ruled that because the low-bid contractor had failed to perform, Cama’s obligations under the BSDQ were terminated. Therefore their selection was deemed valid.

As clear as Quebec’s BSDQ code appears to be, are there such obligations under law in other jurisdictions?

According to Jill Snelgrove and Kyle Kuczynski of Pallett Valo LLP in Mississauga, Ont., there is no statutory obligation in Ontario for an owner or contractor to accept the lowest bid. In fact, the foundation of Canadian tender law does not include a duty to accept only the lowest tender.

Under Canadian common law, the court must decide whether or not bidders have been treated fairly and equally, and whether or not the tender authority has breached any obligations owed to bidders, such as being treated fairly and equally, says Rob Kennaley of Kennaley Construction Law.

The starting point is to look to the tender to see what it says with respect to the acceptance of bids, say Snelgrove and Kuczynski. There may be an express or implied term in the tender obliging the owner/contractor to accept the lowest bid. However, in Ontario, many tenders actually include “privilege clauses” which specifically say that the tender does not have to be awarded to the lowest or any bidder.

If a tender is silent, the obligation to accept the lowest tender may arise out of the owner/contractor’s duty of fairness. However, Snelgrove and Kuczynski say many factors are considered in this analysis.

While they speak to the likely unfairness of an owner or contractor preferring the highest bidder when all other characteristics of the bid are the exact same, they point out that certain circumstances may lead to a “fair” decision to select a bid that is not the lowest.

“The court has held that there are lawful reasons for a party to reject the lowest bid. The party submitting the call for tenders may pay regard to other factors affecting the cost of the project (i.e. timeliness of completion, experience of the parties submitting the bids and material costs). If one bid is higher than the other, but has other more favourable aspects to it, then the choice to accept the higher bid will not necessarily be deemed ‘unfair.’”

However, tenders that do not disclose policies that, for example, favour local labour or material content over price, could be deemed “unfair” if not awarded to the lowest bidder.

Snelgrove and Kuczynski reference the Supreme Court ruling regarding in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., that says in part, “The purpose of the tender system is to provide competition, and thereby to reduce costs, although it by no means follows that the lowest tender will necessarily result in the cheapest job…the prudent owner will consider not only the amount of the bid, but also the experience and capability of the contractor, and whether the bid is realistic in the circumstances of the case.”

 

John Bleasby is a Coldwater, Ont. based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.

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