Gottardo Construction Ltd. submitted a bid to the Toronto Transit Commission for $4.8 million for a bus garage construction project. Afterwards, it claimed it made a mistake by $557,000 and asked that its tender be returned. The Ontario Superior Court of Justice found that the tender was incapable of acceptance but the Ontario Court of Appeal reversed the decision.
COLUMN | PAUL EMANUELLI
In Toronto Transit Commission v. Gottardo Construction Ltd., the defendant bidder attempted to rely on its own mistake as the basis for avoiding liability after it failed to honour its tender. The case involved a Toronto Transit Commission tender call for a bus garage construction project.
The low bidder submitted a tender for $4.8 million but then claimed that it made a mistake in the amount of $557,000. It asked that its tender be rejected and that its bid security be returned. The Commission refused and asked the bidder to honour its tender. The bidder refused. The Commission selected the next-best bidder and sued the low bidder for the difference of $434,000.
A complicating factor in this case was the requirement of follow-up steps by bidders after the opening of tenders. The tender call rules required bidders to provide additional documentation on demand within two days. This post-bidding process gave rise to confusion.
The Ontario Superior Court of Justice found that the tender was incapable of acceptance and that the bidder was therefore not liable for failing to honour its tender. In coming to this conclusion, the Superior Court found that the bidder had failed to fulfil the post-bidding follow-up steps required by the tender call rules. The bidder was therefore able to rely on its non-compliance as the basis for not honouring its tender.
However, the Ontario Court of Appeal reversed the trial decision. The Court of Appeal found that the post-bidding submission requirements were part of the formalization of the Contract B construction contract, rather than part of the Contract A tender submission process. As the Court of Appeal explained:
The trial judge determined that because the tender instructions provided that the TTC could demand the production of certain documents after the opening of the tenders, Contract A would not be formed until sometime after these additional documents were demanded and provided.
The reasons, however, do not address the critical issue as set out by the Supreme Court of Canada in M.J.B. Enterprises Ltd.: when did the parties in fact intend to initiate contractual relations? Rather, the trial judge appears to have confused the creation of Contract A and the process of analysis that leads to the acceptance of the tender and the formation of Contract B …
Acceptance or rejection of the bid is not what leads to the creation of Contract A. Acceptance or rejection is the end point of the tender process. Once the tender is accepted, the parties enter into the construction contract referred to as Contract B. The fact that certain steps are taken and certain documents are to be produced by the tenderer after the submission and opening of tenders will not delay the formation of Contract A when the clear intent of the parties is to be bound as of the opening of the tenders.
Accordingly, the Court of Appeal concluded that Contract A had crystallized and that the tender became legally binding when the tenders were opened after the tender submission deadline. The Court of Appeal therefore found the bidder liable for $434,000 for failing to honour its bid.
As this case illustrates, owners would be well served to clearly distinguish between (1) those threshold requirements that bidders must meet in order to submit compliant tenders; and (2) those procedural requirements that form part of Contract A and govern over the Contract B formalization process between the owner and selected bidder. Failing to maintain a clear distinction between these two types of requirements can create uncertainty and potentially undermine an owner’s ability to compel a bidder to honour its tender.
Paul Emanuelli's procurement law practice focuses on all aspects of the tendering cycle including bid dispute resolution. This article is extracted from his Government Procurement textbook, ISBN: 9780433457060, published by LexisNexis Butterworths. Paul can be reached at paul.emanuelli@procurementoffice.ca.
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