Courts prohibit changes to contracts after bids are submitted

Courts in British Columbia and Newfoundland have ruled that owners are not allowed to change the terms of the awarded contract from the terms contained in the tender call. Owners are also not allowed to re-negotiate the terms of the tender and allow single bidders to retender their prices.

Legal | Paul Emanuelli

Owners are typically restricted from making material post-bid changes to a tendered contract since the contract awarded under a formal binding bidding process should be consistent with the contract that was originally put to tender.

For example, in its decision in Protec Installations v. Aberdeen Construction Ltd., the British Columbia Supreme Court found that the owner was not allowed to make changes to the tender call rules or negotiate material changes to the contract after the close of bidding. The case involved a tender call for the construction of a mall in Richmond, British Columbia. With full knowledge of the low bidders’ price, the second-lowest bidder entered into post-bidding negotiations with the owner and submitted a revised bid for $5,000 less than the low bid. That bidder was awarded the contract. The low bidder sued. The court found that the owner was not allowed to cut the low bidder out of the process while permitting a competitor to re-negotiate the terms of the deal and re-tender its price. The court found that the low bidder was prejudiced by the post-close indulgences granted to the competing bidder and awarded the low bidder damages.

Similarly, in its decision in Health Care Developers Inc. v. Newfoundland, the Newfoundland Court of Appeal recognized that an owner’s good faith duties include the duty to avoid varying the terms of the awarded contract from the terms contained in the tender call. The case involved a tender call for the construction of health facilities and other buildings. The Court of Appeal noted that “In respect of the decision to award a contract other than that contemplated by the tender call, the trial judge found this was also a violation of the common law principles of contract.” The Court of Appeal agreed, finding that the need to award a contract that is consistent with the contract contained in the tender call is one of the primary implied duties that applies under the duty of fairness and good faith:

The doctrine of good faith is applicable in this case, the necessity for its application to government tendering to “protect the integrity of the bidding system” was expressed in Kencor and I need not state the principle more broadly than that it is a part of the law of tendering for Government contracts.

As to the standard of conduct demanded by good faith, at a minimum, it would require that a party not act in bad faith.

As this case confirms, any post-bidding changes to the awarded contract can undermine the integrity of the formal bidding process and the equal footing upon which all bidders are entitled to compete.

Furthermore, in its June 1996 decision in Emery Construction Ltd. v. St. John’s Roman Catholic School Board, the Newfoundland Court of Appeal also found that a privilege clause does not allow an owner to award a contract that varies from the Contract B contained in the tender call. The case involved a tender call for the construction of a new school. The low bidder was bypassed in favour of the second-lowest bidder. The low bidder sued. The Court of Appeal stated that the school board was not permitted to use its privilege clause to apply undisclosed award criteria or vary the terms contemplated in the tender call: such clauses do not permit the owner to choose among bidders on the basis of criteria not disclosed to the bidders nor does it permit the owner to award something other than contract B.

As these cases illustrate, post-close improprieties can undermine the fairness and transparency of the bidding process and make owners liable to potential bid protest challenges.

This article is extracted from Emanuelli's Government Procurement textbook published by LexisNexis Butterworths. Reach Paul at paul.emanuelli@procurementoffice.ca.