While the duty to award to the low bid remains an implied rule of the tendering process, the courts have recognized circumstances where owners can legitimately bypass the low bidder.
For example, in its decision in Acme Building & Construction v. Newcastle (Town), the Ontario Court of Appeal held that the low bid rule was not an implied industry custom and that even if it was, it did not override a privilege clause. The case involved a municipal tender call for the construction of an administration centre. The second-lowest bidder was selected due to its proposed shorter construction time, which would save the municipality $25,000 in rent at its current premises. The low bidder sued.
As the Court of Appeal noted, since all bidders were asked to state their completion date in their tenders, that criterion was clearly a material consideration in the tender call. The tender call also contained a provision which stated that “the [o]wner shall have the right not to accept the lowest or any other tender”. The Court of Appeal found that this clause, when taken with the express request for a completion time, permitted the municipality to bypass the low bidder in favour of a bid that reflected a better overall value.
Similarly, in its decision in McKinnon v. Dauphin (Rural Municipality), the Manitoba Court of Queen’s Bench upheld a municipality’s decision to use its privilege clause to bypass the low bidder. The case involved a tender call for gravel crushing and hauling.
While the three councillors who sat on the municipality’s gravel committee recommended the low bidder, the full council rejected that bidder in favour of the next best bidder. The low bidder sued. The court rejected the claim, finding that there was no implied industry low bid rule in the circumstances.
Furthermore, the court found that even if there were an implied low bid rule, it could not prevail over the express privilege clause and found that the municipality had the right to reject the plaintiff’s low bid.
By way of another example, in its June 2002 decision in J. Oviatt Contracting Ltd. v. Kitimat General Hospital Society, the British Columbia Court of Appeal also upheld the owner’s right to use its privilege clause to bypass the low bidder. The case involved a tender call for site preparation work for the Kitimat Community Health Centre in Kitimat, British Columbia.
The Society bypassed the low bidder in favour of the second-lowest bidder. The trial judge found that the Society had bypassed the low bidder in good faith. The Court of Appeal agreed with that conclusion:
There was no commitment by Boden to supply extra material at the con-tract price and no departure from the tendered terms in the discussion between Mr. McIntyre and Boden.
Boden’s lower price for the contracted amount, however, did raise a reasonable prospect that if extra material was required it could be obtained at a lower cost from Boden than from Oviatt. In my view, it was not bad faith to prefer the Boden bid on that account.
While the Society was able to use its privilege clause to bypass the low bidder, this case highlights the need to show legitimate reasons for exercising reserved rights and privileges since an owner’s actions may be subject to judicial scrutiny in the event of a legal challenge.
As these cases illustrate, owners who bypass low bidders may be able to defend their process if they can convince the court that their decisions were made for legitimate reasons.
Paul Emanuelli’s procurement law practice focuses on all aspects of the tendering cycle including bid dispute resolution. This article is extracted from Emanuelli’s Government Procurement textbook published by LexisNexis Butterworths. Reach Paul at paul.emanuelli@procurementoffice.ca.
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