The Supreme Court found that while the privilege clause did not require the owner to select the lowest compliant bid, it did not allow the owner to select a non-compliant bid.

Privilege Clause Allowed Award To Second Lowest Compliant Bidder

by Paul Sandori

Trevor Nicholas Construction Co. Ltd. v. R.

Public Works Canada awarded contract to second lowest bidder ? lowest bidder sued despite privilege clause that the lowest or any tender not necessarily accepted ? no implied term of the bidding contract that the contract would be awarded to the lowest compliant bidder ? rather, express term was that Public Works Canada could select the compliant bid which was most advantageous, taking into account factors other than just the bid price ? second lowest bid was compliant

In 1990, Trevor Nicholas Construction Co. Ltd. submitted the lowest bid for the dredging and construction of a marine service dock at Meaford, Ontario. The owner, Public Works Canada, awarded the contract to the second lowest bidder, and Trevor Nicholas sued. Public Works then brought a motion for summary judgment to have Trevor Nicholas? action dismissed. Public Works? evaluation was critical of the Trevor Nicholas? bid for several reasons:

??????? the barge shown as being used by Trevor Nicholas was considered to be in poor condition;

??????? the methodology proposed by Trevor Nicholas was not consistent with that contemplated by Public Works;

??????? Trevor Nicholas was considered to have little dredging experience, and had another contract taken away from it in that construction season.

The bid documents contained the so-called privilege clause: ?Lowest or any tender not necessarily accepted.?

Trevor Nicholas? position was that the evaluation of its bid was seriously flawed: its proposal did not depend on the use of the barge which, in any case, had been repaired and was capable of doing the job, and its methodology was different but valid. If Public Works had any doubts, it should have discussed the proposed method with Trevor Nicholas.

Trevor Nicholas? claim had two principal components. It alleged, first, that Public Works had treated Trevor Nicholas unfairly and, second, that Public Works had breached an implied term of the bidding contract (Contract A) that the contract would be awarded to the lowest compliant bidder.

Of course, both parties relied on the classic 1981 decision of the Supreme Court of Canada in R. v. Ron Engineering & Construction (Eastern) Ltd. and the recent decision of the same court in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd.

The central issue in M.J.B. was whether the privilege clause really allows the owner to disregard the lowest bid in favour of any other bid. Mr. Justice Iacobucci of the Supreme Court first reviewed Ron Engineering and came to the following conclusion:

What is important, therefore, is that the submission of a tender in response to an invitation to tender may give rise to contractual obligations, quite apart from the obligations associated with the construction contract to be entered into upon the acceptance of a tender, depending upon whether the parties intend to initiate contractual relations by the submission of a bid. If such a contract arises, its terms are governed by the terms and conditions of the tender call.

On the facts before him, Justice Iacobucci found that the submission of a bid in response to a call for bids did give rise to contractual obligations:

At a minimum, the [owner] offered, in inviting tenders through a formal tendering process involving complex documentation and terms, to consider bids for Contract B. In submitting its tender, the [bidder] accepted this offer. The submission of the tender is good consideration for the [owner?s] promise, as the tender was a benefit to the [owner], prepared at a not insignificant cost to the [bidder], and accompanied by the Bid Security.

At common law, the bidder?s promise to not revoke its bid must be supported by consideration from the owner; hence the emphasis on the owner?s promise to consider the bids in Justice Iacobucci?s analysis.

Having found that a contract was created by the submission of the bid, Justice Iacobucci then examined the bid documents to determine the obligations assumed by both parties under that contract. He found that there was no explicit term that the contract would be awarded to the lowest compliant bidder.

However, he did find an implied term based on the presumed intention of the parties that the owner would consider only bids which complied with all the requirements of the bid documents.

He came to that conclusion after noting a number of terms in the bid documents which purported to invalidate a bid which did not comply with the requirements: bids received after closing, bids not submitted on the bid form, bid forms which have been altered or not filled in completely, and so on.

Justice Iacobucci concluded from the terms mentioned above, and others not repeated here, that there was a clear intention to accept only compliant bids. The repeated references to invalidity would be meaningless, said the judge, if the owner were nevertheless free to select bids which did not comply.

Finally Justice Iacobucci examined the effect of the privilege clause. He found that the privilege clause did not operate to override the implied term excluding non‑compliant bids. The explicit privilege clause and the implied term are consistent: they both operated to produce standardized bids from which the owner could select that compliant bid which was most advantageous to the owner, taking into account factors other than just the bid price.

In short, Justice Iacobucci and the Supreme Court found that while the privilege clause did not require the owner to select the lowest compliant bid, it did not allow the owner to select a non-compliant bid.

Having reviewed the precedent M.J.B. decision, Justice Pelletier noted that the application by Public Works was for a summary judgment, a device by which claims with no reasonable prospect of success can be disposed of without the necessity of a trial with all of the attendant expense and delay. The task of the judge dealing with an application for summary judgment is to subject the evidence to a ?hard look? in order to determine whether there are factual issues that really do require the kind of assessment and weighing of evidence that should properly be done at trial.

The facts before Justice Pelletier were not contentious and consisted primarily of the bid documents themselves. He first addressed Trevor Nicholas? claim that Public Works had breached an implied term of Contract A, that the construction contract would be awarded to the lowest qualified bidder.

An analysis of the terms of the Invitation to Tender did not lead to that conclusion, said the judge. The only term of the contract which dealt explicitly with the question of the award was the privilege clause, and that reserved to Public Works the right not to award the contract to the lowest bidder.

The only implied term which would assist Trevor Nicholas would be one which required Public Works to award the work to the lowest bidder. However, such a term would contradict the express term of the contract ? the privilege clause ? by which Public Works was not obligated to award the contract to the lowest bidder. It is trite law, added the judge, that the court cannot imply a term which would contradict an express term of a contract.

As a result, Trevor Nicholas? action could not succeed on the basis of such an implied term. If that had been the extent of Trevor Nicholas? plea, the action would have been dismissed. But Trevor Nicholas had also pleaded that it had been treated unfairly by the owner.

Neither could Trevor Nicholas complain that the contract was awarded to a non‑compliant bidder because the bid ultimately chosen was fully compliant. The judge was therefore prepared to grant summary judgment with respect to this issue.

There remained the issue of fairness. Justice Pelletier found evidence in the Instructions to Tenderers that the owner was trying to standardize the conditions of bidding as much as possible:

??????? all bids had to be submitted on the bid form, without alteration of the form;

??????? all bids had to be submitted before the designated closing date;

??????? all bid submissions had to be limited to the bid form and accompanied by bid security;

??????? all bids had to be based on specified materials with approved alternates to be made known to bidders by addendum.

This uniformity convinced the judge that there was an implied term in the bidding contract that all bidders would be treated alike: Public Works? attempt to enforce uniformity on the bidders carried with it the implicit promise that it would deal with all of them on the same basis. In other words you (the owner) have created a level playing field ? therefore you are not allowed to treat one player as more equal than the rest!

It may be, decided Justice Pelletier, that this term also implied an obligation to treat all bidders fairly. However, whether Trevor Nicholas was or was not actually treated unfairly was a matter which could not be decided on the material before the court. It would have to go on to trial on the following issues:

????? Did the bid contract (Contract A) between Trevor Nicholas and Public Works include an implied term that the bidder was to be treated fairly?

????? If it did, was that term breached?

????? If it was breached, what if any damages were recoverable as a result of the breach?

Public Works, being successful on the first issue, was awarded the costs of the summary judgment.

Federal Court of Canada

Pelletier, J.

May 24, 2000