The key issue at trial became whether the defendant had at any time unconditionally accepted the bid submitted by the plaintiff and by so doing waived the non-compliant aspects of the bid.

Bid bond not of sufficient duration — bid for remediation work non-compliant

by Paul Sandori

Silex Restorations Ltd. v. Strata Plan VR 2096

Contractor submitted bid for repair work to condominium corporation • bid was non-compliant as bid bond not of sufficient duration • contractor informed that its bid was accepted subject to authorization of construction funds • corporation unhappy with consultant’s drawings and specifications decided not to proceed with contract • contractor invited to re-bid on future remediation work • contractor sued for breach of contract • bid found to be materially non-compliant • acceptance of bid could expose the corporation to a claim by a compliant bidder

This “leaky condo” case involved an aborted bid for building envelope repair work. The Strata Corporation engaged Inter-Coast Consultants Ltd. to prepare drawings and specifications to have the building repaired.

Silex Restorations Ltd. submitted the second lowest bid for the repair work. After the opening of bids, however, the lowest bidder determined that it had made a mistake in quantifying its bid and asked for permission to withdraw its bid. The Corporation allowed the withdrawal, and Silex became the lowest of the remaining bidders.

Harold Robertson, a member of the Corporation’s building committee, telephoned Silex and informed it that its bid had been accepted. Robertson was not aware that Silex’s bid was non-compliant. The bid was supported by a bid bond of only 60 days’ duration while the bid documents required a 90-day bid bond.

Later, the Corporation contacted Silex’s principals and asked them to extend Silex’s bid bond for 30 days to allow the Corporation time to convene the necessary Special Meeting before the existing bond expired. Before that telephone call, Silex was also unaware that its bid was non-compliant.

Silex extended the bond but did not inform the Corporation of the non-compliance. Finally, the Strata Corporation’s property manager sent a letter to Silex informing the contractor that its bid had been accepted subject to the authorization of the construction funds in a Special Meeting. Silex did not object to that condition.

While the contract negotiations with Silex were ongoing, the Corporation lost confidence in Inter-Coast and terminated its contract. It also advised Silex that it would not be proceeding with the contract but that Silex would be invited to re-bid on any future remediation work. The Corporation’s members did not authorize funding for the construction. Silex sued.

At trial, Silex submitted that an enforceable contract (Contract A) came into existence between the Corporation and all qualified bidders when they submitted their respective bids. According to Silex, the failure to proceed with the award of Contract B to the lowest compliant bidder, Silex, was a breach of Contract A.

Justice Davies of the Supreme Court of British Columbia set out the legal principle:

…[O]nly a bidder whose tender fully complies with the requirements of an invitation to tender will be entitled to consideration under Contract A unless such non-compliance has been unconditionally waived by the owner, and even then only if such waiver does not work to the disadvantage of a complying bidder. [Emphasis added.]

He based this proposition on the decision of the Supreme Court of Canada in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd. The key issue at trial then became whether the Corporation had at any time unconditionally accepted the bid submitted by Silex, and by so doing waived the non-compliant aspects of the bid.

The judge commented:

I am satisfied that Silex did not protest the imposition of conditions on the award of Contract B because it knew that its bid was non-compliant. Silex was attempting through negotiations to rescue itself from its own default knowing that it could have no rights under Contract A to the award of Contract B. Further, given that there was one compliant bidder, Silex knew or ought to have known that the Strata Corporation could not reach a negotiated compromise agreement with Silex if that one qualified bidder took exception to the negotiation process.

… as an unqualified bidder Silex had no entitlement to any consideration of its defective tender and has proven no breach of Contract A by the Strata Corporation.

The consequence of that determination was, he added, that as an unqualified (non-compliant) bidder Silex had no entitlement to any consideration of its defective bid. It could therefore not prove that the Corporation had reached Contract A.

Silex’s action was dismissed. Silex appealed. The appeal decision for the unanimous Court of Appeal was given by Justice Saunders.

The key factor affecting the outcome of the appeal was the recent decision of the B.C. Court of Appeal in Graham Industrial Services Ltd. v. Greater Vancouver Water District. In Graham, the court set out the framework for analyzing non-compliant bids:

• A non-compliant bid does not, by its mere submission, create Contract A.
• The measure of non-compliance where there is a “discretion clause” is substantial compliance, not strict compliance. In other words, the question is whether there is material non-compliance.
• Material non-compliance must be assessed on an objective basis.

The trial judge — before the Graham decision — considered that the bid was non-compliant as to the only allegation of non-compliance that he dealt with, the duration of the bid bond, and held against Silex on the issue of creation of Contract A through mere submission of its bid.

The Invitation to Tender provided that, at “its sole discretion, the owner may reject … any tender which … fails to strictly conform with the substantive and procedural requirements of the Tender Documents.”

Justice Saunders found that this clause was a discretion clause “of the same ilk as the clause in Graham.” The owner (the Strata Corporation) may rely on such a clause only in the event that Contract A has already been created. Therefore, the test for the creation of Contract A is material non-compliance.

When the trial judge said that “only a bidder whose tender fully complies with the requirements of an invitation to tender will be entitled to consideration under Contract A unless such non-compliance has been unconditionally waived…”, he apparently saw the test as one of strict compliance. In this, said the appeal court, he was not correct.

Was Silex’s non-compliance material? The Strata Corporation contended that it was, and referred to several aspects of the bid that it said were non-compliant in addition to the short bid bond: that the bid failed to provide separate prices for certain items of work; that it was not executed in the fashion set out in the bid package; and that it failed to provide a preliminary schedule and the names of all subcontractors.

The trial judge addressed only the issue of the duration of the bid bond. Since he did not consider the other matters raised by the Corporation, the Court of Appeal could not address them. It restricted its analysis to the matter of the bid bond. The court found that this issue made the bid materially non-compliant:

The scheme set out in the invitation to tender included a security requirement for the duration of time within which it may be accepted. There is a cost to securing a bid bond, no doubt proportionate in some fashion to its duration. On this requirement, at least, the bidder with the shorter security will incur lower costs, giving it an advantage. For that reason, acceptance of Silex’s bid could expose the Strata Corporation to a claim by a compliant bidder, of which there was one….

The court found it significant that the Corporation required Silex to extend the bond as a condition of further discussions towards conclusion of a contract. That request showed that security was important to the Corporation even though it was not aware of the issue of non-compliance.

Silex argued that an extension of the bid bond was not difficult to obtain, and that it was not uncommon for bid bonds that accompany bids to be for a shorter period than required. “While this may be so, it is not persuasive that such a default is non-material,” replied Justice Saunders and concluded that the trial judge was right: the mere presentation of Silex’s bid did not create Contract A.

Silex also contended that, if Contract A was not created by submission of its bid, it was created through acceptance by the representative of the Corporation.

A non-compliant bid is a counter-offer, said Justice Saunders. The contract created by acceptance of a counter-offer is not Contract A. Being an offer in terms somewhat different from those required by the invitation to bid, acceptance creates a contract different in some respects from Contract A. The counter-offer theory cannot found a claim in damages for breach of Contract A.

However, acceptance of a counter-offer for the work could create some contractual obligation to conclude a contract in much the same manner as acceptance of a materially compliant bid creates an obligation to conclude Contract B. There may be a claim there, but that is a different matter.

The Court dismissed Silex’s appeal.

British Columbia Court of Appeal
   Rowles, Prowse and Saunders JJ.A.
   July 2, 2004