Government found liable for bid shopping

The courts will typically restrict owners from using a formal binding bidding process as a springboard to post-bid negotiations. In fact, this practice has been subject to successful bid shopping claims by prejudiced bidders, who have been awarded their lost profits.

Legal Opinion | Paul Emanuelli

The Stanco Projects Ltd. v. British Columbia (Ministry of Water, Land and Air Protection) decision provides a leading case study. In this case, the British Columbia government was found liable for bid shopping due to post-bidding negotiations it conducted prior to awarding a contract. The case involved a British Columbia Ministry of Water, Land and Air Protection tender call for a water-system upgrade project at Cypress Bowl Provincial Park.

The project contemplated the installation of two water tanks, but after the tenders were opened, a decision was made to proceed with just one tank.

Unfortunately, the tender call did not contemplate the severance of the contract and failed to ask for separate pricing for each tank. The plaintiff was approached and asked by the Ministry’s advisors to provide a lower single tank price under an undisclosed post-bidding process that was characterized as an “Offer of Credit”.

The Ministry expected the low bidder to offer a one-tank price that was a pro-rated figure based on the original two-tank price. However, due to the loss of volume discount, the plaintiff bidder maintained that its one tank price would be higher than the figure arrived at by pro-rating the two tank price and that it was not interested in re-bidding its price.

In the interim, one of the plaintiff’s competitors, who knew the plaintiff’s low bid price, was allowed to submit a follow-up bid for the single tank.

When it became aware of the fact that other bidders were re-bidding, the plaintiff objected and refused to engage in any further price discussions with the Ministry’s advisors.

The contract was ultimately awarded to one of the plaintiff’s competitors.

The court held that it is a fundamental rule of the formal binding bidding process that an owner will not engage in post-bid negotiations after receiving binding tenders from bidders.

As the court stated:

It strikes me as obvious that a tenderer would not expose itself to the expense and other risks of tendering if it were conceivable that its bid could be used by an owner as a mere bargaining tool in post-closing tender negotiations with that tenderer or other bidders. An assurance to the contractor that the tendering authority will not use any of the bids as a springboard to engage in negotiations aimed at obtaining a better price or like advantage during the tender evaluation period, is a reasonable expectation of the most fundamental kind. It goes to the very heart of the integrity of the tendering process. A tendering authority ought not to be entitled to contemporaneously purport to adhere to the tendering model and enjoy the benefits flowing from it and, once the bids have been revealed and are under consideration, to unilaterally implement the contrasting model of free bargaining.

The court then stated that “bid manipulation of the kind I have described is repugnant conduct which has no legitimate place in the proper operation of the tendering paradigm.”

The court ultimately concluded that “the after-tender closing conduct engaged in by the Ministry amounted to bid manipulation and was patently unfair and in breach of the Ministry’s implied duty to act fairly.” The plaintiff was awarded its lost profits.

This decision was later upheld by the British Columbia Court of Appeal.

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 published by LexisNexis Butterworths. Paul can be reached at paul.emanuelli@procurementoffice.ca