Legal Blog

Forked Tongue

The courts have dealt with what one would have thought was all conceivable tender issues. However, more keep coming. What happens when the successful tenderer achieves that success based on a tender that was, on its face, compliant, but, actually, was not compliant? Does the owner, who has already awarded the contract, have to terminate the contract and then re-award it? This question was answered in Double N Earthmovers Ltd. v. City of Edmonton, a 2005 decision of the Alberta Court of Appeal.

Surprise 

The owner placed a tender call for four pieces of heavy equipment to move refuse. The call for tenders stipulated that the equipment had to be 1980 model or newer. The tenders of Contractor 1 (“C1”) and Contractor 2 (“C2”) were each compliant on their face and C1 was low.

C1 described one unit as a 1980 unit. In accordance with the call for tenders, C1 set out the unit’s serial number. Actually, the unit was a 1979 unit and had the owner checked the serial number, it could have determined this.

After the tenders closed, C2 smelled a rat, called the owner, and alleged that C1 was probably using pre-1980 equipment. The owner’s left hand officials did not investigate the complaint, probably assuming that the right hand officials would be able to insist on compliant equipment being used once they awarded the contract. Since C1 was low, the owner awarded it the contract.

After the owner awarded the contract to C1, the owner required C1 to register the equipment with it to create a billing record. In the process, the owner checked the serial numbers and determined that C1’s proposed equipment included the 1979 non-compliant piece.

The owner attempted to compel C1 to use compliant equipment, but ultimately decided to allow C1 to use the 1979 non-compliant piece. 

C2 discovered this, was not happy, and sued the owner. C2 was unsuccessful at trial and appealed.

Fair Treatment 

We all know, or should know by now, that an owner has a duty to treat all bidders fairly. Does this mean that the owner had a duty to investigate allegations of non-compliance, even when the tender was compliant on its face? The court said no.

The court held that C2’s suspicions were just that, mere suspicions. The owner was entitled to assume that C1 would be obliged to comply with the tender call’s terms. Accordingly, as long as it had no knowledge of non-compliance, it had a right to accept C1’s bid. In so doing, it did not treat C2 unfairly.

Similarly, as long as the owner did not know that the serial numbers pointed to a 1979 piece of equipment, it could not be faulted for failing to check. It seems that the owner’s negligence was irrelevant. The question was not whether it ought to have known of the non-compliance (i.e. a negligence standard); the question was whether it actually knew.

Terminate 

C2 also argued that once the owner discovered that C1 had lied, it had a duty to C2 to terminate C1’s contract and award the contract to C2. C2 argued that the tender call implied this duty because of the provision in the tender call stipulating that the tenderers had to comply strictly with all specifications.

The prior cases never had to deal with this scenario. They discussed what would happen if the owner breached contract A, not what would happen after the owner validly awarded contract B.

The court analysed the new issue in the context of preserving the integrity of the bidding process. The court held that the bidding process was preserved as long as the owner accepted in good faith a tender that was, on its face, compliant. At that point, all contracts A were ended and the owner owed no further duty to any of the tenderers.

Upshot 

C2 lost its case, C1 was rewarded with a contract for its double-dealing, and the owner did not have its wrist slapped at all.