Legal Blog

Tender Novelty

In the last 24 years, we have written about cases dealing with the law of tender and how that law has evolved over the past 36 years. Many cases dealt with a disappointed low bidder suing the tendering authority one rung up on the construction ladder (i.e. a sub suing a general or a general suing the owner). The disappointed bidder would claim that it was the low bidder for the work and that the tendering authority improperly chose to award the contract to another bidder. Other cases dealt with the tendering authority, whether owner or general, suing a bidder for failing to enter into the construction contract after the tendering authority had accepted the bid.

However, in law, one can never say one has seen everything. Something new always pops up – as it did in LaPrairie Works Inc. v. Ledcor Alberta Limited, a 2019 decision of the Alberta Queen’s Bench. In this case, the disappointed general did not sue the owner for alleged breach of the tender contract; instead, it sued the successful general to whom the owner awarded the contract.

Claim

The disappointed general (the “Loser“) claimed that it had a contract with the successful general (the “Winner“) to treat each other fairly during the bid preparation and that the Winner breached that contract in various ways at the Loser’s expense. Without conceding that there was any misconduct, the Winner brought a motion for summary judgment to dismiss the action on the basis that it was plain that no such contract came into being.

In his reasons for decision, the motion judge reviewed, on an argument by argument basis, each of the arguments as to why a contract had been formed. We will present those reasons in the same manner.

Follow Rules

The Loser argued that each of the bidding parties had an obligation to follow the rules and meet the requirements of the request for proposal. This proposition is unassailable. However, the Loser went on to argue that this obligation applied not just to the owner-bidder relationship, but among all bidders and that, for the process to be a fair and honest one, it was essential that all parties act in good faith and honestly.

The judge had a major problem with the last argument. First, the owner had not prescribed, as part of the tender process, any particular bidding standard of conduct. Indeed, from our experience, the owners never do. Regardless, even had this standard been imposed, the standard would only have been part of the bidding contract between each of the bidders and the owner. It would not give rise to a contract between or among the bidders themselves.

The judge noted that an obligation to follow the rules is no more than saying that rules bind all parties. A bidder complying with the rules is not performing a duty that it may owe to the other bidders; it is merely complying with the rules. Similarly, a party that is in breach of the rules is not breaching a duty owed to the other bidders; it is simply in breach of the rules. That breach may have negative consequences to the bidder because the owner may not accept its bid, but that breach does not somehow result in a breach of implied contract with each of the other bidders.

Fair Play

The Loser argued that it would be contrary to the standards of fair play and commercial decency for the Winner to obtain a contract based on a non-compliant bid using information improperly obtained from other bidders and misrepresentations.

The judge stated that this argument said nothing about whether the Loser and the Winner had contracted with each other to adhere to any standards. The judge noted that parties can agree about the existence and importance of principles without creating a contract among themselves to adhere to those principles. Further, even if there were an understanding that all bidders were participating in good faith and honestly, in accordance with the bid rules, a bidder is still not agreeing to anything; it is merely asking the tendering authority to evaluate its bid and the others fairly and to be treated fairly in the selection of the winning bid.

Association

The Loser and Winner belonged to the same contractors’ association and each of them participated in meetings of that association and, indeed, of its board of directors. Part of the association’s function was to afford a forum for members to understand industry practices relating to the bidding process for Alberta contracts. Somehow, the Loser argued, this resulted in a contract among its members.

This assertion was not nearly compelling enough for the judge. When the association members discussed bidder conduct, did they create rules about this conduct that resulted in contracts or was the conduct being discussed merely aspirational? No evidence supported the existence of a bidders’ contract; the Loser referenced no actual discussions and no particular resolutions, bylaws, or rules.

Bidders’ Contract Evidence

The judge held that the bidders never formed a contract about bid preparation conduct. He noted deficiencies in the Loser’s arguments as follows:

• it pointed to the owner’s tender-process rules, but these rules did not extend to bid-preparation conduct;
• it referred to contract understanding and expectations, but did not set out the sources for them;
• it did not show how an advance agreement would assist in promoting objectives of honesty and good faith. These objectives would be achieved by enforcement of the rules, not by an implied advance agreement among the bidders;
• a code of ethics was not a basis for finding a bidders’ contract;
• references to association discussions were too vague and uncertain to actually form a contract;
• even had the owner’s rules extended to bid preparation conduct, the result of a breach would have been disqualification, not a breach of an implied contract to follow the rules among bidders.

The judge stated that the Loser’s threads of evidence did not weave together to make out a contract or even a swatch of one.

Best Case

To add insult to injury, the judge then assumed that the Winner had made a fair-dealing pledge and went to essentially says, so what: this still does not result in contract formation. For example, if each participant were asked why it committed to fair play, the responses may have been:

• because it was the right thing to do.
• because I always behave that way.
• because the code of ethics requires it.
• because I expected it of other bidders.
• because other bidders are also promising to behave that way although I believe they would have done so even in the absence of making that promise.

In each case, none of these responses featured the reciprocity and consideration required for a contract. The only response that would have met the criteria for a contract would have been: “because the other bidders are also promising to behave that way; I see value in that promise because they would not necessarily have done so without that promise; and I am getting my promise in exchange for their promise.” But this never happened.

The judge dismissed the action.

 

Image courtesy of AlLes.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.