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Tender Reversal

Posted on July 1, 2004 | Posted in Construction

Since Ron Engineering in 1981, an owner inviting tenders has had a major advantage over the generals submitting those tenders. If a general makes a mistake in the compilation of its bid, then, unless the mistake is demonstrable from the tender itself, the general pays for it and the owner gets a windfall.

What’s more, owners protect themselves with the privilege clause so that there is no guarantee that a general will get the job even if it does not make a mistake and has the low bid. Generals have had some victories in court skirmishes. For example, an owner cannot accept a non-compliant bid. Usually, the second low bidder brings this type of action; it complains that the owner is accepting the non-compliant tender of the low bidder. Further, the general can always try to prove that the owner is conducting itself unfairly.

However, notwithstanding these rules, the general usually bears all of the downside of the tendering process and little of the upside.

Owners and generals have fought their latest battles over the issue whether an owner can foist a non-compliant tender on the general who submits it. Can the general use the concept as a shield in addition to a sword?


British Columbia was the first battleground and Derby Holdings Ltd. v. Wright Construction Western Inc., a 2003 Court of Appeal decision, was the first case.

The tender call was a mess. The instructions to tenderers stipulated that the owner could issue no addenda within 3 days of the tender opening. Two days before the opening, the architect sent a fax notifying the tenderers that the architect had deleted the electrical section of the work from the tender. Later that day, the architect issued addendum 1 setting out a significant number of changes. Addendum 1 noted that the tenderers had to acknowledge receipt of the addendum on the tender form. In page 9 of the 14-page addendum, the architect notified the tenderers that they were to disregard that morning’s previous fax; the electrical section was indeed to be included in the tender.

A general had the low bid at $1,347,000; the next low bid was $1,636,000. Once the general saw that it had left $289,000 on the table, it made some calculations and realised that it had missed a pre-approved item for $209,000. The general was very embarrassed and requested that the owner allow it to complete the contract for the additional $209,000. The owner refused, contracted with the next high bidder, and sued the general for the difference.

At trial, the general argued that the owner could not force it to execute construction contract B because there was no tender contract A in existence. The general argued that its tender was so fatally flawed that the owner could not accept it.

There were a few problems. The addendum itself contravened the instructions to tenderers; the architect delivered it a day late. The general’s tender did not state that the general had received the addendum, even though the architect later confirmed orally that the general did receive it. Indeed, there was no pre-printed place on the tender form to acknowledge receipt of the addendum. Two of the four tenderers acknowledged its receipt and two did not.

The judge noted that the general was attempting to use the developed law respecting non-compliant tenders as a shield to avoid liability to the owner under its own tender. The judge felt that there was no valid reason why the application of the legal principle regarding non-compliance should depend upon the source of the challenge. If an owner was required to reject a non-compliant bid, why should it matter who wanted the owner to reject it, the person who bid or a competing bidder?

In this case, the judge held that the general’s bid was not compliant and, additionally, because the architect delivered the addendum late, the tender was so uncertain that the owner was incapable of accepting it. Even though the general made a mistake in its calculations and would otherwise have been quite happy to perform the work, the owner could not have accepted its tender and had no claim for breach of contract A.

The judge dismissed the owner’s action, but denied the general its legal costs because the general’s mistake precipitated the problem.

The owner appealed the decision. The Court of Appeal, in a four-paragraph decision, affirmed the trial judge’s judgment and adopted his reasons for decision.


Graham Industrial Services Ltd. v. Greater Vancouver Water District, a 2004 decision of the British Columbia Court of Appeal, was a variation on a theme. In this case, the tender documents stated that the owner had the sole discretion to waive any defect in a tender and accept the tender.

Very large numbers were at issue in this case; the general had left $5 million on the table and had discovered a $2 million error. The general attempted to withdraw its bid; it immediately informed the owner of its error and that its bid did not conform to the tender requirements. The owner decided that the general’s bid was without material defects and purported to accept it.

The question was whether the judge should apply a subjective or an objective test to determine whether the bid was compliant. If the test was subjective, then whatever the owner decided bound the general. If the test was objective, then a court could review the tenders and determine on its own whether a tender was compliant or not.

The court held that the test had to be objective, regardless of the wording in the instructions to tenderers. It stated that the discretion clause in the instructions could not “give the owner the power to ‘reach back’ before the clause’s operative existence and deem compliant a bid that is, on an objective analysis, materially non-compliant.” To do this would allow an owner the ability to negate the mandatory requirements in the instructions simply by deeming material omissions to be non-material.

In this particular case, the court agreed that the tender was non-compliant and dismissed the owner’s action.


Toronto Transit Commission v. Gottardo Construction Ltd., a 2003 decision of the Ontario Superior Court of Justice dealt with another instance of mistake. In this case, the mistake was $1,114,000 on a bid price of $4,811,000. The general had subtracted $557,000 when it should have added it. The next low bid was $5,245,000.

Although the general had made an arithmetical error in its tender, the owner would not have been able to catch that error on the face of the tender document itself.

The judge held that the owner had no right to accept the general’s tender for two reasons. First, the cost breakdown, which the tender instructions demanded and which the general supplied after the opening of the bids, made it clear that there was a mistake and this cost breakdown was part of the bid. Second, after the initial opening of the bids, the general refused to provide other documents that were part of the requirements of the tender and therefore its bid was non-compliant.

The judge held that the owner had no right to accept the general’s tender. In our next newsletter, we will set out her reasons and her even more interesting reasons regarding the concept of rescission.


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