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Wrong

Posted on May 1, 2005 | Posted in Construction

The Ontario Superior Court of Justice is a court of general jurisdiction. With some exceptions, judges do not specialise in any area of the law. There are certainly no specialist judges, outside of Toronto, in construction law. Usually, it does not matter; able counsel can ensure that the judges understand the law and the judges, after climbing a learning curve, are capable of making decisions that generally make some sense. Sometimes, however, a judge just does not get it or, worse, gets only a part of it and renders a decision that makes no sense at all. Such was the case in David J. Harvey Holdings Inc. v. Hercules Food Equipment Ltd., a 2004 decision of the Ontario Superior Court of Justice.

Facts 

This was a tender situation. It was quite run-of-the-mill. An owner called for tenders with the usual package of documents. The general requested the subs to bid the project. It supplied to the subs, at their request, the relevant contract documents, including the plans and specs. The subs bid. The general carried the low bid of the kitchen supplier in its tender to the owner. The owner accepted the tender. The general sent a purchase order to the sub. The sub performed the work.

Whoops. The last part did not happen. Wishful thinking on the general’s part. Rather, the sub wrote back and notified the general that it would not perform the work because it was too busy. The general had to get another sub at an increased cost of $25,000 and sued the original tendering sub for that amount.

Expert 

The general wanted to have an expert testify about construction practices. This is not an unusual request. Unfortunately, the general’s expert gave a report that was not just expert information on construction tendering practices. It was an analysis of the issues itself; the expert opined on whether a contract was formed. However, the expert also talked about construction practices. The judge refused to allow the expert to testify because he held that the expert gave nothing more than a legal opinion, something that was the judge’s function.

What the judge should have done was allow the expert to give evidence about construction practices and refuse to allow the expert to give his opinion on the very issue before the court. As a result, the judge made his decision based on no understanding of construction practices. 

What Contract 

The general first argued that the sub’s quotation, which was given orally and in writing on the tender submission day, was an offer that was accepted by the general’s issuance of a purchase order. The judge disagreed.  He said that the two documents were too uncertain to form a contract. They did not set out when the sub was to perform the work and when it would complete it.

Had the judge allowed the expert to testify, he may have understood that no sub knows exactly when it is to start its work. It depends on the work of the subs before it. The kitchen supplier can supply the kitchen only after the structural, masonry, plumbing, and electrical contactors have done their work. The kitchen supplier must work at a reasonable pace to complete its work in accordance with schedules that it receives as the construction on the project proceeds. A construction project relies upon a modicum of flexibility.

If the sub needed to know the commencement date and completion date of the project work, it needed only to look at the general contract between the owner and the general, found in the tender documents, to determine them.

A judge who knew anything about construction practice would have known exactly what the sub was to do under the contract.

The judge also seized on the words “accepted by” in the purchase order. The sub was to sign under these words and did not. These words, however, were mere surplus. As soon as the general sent the purchase order, it accepted the quotation and formed the contract. The only point of the words was to ensure that the general had something from the sub acknowledging the contract.

Contract A 

The general also argued that as soon as the sub submitted its bid, contract A was formed. The terms of contract A were that if the general accepted the bid, then the parties would enter into construction contract B. The judge disagreed. He said that the request for tenders from the general to the sub did not stipulate that the sub’s tender had to be irrevocable for any time, much less for a “reasonable period” on which the expert would have opined or that the general argued should be 60 days.

We disagree. A sub’s bid must be irrevocable for, at minimum, the length of time that the general’s bid must be irrevocable to the owner. This is so regardless of whether the sub’s bid was solicited or, as is often the case, unsolicited. Indeed, if the owner indicates acceptance at the last moment, the general must be given a reasonable period of time to notify the subs of their accepted bids. Anything else results in chaos in bidding.

The judge dismissed a body of case law, dealing with a subcontractor holding its bid open, with the flippant comment that “Any cases that have espoused such a statement have misapplied Ron Engineering or should be confined to their particular facts.”

More Bon Mots 

The judge made a number of pronouncements that bear repeating.

1.   A formal tender differs from an informal tender. A formal tender must have one of the following: a bond, irrevocability for a fixed period of time, and a bid deposit. The judge then held that the sub’s bid was not formal because it had none of these. Formal. Informal. Who cares? It is a distinction in the mind of the judge, but without relevance. In any case, the judge could have found the irrevocability aspect, for which he was looking, in the main tender documents to which the sub’s tender was subject.

2.   The judge acknowledged that the sub knew that the general might carry its price in the prime bid to the owner and that, if the owner accepted the prime bid, the general would be obligated to supply the kitchen equipment for the price that the sub quoted. What more did the judge need? The judge noted that the sub bid on many projects and only received a small percentage of them. This, of course, is not earth shattering news. Few contractors are awarded contracts on all jobs they bid; that is why they bid a lot of jobs. This cannot possibly be an excuse for a contractor to back out of a tender.

The sub put in a bid on which the general relied. When the general asked it to enter into the contract and do the work, the sub reneged. And the judge allowed the sub to walk! This is absurd and turns the bidding process into an exercise in futility. 

Dismiss  

Unfortunately, we now have to attempt to dismiss this decision on the basis that the judge did not understand construction practice such that his decision should be ignored as an aberration.

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