During a formal bidding process, purchasers are typically under an implied duty to reject non-compliant tenders. This implied duty prohibits the post-bidding correction of material defects in a tender. While the practice of correcting tender defects is often justified as a “clarification” or “correction” exercise aimed at addressing “minor irregularities”, this column reviews three recent cases that illustrate how these post-tendering activities can constitute “bid repair” and result in significant legal liabilities to the purchasing institution.

Rate Bid Form Correction

In its March 2008 decision in Jarlian Construction Inc. v. Waterloo (City), the Ontario Divisional Court upheld a November 2007 trial judgment which found that the City of Waterloo had improperly accepted a non-compliant low bid. The case dealt with a mistake in the selected bidder’s rate bid form. The municipality had corrected an obvious error in the low bidder’s tender and awarded the construction contract to that bidder. A competing bidder sued. The trial court concluded that the error made the low bid legally incapable of acceptance and that the municipality had accepted a non-compliant bid:

“…Xterra’s bid was clearly non-compliant and therefore not capable of being accepted by the City in accordance with the terms and conditions of the tender. By accepting Xterra’s bid, the City was in breach of its implied obligation to only accept a compliant bid.”

As this case illustrates, purchasing institutions should be careful to avoid engaging in post-tender “bid repair”. The correction of bid errors, particularly mistakes relating to price, can constitute a breach of the implied duty to reject non-compliant tenders.

Correct Math May Be Wrong

In its May 2008 decision in Maystar General Contractors Inc. v. Town of Newmarket, the Ontario Superior Court of Justice found that the defendant municipality improperly corrected a mathematical error in a tender and held the municipality liable for awarding a contract to a non-compliant bidder. The case involved a tender call for the construction of a recreational facility.

The plaintiff, Maystar General Contractors, was an unsuccessful bidder. It alleged that the contract was awarded to a non-compliant competing bidder. It sued for $3.3 million in lost profits. Newmarket, the defendant municipality, argued that the selected tender was compliant and that its mathematical corrections were permitted within the tendering rules. The Court disagreed, finding that the bid price in the selected tender was uncertain and that the post-bidding “clarifications” and “corrections” amounted to improper bid repair:

“…the uncertainty of the price that existed in Bonfield’s bid could not, in my view, be corrected or rectified by the subsequent communication from Bonfield to the Town and in particular, Bonfield’s facsimile letter of September 20, 2005 purporting to clarify its Bid Price. As I have held, the Bid was non-compliant and therefore incapable of acceptance…”

The Court concluded that the “clarification” process resulted in the improper post-bidding alteration of the tender.

“Minor Irregularity” or Fatal Flaw?

In its February 2008 decision in Surespan Construction Ltd. v. Canada, the Federal Court of Appeal upheld the Canadian International Trade Tribunal’s decision to summarily reject the complaint of a non-compliant bidder. In its May 2007 determination, the CITT summarily dismissed the rejected bidder’s complaint after noting that the bidder had failed to submit a signed front page with its tender as was required by the Invitation to Tender. While the rejected bidder argued that this was a “minor irregularity”, the Tribunal disagreed. It found that signing the front page was a mandatory requirement and that the government had acted appropriately in rejecting the bid for non-compliance. The Federal Court of Appeal rejected the bidder’s subsequent appeal:

“…there is no reason for us to intervene in the decision of the CITT. The applicant asked the CITT to commence an inquiry into the rejection of its bid for the construction of a bridge because the face page of the bid was not signed by an authorized official of the applicant as required by Tender documents. The CITT declined to embark upon an inquiry and dismissed the complaint summarily…. In our view the necessary implication which flows from that conclusion is that the CITT did not consider the absence of a signature to be a minor irregularity.”

As this case illustrates, what some may see as “minor irregularity” may actually be a fundamental flaw that calls for the rejection of a tender.

Buyers Beware of Bid Repair

As these cases illustrate, engaging in the post-bidding rectification of tender defects can be a risky business practice. To avoid being on the receiving end of the next bid repair claim, purchasing professionals should always proceed with caution when assessing tender compliance.

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These materials are for general information and reference purposes only. They do not reflect the views of any past or present employers or clients and should not be relied upon as a substitute for case-specific qualified professional advice.

To subscribe to the National Tendering Law Update, or for more information about his procurement training sessions, contact Paul Emanuelli at: paul.emanuelli@sympatico.ca

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© Paul Emanuelli, 2008. All Rights Reserved.

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