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public procurement and the law

by Robert C. Worthington

Speak clearly or hold your peace

The law of competitive bidding, as formulated by the Supreme Court of Canada, requires that all parties to the competition must abide by the stated rules of the competition (i.e., the Instructions to Bidders and the rest of the Invitation to Bid package) following the close of bidding.

This was reinforced by the Supreme Court's unanimous decision in MJB Enterprises Ltd. v. Defence Construction (1951) Ltd. (1999) 195 W.A.C. 3609 (SCC). The owner was found liable to pay the lost profit of the bidder who should have won the contract, having been compliant with the Invitation's mandatory requirements while the successful bidder was not. The owner's Invitation did not have any provision for waiving non-compliance by a bidder. The court ruled that the owner has an implied obligation to accept only compliant tenders and there is nothing the owner can do after the close of bidding to change this.

The owner must live with the rules they themselves created when they wrote the Invitation or cancel the Invitation without award. Just as bidders can't change their bids after closing, the owner can't change their Invitation after closing without breaching Bid Contract A, formed at the close of bidding.

If an owner still feels justified in accepting a non-compliant bid where the non-compliance is minor, we suggest reading the recent Newfoundland Supreme Court decision of Johnson's Construction Ltd. v. Newfoundland [2000] N.J. No. 12 (NSCTD). In this case involving a tender for construction of a water system, the lowest bidder had omitted a unit price for a single item in their bid. The Invitation explicitly stated "…If any unit price is omitted by the bidder, then the bid shall be considered incomplete and automatically rejected." But since the item was minor and did not change overall ranking of bidders, the owner accepted the non-compliant bid anyway.

The court found in favour of Johnson's, the lowest of the fully compliant bidders, stating quite clearly that the government had no option but to follow the rules as written or cancel without award. The terms of the Invitation were clear, there was no discretion to accept an incomplete tender and the owner was legally precluded from accepting the non-compliant bid.

The court also pointed out that, had the Invitation been worded differently, another result might have occurred. Had the owner given itself discretion to accept non-compliant tenders explicitly in the Invitation, then the issue would have been "was this a fair exercise of discretion?" - a much smaller barrier to success than trying to get around the explicit wording of "automatically rejected."

Other owners in the public sector have begun to give themselves discretionary powers to waive non-compliance in their Invitation or Request documents.

An example is the case of J. Oviatt Contracting Ltd. v. Kitimat General Hospital Society [2000] B.C.J. No 1196 (BCSC), where a bidder was suing an owner for failure to award to it (unsuccessfully as it turned out, on other grounds). The court was fully prepared to allow the bid to be considered compliant - even missing four pages of the tender form - because the owner had the power in its Invitation to "waive irregularities of a minor or technical nature," and the missing information could be found elsewhere in the bid.

In Foundation Building West Inc. v. Vancouver (City) [1995] B.C.J. No. 861 (BCSC), the owner had a very wide waiver clause ("…The City may waive any non-compliance with the tender documents, specifications or any conditions … and may at its sole discretion elect to retain for consideration tenders which are non-conforming …"). In this case the court was fully prepared to allow the owner "some latitude" in accepting a tender that did not strictly comply with the requirements of the Invitation.

Most recently, in Sound Contracting Ltd. v. Nanaimo (City) [2000] (BCCA), the British Columbia Court of Appeal (BCCA) agreed that the Nanaimo Invitation to Tender's wording gave the owner discretion "to take a more nuanced view of 'cost' than the prices quoted in the tender." The BCCA cautioned that "discretion must surely be exercised fairly and objectively," but decided the owner was entitled to choose the second lowest priced bidder, based upon an honest belief that this bidder offered "the greatest value based upon quality, service and price" - three evaluation criteria listed in the Invitation.

The message should be crystal clear. As an owner, if you want flexibility of choice to accept or not accept a bidder's non-compliance, give yourself that power expressly in the Invitation. Otherwise, the rules are the rules, mandatory is mandatory and the Courts will hold you to that - every time.

Robert C. Worthington is president of Worthington & Associates Ltd (www.purchasinglaw.com), a Vancouver-based company specializing in business education and training in purchasing law. He has lectured on law for public and private corporation in-house seminars, as well as at the University of British Columbia. He is the author of the Purchasing Law Handbook and several legal texts.



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