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ALBERTA CONSTRUCTION INDUSTRY
COMMUNIQUÉ
THE EVOLUTION OF TENDERING LAW:
DOUBLE N EARTHMOVERS LTD. V. THE
OF EDMONTON
April 2005
CITY
A publication of Miller Thomson LLP’s
Construction Law Practice Group
Tendering law has continued to evolve since 1981 when the Supreme Court
released its decision in The Queen in Right of Ontario v. Ron Engineering and
Construction Eastern Ltd., [1981] 1 S.C.R. 111. In a recent Alberta decision,
Double N Earthmovers Ltd. v. The City of Edmonton, [2005] ABCA 104 (“Double
N”), the Alberta Court of Appeal enhanced understanding of the interrelationship
between contract A and contract B, the importance of protecting the integrity of
the bid system, and the legal obligations of the parties during the tendering
process.
In Double N, the City of Edmonton (“City”) put out a tender call for four pieces of
heavy machinery to remove refuse. Specifications in the tender call required all
of the equipment to be 1980 or newer. The only two companies submitting prima
facie compliant bids were Sureway Construction of Alberta Ltd. (“Sureway”) and
Double N, with Sureway submitting the lower of the two bids. Prior to the award
of contract B, to Sureway, Double N brought the fact that Sureway’s bid might not
comply with the specifications to the attention of employees at the City. In fact,
the tender call required that the bidders list the year of the machinery and the
serial number. While Sureway’s bid listed the primary machine to be used as a
1980 machine, the machine was actually a 1979 machine. The City awarded the
contract for the machinery to Sureway, and upon discovering that the machine
was a 1979 machine and upon the request of Sureway, the City allowed the use
of the older machine.
The Trial Judge decided that the contract was rightfully awarded to Sureway and
that the City had no obligation to investigate the allegations of non-compliance
made by Double N.
In upholding the decision of the Trial Judge, the Court of Appeal considered the
following issues:
Note:
This Communiqué is provided as an
information service and is a summary of
1. the compliance of the Sureway bid;
current legal issues of concern to the
Construction Industry. Communiqués are
not meant as legal opinions and readers
are cautioned not to act on information
2. the duty to treat bidders fairly and equally and the possibility that this
creates an obligation on the owner to investigate allegations of potential
non-compliance; and
provided in this Communiqué without
seeking specific legal advice with respect
to their unique circumstances.
Your
comments and suggestions are most
welcome.
Please
direct
them
3. whether or not Sureway could be held liable through their status as
third parties for purposely entering a non-compliant bid that looked
compliant on its face.
to:
ConstructionLaw_AB@millerthomson.ca
The Court of Appeal decided to uphold the decision of the trial judge on all these
issues.
The decision of the trial judge was rendered by the Honourable Justice R.P. Marceau in 1998, prior to the
release of the Supreme Court decisions in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., et
al. [1999] 1 S.C.R. 619 (“MJB”) and Martel Building Ltd. v. Canada [2000] 2 S.C.R. 860 (“Martel”). Both
decisions were considered by the Court prior to rendering their decision in the case at hand. In MJB, the
Supreme Court found that implied obligation exists that the owner would only accept the lowest compliant
bid. One year later, in Martel, the Supreme Court found that protecting the integrity of the tendering
process required an implied obligation on the part of the owner to treat bidders fairly and equally.
With respect to the issue of compliance of the Sureway bid, the Court decided that although the bid
entered by Sureway was non-compliant, it was compliant on its face, which the City was entitled rely upon
when they awarded contract B. Any obligations to bidders under contract A, the contract between the City
and all compliant bidders, ceased to exist upon contract B, the contract to do the work, coming into
existence. The Court reasoned that it would be impractical to allow parties under contract A, to continue
to assert their rights after the formation of contract B. Continued rights under contract A would only lead to
continuous scrutiny of the actions of the parties to contract B and this would interfere with the integrity of
the tendering process. The Court also stated that the City had the right to believe that Sureway would
comply with its bid as tendered after the formation of contract B and that failure to comply would be a
breach of contract B. As it turned out, the City agreed that Sureway could use the non-compliant 1979
machinery, essentially amending the terms of contract B.
With regard to the implied obligation to treat all bidders fairly and equally, the Court was requested to
consider if this created an obligation on the City to investigate allegations that Sureway did not have the
capacity to comply with its bid prior to the City awarding contract B. The trial judge reasoned that such a
duty would “overwhelm and ultimately frustrate the tender process by creating unwelcome uncertainties.”
In the event that the City knew with certainty that Sureway’s bid was non-compliant, and it would not be in
a position to comply with its bid after the award of contract B, then the City would have had an obligation to
investigate.
The Court noted that there might be an obligation to investigate where the specifications required by the
tender documents imply that a subjective assessment is required. An example of this would be where the
bidder’s qualifications to do the work are to be evaluated. However, in this case, compliance with the
tender specifications was verifiable on the face of the bid.
The final issue the Court was requested to determine was whether Sureway should be held liable to
Double N because of its submission of a non-compliant tender. Sureway was added as a third party to the
claim with the defendant City claiming that in the event it was found to have breached a duty to Double N, it
was only because Sureway had breached its duty to the City. The Court could not find that Sureway was
liable for damages to Double N because it was never claimed that Sureway breached a duty to Double N.
ABOUT THE AUTHOR:
Stephanie Rohling is an associate in Miller Thomson’s Calgary office. She has an interest in construction
litigation and contract preparation.
Stephanie Rohling
Calgary
403.298.2407
srohling@millerthomson.ca
Our Construction Law Practice Group is dedicated to providing comprehensive and integrated legal
services to construction industry clients. For more information about our group, visit our website at
www.millerthomson.com or contact one of our regional contacts listed below.
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