THE LITIGATOR
OCTOBER 18, 2005
Contractor pays for mistake in bid price
BY KYLE PETERSON, AFFLECK GREENE ORR LLP.
A contractor who made a mistake in price in a
tender cannot walk away from its bid, even if the
tender instructions call for submission of additional
documentation, in which the mistake becomes
obvious, the Ontario Court of Appeal recently
held. 1 This decision is an important re-affirmation of
the principle that contractors are bound by their
bids even if they make a mistake in the price.
Martel Building Ltd. V. Canada. 4 These cases
establish the framework for competitive tendering
in Canada. A unilateral contract, called Contract A,
arises automatically between a tenderer and the
owner upon submission of the tender. One of the
terms of this contract is that the tenderer cannot
withdraw the bid during the period set out in the
tender instructions. If the tender is accepted, the
tenderer and the owner enter into a construction
contract, called Contract B.
Gottardo’s mistake
In December 2000, the TTC opened the tenders it
received for the construction of the Birchmount bus
garage. Gottardo Construction Ltd. was the lowest
bidder. Soon afterwards, Gottardo informed the
TTC that it had made an error. In accordance with
the tender instructions, the TTC requested
additional information. Gottardo refused to supply
it, except for a cost breakdown on which it gave
different price for the work.
The TTC took the position that Gottardo was bound
by its bid. Gottardo refused to sign the contract and
the TTC rewarded the contract to the next lowest
bidder, which was $434,000 greater than
Gottardo’s. The TTC sued Gottardo and its insurer,
CGU Insurance, to make up the difference.
Contract A and Contract B
The TTC relied on the principles initially expressed
by the Supreme Court of Canada in the landmark
decision of R v. Ron Engineering & Construction
(Eastern) Ltd, 2 and two later cases, M.J.B
Enterprises v. Defense Construction (1951) Ltd. 3 and
Trial decision
Kitely J. dismissed the TTC’s action. 5 She held that
Contract A was not complete because the tender
instructions called for additional documents to be
provided. Once these were submitted, the error in
the tender amount was apparent. The TTC could
therefore not compel Gottardo to honour the price
(or recover from CGU on the bid bond). Kitely J.
added that she would have granted Gottardo the
equitable relief of rescission in any event.
Additional documentation does not delay
the formation of Contract A
The Court of Appeal 6 reversed Kitely J.’s decision,
following the three leading Supreme Court
decisions referred to above, holding that provision
in the tender instructions for TTC to request
additional information from tenderers did not delay
the formation of Contract A.
The question – which the trial judge failed to
address – is: when did the parties intend to initiate
One First Canadian Place, Suite 840, P.O. Box 489, Toronto, Ontario, Canada M5X 1E5
Telephone: 416 360 2800 Fax: 416 360 5960
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TH E L IT I GAT OR
Page 2
contractual relations? In holding that the formation
of Contract A was delayed until after additional
information was provided and a tender accepted,
the trial judge confused the creation of Contract A
with the process that occurs after Contract A and
leads to Contract B.
The court reiterated that
acceptance or rejection of the bid is not
what leads to the creation of Contract A.
Acceptance or rejection is the end point of
the tender process…The fact that certain
steps are taken and certain documents are
to be produced by the tenderer after the
submission and opening of tenders will not
delay the formation of Contract A when the
clear intent of the parties is to be bound
as of the opening of the tenders.
7
[emphasis added]
The error in the cost summary was apparent only
after Contract A was formed. Further, the summary
was not provided in a form that complied with the
tender instructions. A non-compliant document
cannot be used by Gottardo to show an error on
the face of the tender.
Rescission not available
The Court of Appeal also held that rescission was
not available to Gottardo, finding “simply no
grounds for equitable intervention”. Rescission was
not available on grounds of mistake, as there was
nothing in Gottardo’s initial bid to suggest an error
in the price. At the time Contract A came into
existence, neither the TTC nor Gottardo was aware
of the mistake. Moreover, although some financial
hardship to Gottardo would result from
enforcement of the agreement, it would be
insufficient to warrant rescission.
Here, from the tender documents and the fact that
Gottardo was familiar with tendering processes, it
was clear the parties intended to initiate contractual
relations the moment the tenders were opened.
The provisions allowing the TTC to request
additional background documentation did not
delay the formation of Contract A. Such provisions
would only delay the formation of Contract A if
“taken together with all the facts and
circumstances, they reflected an intention by the
parties to defer the creation of contractual
relations”. Gottardo’s tender, therefore, amounted
to an acceptance of the call for tenders and gave
rise to Contract A. Gottardo was bound by its price.
The court also dismissed Gottardo’s argument that
because it refused to provide the additional
information requested by the TTC, its bid became
non-compliant and incapable of acceptance. By
submitting its tender Gottardo had agreed to
provide additional documentation; its refusal to do
so was a breach of Contact A. To allow a tenderer
to escape Contract A by breaching it would defeat
the integrity of the tender system, the court noted.
Similarly, Gottardo could not rely on the fact that
the price in its cost breakdown was different from
the price in the bid.
One First Canadian Place, Suite 840, P.O. Box 489, Toronto, Ontario, Canada M5X 1E5
Telephone: 416 360 2800 Fax: 416 360 5960
www.agolaw.com
TH E L IT I GAT OR
Page 3
For more information contact:
Kyle Peterson, Affleck Greene Orr LLP
Tel: 416-360-6902
Email: kpeterson@agolaw.com
1
Toronto Transit Commission v. Gottardo Construction Ltd., [2005] O.J. No. 3689 (C.A.),
http://www.ontariocourts.on.ca/decisions/2005/september/C41246.htm
2
[1981] 1 S.C.R. 111 (S.C.C.).
3
[1999] 1 S.C.R. 619 (S.C.C.) (The Court made it clear that Contract A also imposes obligations on the owner, and that
Contract A does not always come into existence in all tender situations. The Court has to look at the terms and conditions of
the tender call to determine if the parties intended to initiate contractual relations).
4
[2000] 2 S.C.R. 860 (S.C.C.) (The tender instructions are critical in an analysis of the contractual relations between the
parties).
5
68 O.R. (3d) 356.
6
The panel consisted of Rouleau, Borins and Feldman JJ.A.
7
At para 13.
One First Canadian Place, Suite 840, P.O. Box 489, Toronto, Ontario, Canada M5X 1E5
Telephone: 416 360 2800 Fax: 416 360 5960
www.agolaw.com