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YOU BE THE JUDGE: Another Twist on Bid Compliance

This article was originally published on August 24, 2016 in The Legal Edge

As Legal Edge readers are well aware, the determination of whether a bid is compliant with the terms of the RFx is an ever-expanding bag of snakes, and it can put an owner between the proverbial rock and a hard place. If the owner decides to reject, it is subject to challenge by the rejected bidder. If the owner decides not to reject, it is subject to challenge by the second bidder in line. The argument of the second-ranked bidder is that, “The first-ranked was non-compliant and should have been rejected. If you had rejected that bid, we would have won the contract.”

It is this second avenue of attack that came into play in a recent case in Atlantic Canada, on which we invite you to test your understanding of bid compliance.

In November 2013, the Government of Newfoundland and Labrador issued an Invitation to Tender (ITT) for construction of a new wharf in Milltown, Newfoundland and Labrador. The closing date for bids was January 13, 2014.

The Instructions to Bidders allowed for amendments to the tender to be made by fax, and stated at clause 4(f), that, “failure to acknowledge receipt of addenda in the Tender Form will be considered an incomplete tender.” Five addenda were eventually issued, some adding substantive changes to the scope of the work.

On December 9, 2013 – well before the stated closing date – the Government received a bid from B. & R. Enterprises Ltd. in the amount of $3,515,656, acknowledging receipt of Addenda 1, 2 and 3 on the Tender Form. Less than an hour before making its submission, B. & R. had received Addendum 4 by fax, so it subsequently emailed confirmation of receipt of Addenda 4. On January 7, 2014, B. & R. received Addenda 5 by fax, which required B. & R. to make substantive changes to its previously submitted bid. On January 13, the government received a further fax from B. & R., which resulted in an increase in the B. & R. bid by $400,020, bringing its total bid to $3,915,676. By email on the same day, B. & R. acknowledged receipt of Addenda 5.

Later on January 13, the Government received five other bids, including a bid from R.J.G. Construction Limited in the amount of $4,632.915.25. Given that the B. & R. bid was lower, the Government awarded the contract to B. & R.

R.J.G. objected, saying that B. & R. had not “acknowledged receipt of addenda in the Tender Form”; rather, B. & R. had acknowledged receipt of the last two addenda by email only.

R.J.G. alleged that this was a material error, and pointed to clause 4(f) of the Instructions to Bidders noted above, which also stated that failure to acknowledge receipt of the addenda in the Tender Form would render the bid incomplete, and paragraph 5 of the Instructions to Bidders, which stated that incomplete bids would be rejected. In R.J.G.’s submission, this was material non-compliance, rather than a simple clerical or typographical error that might have been overlooked.

R.J.G. sought damages for loss of the profits it would have received, had it been awarded the construction contract.

What would you decide? Was the B.& R. bid substantially compliant, or should the Government have rejected its bid? And was R.J.G. eligible for damages?

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In R.J.G. Construction Limited v. Newfoundland and Labrador (Transportation and Works), 2016 NLTD(G) 40, the Court ultimately upheld the award to B. & R.

The Newfoundland and Labrador Court of Appeal decision in Cougar Engineering and Construction v. Newfoundland and Labrador, 2015 NLCA 45 had found that, when considering the exact same Instructions to Bidder language as found in the case at hand, the appropriate test was substantial rather than strict compliance. On that basis, all parties to this case agreed that substantial compliance was the appropriate standard to be applied.

The Government had scrutinized the issue carefully before deciding to award to B. & R. In the Government’s view, the B. & R. bid was substantially compliant with the tender requirements, since B. & R. had “acknowledged” all of the addenda.

To further support its position, the Government also pointed to a discretion clause in paragraph 5(g) of the Instructions to Bidders, which stated that, “Incorrectly prepared tenders may be rejected.” The Government argued that this meant that it had discretion to not only reject an incorrectly prepared tender that was substantially compliant, but also to accept one. The Government submitted that it had not breached its implied duty of fairness to R.J.G., and that R.J.G.’s claim should be dismissed.

In reliance on the decision in the Cougar Engineering case, the Court reiterated that “a bid should not be declared defective unless the error or omission is material.” The Court in this case was satisfied that the acknowledgement by B. & R. of Addenda 4 and 5 by email rather than on the Tender Form itself constituted a mere irregularity. B. & R.’s bid was properly accepted as substantially compliant, and the claim by R.J.G. was dismissed, with costs.

Editor’s Note

As with all areas of procurement practice, specific and careful drafting of RFx provisions is crucial. In the absence of very strict language for mandatory requirements, the courts will apply the substantial compliance test. But as we see from this case, the determination of substantial compliance is often far from clear-cut. It appears that the most detailed guidance on this thorny issue still comes from the B.C. Supreme Court case of Cambridge Plumbing Systems Ltd. v. The Owners of Strata Plan VR 1632, 2009 BCSC 605:

“If the defect undermines the fairness of the competition or the process of tendering [cases cited], impacts the cost of the bid or the performance of Contract B [cases cited], or creates a risk of action by other (compliant) bidders [cases cited], the bid at issue will be materially non-compliant.”

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Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case.  For any particular legal problem, seek advice directly from your lawyer or in-house counsel.  All dates, contact information and website addresses were current at the time of original publication.