Many procurement leaders will remember the case of Johnson’s Construction Limited v Newfoundland, and Community of Conche,  NJ No 12 in which the Newfoundland Supreme Court ruled against the owner in a contentious tender dispute. In that case, the lowest bidder had left a blank space in the unit pricing table for a minor item worth approximately $2,000 on a major construction project. Bidders had been cautioned that “under a Unit Price Contract, bidders are required to enter a unit price for each and every item bid; this includes lump sum bid items. If any unit price is omitted by the bidder, then the bid shall be considered incomplete and automatically rejected.” Although including a price for this minor item would not have changed the ranked order of the bids, the court concluded that with such strict language the owner had no choice but to disqualify the lowest tender bid. Damages payable to Johnson’s Construction, the second-lowest bidder, followed.
Fast forward to a tender for water and sewer work issued by the Town of Conception Bay South in 2011. The tender document used in this process was the Government of Newfoundland and Labrador’s Department of Municipal Affairs’ standard form for a Unit Price Contract containing the above clause. Six bids were received and the Town accepted the offer from RJG, the lowest bidder. Coady Construction & Excavating Limited (“Coady”) submitted the second-lowest bid, but after the award went to RJG challenged the contract award alleging that RJG’s bid was non-compliant and should have been rejected.
It turns out that RJG’s winning bid failed to include the price for a specific-sized manhole, one of the unit items listed. The space for a price for this item was left blank. Two of the six bids had failed to include a price for this item, but Coady’s – the second-lowest bid – had included a price for it.
Coady argued that RJG’s failure to include a unit price rendered RJG’s bid non-compliant. Mr. Coady, on behalf of the company, gave evidence that in his experience bidders were often obliged to include prices for items with an estimated quantity of zero in order to avoid cost issues should that item become necessary later on. At trial an engineering consultant gave evidence that the presence of a zero quantity item was an error “likely left in from a master specification document.” Further, the consultant did admit to bid compliance concerns with the omission of a price for the relevant item.
The court referred to the case of Cougar Engineering and Construction v Newfoundland and Labrador, 2015 NLCA 45, which confirms that the test for bid rejection is “substantial, not strict, compliance” (para 23). The judge held, however, that the Town’s argument that RJG’s failure to include a price was immaterial to the contract award was simply not supported by the evidence. There was a clear benefit to the Town by requiring that a price be included: namely, that the successful bidder could be held to that commitment. Moreover, the language in the tender document was very clear that failure to include each and every unit price would result in bid rejection.
This case leaves procurement professionals with two significant lessons. First, the case underscores a key component of procedural fairness: say what you mean, mean what you say, and do what you say you will do. Second, it clearly illustrates the importance of staying on top of legal rulings and adjusting your own processes to reflect the lessons learned. Having been exposed to the litigation risks of this clause through the Johnson’s Construction case back in 2000, the pro forma tender document apparently continues to be used.
Procurement professionals must understand the risks of trying to procure tomorrow’s solution with yesterday’s tools. Templates and pro forma tendering documents should be reviewed from time to time by legal counsel or other subject matter experts and adjusted to reflect emerging issues, risks and lessons learned by other organizations. Remember the old adage: it’s always better to read a case than be a case!
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.