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What Determines If a Defect in a Bid Is Material or Non-Material? You Be the Judge

Maglio Installations v Castlegar (City), 2017 BCSC 870

On February 25, 2013 the City of Castlegar (“Castlegar”) issued an ITT for the construction of three swimming pools along the Columbia River. The pools were intended for public use and recreation. Several interested companies submitted bids, including the plaintiff, Maglio Installations (“Maglio”). While Maglio’s bid was deemed compliant, Castlegar used their discretion to award the project to Marwest Industries Ltd. (“Marwest”), despite their bid having been found non-compliant. Maglio alleged that Castlegar had here improperly forgiven the deficiency in Marwest’s bid, thus breaching their duty to deal with all bidders fairly and in an even-handed manner. Both parties agreed to a finding on summary trial, which meant that the judge would decide the matter without a full hearing.

The ITT included a number of milestone dates: for example, the tender award date was set for March 11, 2013; authorization to proceed in the week beginning March 18, 2013 was needed; the work must be substantially completed by May 13, 2013; and the total performance of the contract was to be completed by May 24, 2013. Because of several intervening events, these milestone dates were revised numerous times, with their last revision contained in Addendum No. 3 of the ITT. This addendum was issued on March 19, 2013 and sent to interested bidders, including Marwest and Maglio. The tender award date was pushed back to June 25, 2013 and the completion dates were set for fall/winter 2013.

The ITT also required interested bidders to complete a Preliminary Construction Schedule (“PCS”), the form of which – a bar chart – was set out in Appendix 2. The chart needed to include major stages of the construction process against an axis indicating the number of weeks each would take to complete. Once the bidder has finalized the PCS, the result would be what is known as a simple Gantt chart. At various points in the invitation Castlegar stressed that time was very important, and paragraph 4.8 of the ITT included the following standard discretion clause:

4.8 The City reserves the right to reject any or all tenders, to waive defects in any bid
or tender documents and to accept any tender or offer which it may consider to be in the best interest of the City.

Maglio’s bid included a completed Gantt chart in Appendix 2, but Marwest’s bid did not. Marwest instead wrote that completion estimates would be submitted after final dates had been confirmed and optional items chosen. Castlegar argued that it could rely on the discretion clause to overlook this deficiency, which was not brought to the attention of Castlegar’s city councillors when they voted on the issue.

Thus the issue here is whether the deficiency in Marwest’s bid is the kind of omission or error that the defendant is legally permitted to forgive. Maglio argued that the PCS was both essential and an important element of the bid, and that nothing in the revised dates in Addendum No. 3 suggested that the PCS was no longer essential or that prevented Marwest from creating the PCS. Maglio thus alleged that the omission was material, meaning that Castlegar’s awarding of the contract to Marwest was a breach of its duty of fairness to Maglio.

Castlegar argued that the PCS was not a material element of the bid and that they could thus forgive its omission. Castlegar argued that the material component of Appendix 2 was to promise to undertake the work such that it would be compliant with the milestone dates. Since, Castlegar argued, Marwest did make that promise, it satisfied Appendix 2 materially, making its bid substantially compliant. Castlegar further argued that the dates were so imprecise that it was ultimately impossible to sensibly complete a PCS. Thus on either argument, Castlegar maintains that their decision to award the contract to Marwest did not breach their obligations to Maglio.

In general contract law, discretion clauses are presumed to apply only to include minor irregularities or non-material defects – that is, the defendant could only have forgiven Marwest’s omission if it was a non-material omission. This is consistent with prior cases, such as Graham Industrial Services Ltd v Greater Vancouver Water District, 2004 BCCA 5, where the British Columbia Court of Appeal (“BCCA”) refused to uphold the discretion clause and GVWD’s sole discretion in determining whether a bid was compliant. In Graham, the BCCA stated that decisions on compliance must be “made in good faith, and subject to the objective scrutiny of the Courts.” Thus, the BCCA substituted its own opinion on compliance for that of the GVWD, and ruled that Graham’s defective bid could not be accepted.

Determining if an omission – such as the one in Marwest’s bid – is material or non-material can be done by using the two-part test from Graham. First, the court assesses whether the defect was important or essential to the bid. If yes, the court then considers objectively whether this defect would have been significant to the issuer in its deliberations of which bid to select.

In applying the test from Graham to Marwest’s omission, is Castlegar liable to Maglio for using its discretionary clause to overlook the lack of the Preliminary Construction Schedule? Do you think the imprecise dates by the owner affect the outcome? You Be the Judge.

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On summary trial the judge held for the plaintiff, finding that the requirement of the PCS in Appendix 2 was a material element of the invitation to tender and that it was not in the scope of the Castlegar’s discretion to overlook Marwest’s failure in this regard. The judge did not set costs nor damages (leaving that for the judge determining the quantum of the claim).

In applying the two-part test from Graham to determine whether the PCS was material, the judge considered the evidence in an explicitly objective fashion. For the first part of the test, the judge noted that the invitation to tender’s language in discussing the PCS was clear and unambiguous, requiring hopeful bidders to complete Appendix 2. Castlegar did not give any indication to think the PCS was optional. Nor is the requirement small, tucked away, or easy to overlook – the request for a PCS takes up an entire page in Appendix 2. Finally, since the invitation to tender repeatedly noted the urgency of the situation, Castlegar cannot now argue that a construction schedule is an unimportant detail. Thus the judge held that the omission passed the first stage of the test for materiality, in that it was clearly objectively important to the bid as a whole.

In considering the second stage of the test from Graham, which asks whether the PCS would be a significant factor in Castlegar’s decision to select a winning bid, the judge ruled that the invitation to tender’s insistence on time and urgency suggests that it was in fact interested in knowing when the bidders could complete various construction tasks. Despite the defendant’s position that it did not give much weight to the PCS, when examining the invitation objectively the judge found that it was substantially likely that the PCS would be an important factor in assessing bids. Thus the plaintiff is entitled to judgment on liability.

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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.