man looking frustrated with hands places on temples because his misinterpretation of contract A was not correct

CF Construction Ltd v Town of Westville, 2018 NSSC 123

In September 2014, the town of Westville, Nova Scotia (“the Town”) needed to upgrade its sewage system and issued a tender call for bids on September 6. The Town retained PDI Engineering Group (“PDI”) to produce tender documents, manage the process, and evaluate the bids. The process closed on October 9, 2014, and four companies tendered bids for the Westville Project. The contract was awarded to S.W. Weeks Construction Limited (“S.W. Weeks”), the second-lowest bidder. C.F. Construction Limited’s (“C.F.”) bid, while priced lower than Weeks’, was disqualified for alleged non-compliance.

The project involved replacing a pressure sewer line and a sewage pumping station, which contained a wet wall to store the sewage until it was let into the pressure system. The tender documents thus required a concrete wet well structure, and specified that it be pre-cast – that is, poured into a mold and then transported to the construction site.

The tender documents stated that addenda could be issued during the bidding period and that all information in any addendum would become part of the contract documents. Any requests from bidders for clarification were required to be in writing and any reply would be sent to all bidders as an addendum. Bidders were known to the Town because of a mandatory meeting held five days after the tender call was issued.

Three addenda were sent during the bidding process:

  1. On September 23, the closing date was extended from September 26 to October 3.
  2. On October 1, a lengthy addendum was sent that outlined further the requirements for the pumping station, including for the pre-cast concrete wet well. This addendum also further extended the closing date to October 9.
  3. On October 7, an addendum was sent clarifying that all costs associated with relocating existing infrastructure (such as power lines) were to be borne by the contractor, and further that the contractor was responsible for negotiating with local property owners.

This third addendum was sent to all bidders in response to two communications from C.F. employees which noted that overhead power lines at the site would interfere with installing a pre-cast concrete wet wall, as well as that a sufficiently deep excavation at the site would require some excavation of a local owner’s neighbouring property.

Four contractors submitted bids on October 9. C.F. submitted the lowest bid, and S.W. Weeks, who was awarded the contract, submitted a bid that was over $100,000 more than C.F.’s bid. The Town admitted at trial that at first glance C.F.’s bid appeared compliant, and on October 15 Oliver Browning – the lead engineer from PDI, who had been granted the contract to manage the project – called Paul Jensen, C.F.’s lead estimator. Jensen and Browning recalled this conversation very differently. However, on the critical issue of the wet well, Mr. Browning admitted on cross-examination that Mr. Jensen had never said that C.F. would not build a pre-cast wet well, and his notes indicate that Jensen said that C.F. could build a pre-cast wet well. Further, Mr. Browning’s notes taken during that call do not indicate that he ever told Mr. Jensen that C.F.’s bid could be rejected for non-compliance over this issue.

Mr. Browning then telephoned Kelly Rice, the Town’s Chief Administrative Officer, and his notes of that call indicate that she told him that if C.F. did not provide further information by Friday that he should select the second-lowest bidder. She additionally told him that she wanted the contract awarded by Friday as she was going on vacation. At trial, Ms. Rice testified that if Mr. Jensen really had told Mr. Browning that C.F. was willing to do the pre-cast wet well for the same bid, she would have accepted that bid.

Mr. Jensen denied telling Mr. Browning that he had priced C.F.’s bid for a cast-in rather than pre-cast structure, and additionally included notations on the bid indicating the price for moving the electricity lines and utility pole, which would only have needed to be moved for a pre-cast installation.

By October 15, Mr. Browning knew that Ms. Rice wanted the contract awarded by Friday, October 17. On October 16 he emailed Mr. Jensen with a number of questions about the cast-in wet well. Mr. Jensen interpreted this to mean that the Town was now open to a potential change, and that in any case there was no urgency to the request since any such change would be made after the award. Mr. Jensen did not include a deadline for responding aside from a phrase stating that “[t]he sooner that we can get these responses, the sooner the project can be awarded.”

When by 4pm Mr. Browning had not received a reply, he called Mr. Jensen and left a voicemail. His notes indicate that by noon on October 17 he had not received a reply. He sent a letter to Ms. Rice advising the Town that in PDI’s opinion, the tender from C.F. was non-compliant. He also advised the Town to refer the matter to their solicitor to verify the law. That afternoon, the Town informed Mr. Browning that they had awarded the contract to S.W. Weeks, the second-lowest bidder.

At trial, the Town claimed that C.F.’s lead estimator later disclosed that the bid price had included the cost of a cast-in-place concrete wet well, as opposed to a concrete wet well that was pre-cast, as was specified in the tender call. The Town argued that this meant that the bid was non-compliant. The Town further argued that even if the bid had been compliant, C.F. still wouldn’t have been granted the change order.

C.F. sought damages for breach of contract in the amount of what it would have earned on the contract and on a change order to replace a leaking storm sewer pipe. The company argued that its bid was compliant and that Contract A was created.

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Answer

The judge held that C.F.’s bid would have been granted both the original contract and the change order, which related to a leaky water pipe discovered partway through S.W. Weeks’ work and which was also awarded to that company.

The applicable law comes from Ron Engineering and Tercon, and a particularly important point is that “effective tendering ultimately depends on the integrity and business efficacy of the tendering process” (Tercon at para 67). The judge found that Mr. Browning of PDI assumed that something was amiss from how much lower C.F.’s bid was than the second-lowest bid, and that this assumption caused him to misinterpret Mr. Jensen’s comments with regard to a cast-in wet well. No evidence aside from Mr. Browning’s recollection was provided that suggest that Mr. Jensen ever priced a cast-in wet well, nor did the judge find that such an inference could be made.

Paragraph 43 of the decision admirably sums up what the judge found to have happened:

In Oliver Browning’s opinion, the Westville Project should have cost about $730,000. C.F.’s bid price of $572,000 was substantially lower than both that estimate and the other bids. Mr. Browning called Mr. Jensen assuming there was something wrong with the C.F. bid. When Mr. Jensen raised the possibility of a cast-in-place wet well, Mr. Browning understood him to mean that the C.F. bid price was premised on the incorrect type of wet well. Mr. Jensen’s remark that the cast-in-place had not even been designed yet, instead of exposing the misunderstanding, only confirmed to Mr. Browning that C.F.’s bid price was suspect. This initial misunderstanding was compounded by Mr. Jensen’s misinterpretation of – and failure to answer – Mr. Browning’s email. Receiving no response from Mr. Jensen, the Town unfairly disqualified C.F.’s compliant bid.

The judge assessed damages with regard to lost profit, and calculated that C.F. was owed $343,745 (plus HST).

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