Affirming an Owner’s Right to Rely on a Privilege ClauseSurespan Construction Ltd. v Saskatchewan, 2017 SKQB 55 (CanLII)
Originally published on December 19, 2017 on the Alexander Holburn Beaudin + Lang LLP Construction + Engineering Law Blog:
Author: Menka Sull
In the recent decision of Surespan Construction Ltd. v. Saskatchewan, 2017 SKQB 55, the Saskatchewan Court of Queen’s Bench dismissed a summary judgment application brought by the Plaintiff, Surespan Construction Ltd., against the Saskatchewan Ministry of Highways and Transportation for failing to award it a construction contract after it submitted a bid in response to an invitation for tenders issued by the Ministry. In dismissing the Plaintiff’s claim, Justice Ball highlighted and affirmed some of the key principles regarding the law of tendering in Canada.
In May of 2011, the Ministry put out an invitation for tenders for the supply, fabrication, delivery and erection of structural steel for a bridge to be located across the South Saskatchewan River near St. Louis, Saskatchewan. The tender call contained two special provisions, one of which required the contractor to hold a prescribed welding certification. The tender call also contained a privilege clause which stated:
The Minister reserves the right to reject all Bids and cancel the competition without any liability.
In response to the invitation, two contractors, the Plaintiff and Structal, submitted bids. The bids were opened and the Plaintiff had the lowest bid; however, both bids were substantially higher than the Ministry’s cost estimate for the project. The Plaintiff’s bid for the supply, fabrication and delivery portion of the contract was similar to the Ministry’s estimate, but the bid for the steel erection portion of the contract was more than double the Ministry’s estimate. The Ministry was prepared to award the contract to the Plaintiff but it was discovered that neither bid was compliant as they did not comply with the special provisions. The non-compliance of both bids coupled with the Ministry’s belief it could save money by splitting the work into two separate contracts caused it to reject all bids and cancel the bid competition. The Ministry then retendered the work as two separate projects.
The Plaintiff sued the Ministry, arguing that its bid was compliant. In the alternative, any non-compliance was not material and was waived by the Ministry and therefore a contract was formed between the parties. The Plaintiff also claimed that in rejecting its bid, the Ministry failed to act honestly and in good faith.
Justice Ball reviewed and summarized the key principles of the law tendering in Canada:
- The tendering process engages two contractual stages.
- The owner’s invitation to tender constitutes an offer to potential bidders and a contract – Contract A – comes into existence between the owner and every bidder who submits a compliant bid.
- A second contract – Contract B – is formed when the owner accepts a bid.
- A privilege clause stating that the lowest or any bid need not necessarily be accepted does not give the owner a right to accept a non-compliant bid, but it gives the owner the right not to proceed with a tender at all.
- Contract A contains an implied term that an owner will treat all bidders fairly and equally in assessing bids.
- An owner is entitled to waive compliance with an “informality” – that is, something that does not materially affect the price or performance of Contract B – without breaching its duty of fairness to other bidders.
Justice Ball held that the Plaintiff’s bid was non-compliant as the Plaintiff did not hold the prescribed welding certification which was material to the performance of Contract B. Therefore, the Plaintiff’s bid was incapable of forming Contract A. Further, even if the non-compliance was material, the Ministry was under no obligation to waive it as a bidder has no claim against an owner who acts reasonably and in good faith in exercising its discretion not to waive an irregularity.
Finally, Justice Ball held that the Ministry was entitled to rely on the privilege clause contained in the invitation for tenders and its reasons for cancelling the competition were reasonable. The Plaintiff’s assertion that the Ministry needed to inform the bidders why their bids were non-compliant was rejected. Further, Justice Ball found no evidence that the Ministry was engaging in bid shopping by retendering the work as not only was the Ministry prepared to award the contract to the Plaintiff, but the retendered work was not identical to the initial invitation for tenders. Justice Ball concluded: “[o]n the whole of the evidence I find that the Ministry acted reasonably, honestly and in good faith in rejecting the bids of Surespan and Structal, cancelling the competition with respect to [the Contract] and retendering the work as two separate contracts”: at para. 125.
The decision in Surespan affirms that non-compliant bids are incapable of forming Contract A and that an owner is entitled to rely on a privilege clause as long as it does so in good faith. It also affirms that budget concerns are a legitimate reason for cancelling a tender call and retendering on similar terms does not necessarily constitute bid shopping.