Double N Earthmovers Ltd. v Edmonton (City), 213 AR 81 (ABQB), affd [2005] AJ No 221 (ABCA), affd 2007 SCC 3, [2007] 1 SCR 116, online: LexUM http://scc.lexum.umontreal.ca/en/2007/2007scc3/2007scc3.html
This case is addresses the issue of compliance with the terms of a call for tenders. It was a five-four split at the level of the Supreme Court of Canada.
Facts
In 1986 the City of Edmonton (the ‘City’) issued a call for tenders for a 30-month contract to supply heavy equipment and operators (in particular some bulldozers and a motor scraper) at the city’s landfill.
Not surprisingly for a contract concerned entirely with the supply of equipment, the tender documents included three pages of equipment requirements in addition to the main tender form. The tender form itself included a number of requirements including a requirement that each item of equipment had to be 1980 or newer. The tender also required that bidders be local to the City of Edmonton and that they supply a bid bond.
The equipment spec sheets required provision of detailed information about the particular pieces that a bidder was proposing to supply, including make, model, serial number, date of manufacture, and hourly billing rate.
Other tender conditions of note were Condition 17, which stated that tender conditions “must be strictly complied with and failure to do so either in whole or in part may invalidate the bid in question” (para 38), as well as Condition 7, a privilege clause:
The City reserves the right to reject any and all Tenders, and to waive any informality therein, to award by item or class. The lowest or any Tender may not necessarily be accepted (para 39) (emphasis added).
Tender Condition 25 also proved important to the outcome: “Changes in Tenders will not be permitted after the Tenders have been opened, unless negotiated with the lowest evaluated Tenderer” (para 58).
Six bids were submitted and subsequently opened on 25 June 1986. The City assessed the value of each bid by multiplying the per hour rate of each piece of equipment by the estimated number of hours a particular piece was expected to be used in the 30-month period. Under this formula Sureway Construction (“Sureway”) was the third lowest bidder and Double N Earthmovers (“Double N”) was the fourth lowest bidder. The lowest bidder was disqualified because it was not a local contractor.
Around 7 July, the City entered into separate negotiations with the second lowest bidder, Sureway, and Double N, but the second lowest bidder was also then disqualified because it had not submitted a bid bond. With only Sureway and Double N remaining, the City told Sureway that if it could reduce its rate for one of the pieces of equipment it “would probably” get the contract (para 18). Double N also revised its bid but still came in higher than Sureway’s prices. At this meeting Double N complained to the City that Sureway’s equipment was not actually 1980 or better, but the City took no action on this.
In fact, although Sureway had listed one of its dozers as 1980 it was actually a 1979. Further, the second dozer was listed as a “1977 or 1980 rental unit”, presumably meaning that if the 1977 described was not accepted then Sureway would rent a 1980 unit to meet their obligations (para 13).
Sureway was awarded the contract on 18 August with work to commence on 1 September. Before they could start work Sureway had to “register” their equipment with the City for billing purposes, and at that point it became clear that the equipment was older than the tender requirements specified. The City called a meeting on 29 August and insisted that Sureway comply with the 1980 requirement and Sureway agreed to upgrade within 30 days. A week later, Sureway sent a letter saying that it could not comply and would continue to supply the 1979 dozer. The City decided not to push the matter any further.
Double N sued the City for breach of contract and the City brought in Sureway as a third party.
Procedural history
Double N’s claim was dismissed at trial. The trial judge found that Sureway’s bid was compliant, and that the City had no duty to investigate it. He was also of the view that all of the tender contracts came to an end once the City entered Contract B with one bidder, and that the City could not be liable to unsuccessful bidders for post-Contract B dealings.
The Alberta Court of Appeal unanimously dismissed the appeal, agreeing that Sureway’s bid was compliant on its face and that the City had no obligation to investigate suspicions of non-compliance.
Issues to be determined
- Did the City accept a non-compliant bid?
- Does an owner have a duty to investigate suspicions of non-compliance?
- Did the City engage in bid shopping?
- Did the City award based on terms different from those in the tender?
- Do Contract A obligations survive the formation of Contract B?
Holding
- No, since the terms of the tender included discretion to waive informalities.
- No.
- No, since the tender documents reserved a right to negotiate with the low bidder after opening.
- No.
- No.
Reasoning
In a five to four split, the majority decision was delivered by Justices Abella and Rothstein (Justices LeBel, Deschamps and Fish concurring), while dissenting reasons were written by Justice Charron (Chief Justice McLachlin and Justices Bastarache and Binnie concurring in dissent).
Before discussing the particular issues the majority restated the authorities for the formation and terms of Contract A, and noted the implied obligation to accept only compliant bids found in M.J.B., and the implied obligation to treat bidders “fairly and equally” found in Martel (para 32).
Issue 1: Did the City accept a non-compliant bid?
Concerning the first dozer, the majority said that since it was listed as a 1980 on the face of the bid then Sureway could be taken to have promised to supply a 1980 machine and so was compliant on this point. Concerning the second dozer, where Sureway has promised to supply a “1977 or 1980 rental unit”, Double N conceded that the tender did not prohibit bidders from offering alternative pieces of equipment, but that the 1977 piece was non-compliant because it was older than 1980 and the “1980 rental unit” was non-compliant because no other information was included for it. The majority stated that it was apparent that the make, model and hourly rate were to apply to the proposed rental unit and that only the serial number requirement and a City of Edmonton license number requirement would be unmet.
The majority held that the serial and license numbers were “informalities” of the sort contemplated by the privilege clause, stating that “an informality would generally be something that did not materially affect the price or performance of Contract B” (para 41).
Issue 2: Does an owner have a duty to investigate suspicions of non-compliance?
In the absence of any provision in the tender documents expressly creating an obligation to do so, the majority considered whether such an obligation should be implied.
The majority stated simply that “[t]here is no reason why the parties would expect an owner would investigate whether a bidder will comply, when each bidder is legally obliged to comply in the event its bid is accepted” (para 51).
Issue 3: Did the City engage in bid shopping?
Double N never raised this issue in the lower court proceedings.
The majority first cited some judicial definitions of bid shopping. But, in response to Double N’s argument that the post-tender negotiations violated the tender process as defined by Iaocobucci J in M.J.B., the majority stated that Condition 25 of this particular tender clearly contemplates the possibility of “some measure of negotiation” (para 58). Exercising their right to negotiate with Sureway under Condition 25 could not constitute a breach on the part of the City.
Issue 4: Did the City award the contract on terms different from those of the original tender?
This issue is raised as a consequence of Sureway’s bid of a 1980 dozer which in reality was a 1979 dozer. The majority held that since the City did not know that the dozer was not in fact a 1980 until after they had accepted the tender then they had not awarded the contract on different terms (para 66).
Issue 5: Do Contract A obligations survive the formation of Contract B?
The majority held that when “an owner undertakes a fair evaluation and enters in Contract B on the terms set out in the tender documents, Contract A is fully performed” (para 71). An unsuccessful bidder would not be privy to Contract B and cannot require the cancellation of that contract based on rights which existed under a tender contract which had been completed.
For a bidder to sue on Contract A, an owner would have had to engage in conduct that amounted to breach while Contract A was still in effect.
Minority reasons
In her minority reasons for decision Charron J took a position significantly at odds with that of the majority, contending that the City had in fact breached its implied obligations of accepting only compliant bids and of treating all bidders equally and fairly. In particular, the minority were especially offended by the fact that Sureway had in the end managed to profit from essentially deceitful conduct in the course of the tender process.
In their own review of the facts, the minority paid particular attention to the repeated attempts of Double N to bring to the City’s attention Sureway’s likely non-compliance, which the City could have easily checked simply by checking the license numbers Sureway provided against their own municipal database. The majority addressed this issue and dismissed it saying that allegations by rival bidders cannot be taken to compel owners to investigate those allegations, since encouraging “unwarranted and unfair attacks” would work to the detriment of the bidding process (para 52).
Charron J disagreed with the majority that the specifications not included by Sureway were mere informalities said that “given the circumstances of the case, it was not open to the City ignore these specifications.” She went on:
The City’s casual approach to Sureway’s bid, particularly in light of the warning it received about the bid’s likely non-compliance, was unfair to other bidders who provided accurate information in accordance with the tender specifications. The obligation to accept only a compliant bid would be meaningless if it did not include the duty to take reasonable steps to ensure that the bid is compliant (para 116) (emphasis added).
So, Charron J would have actually extended the obligation of owners beyond merely ensuring that bids are compliant “on their face” but to take “reasonable steps” to ensure compliance – in this case by checking information in the bids against their own records.
In addition to the issues of informalities and a duty to take reasonable steps to investigate bids for compliance, Charron J also addressed the issue of ambiguity in bidding. She characterized the “1977 or 1980 rental unit” component of Sureway’s bid as “ambiguous at best”, and that since the ambiguity “related to an essential term of the contract” it could not be said to be a “mere irregularity” (para 120). The City argued that, although the ambiguity made it unclear whether Sureway was promising to comply or not, it had a right to insist on ultimate compliance. Charron J took issue with this position, stating:
The right to insist on compliance cannot turn what it on its face a non-compliant bid into a compliant one. Furthermore, I fail to see how the integrity of the bidding process is protected by allowing a bidder to get rid of the competition unfairly and then hash it out with the owner after it has been awarded the contract. Approaching the tendering process in this manner encourages precisely the sort of duplicity seen in the present appeal. . . . This approach is not consistent with a fair and open process (para 123).
Charron J also, in assessing the liabilities, would have found Sureway liable for a significant portion of the costs as a consequence of their deliberate inducement of the City to accept a non-compliant tender (para 129).
Note Bene
On bid shopping: While the majority concluded that the City had not breached any Contract A obligations by negotiating with Sureway after the opening of tenders, it did note that its port-tender negotiations with Double N probably did constitute a breach on the part of the City in respect of its Contract A obligations to the other bidders (para 61).
