I recently commented on Russell (Township) v. Dalcon Enterprises Inc., [2009] O.J. No. 2560 (Ont. S.C.J.) (“Dalcon“), and I indicated that the owner township had every right to exercise a contractual provision giving it “discretion” to award the contract to a bidder other than the lowest bidder. And it did. But I should mention that although they’ve been around for awhile, those types of provisions are controversial. And understandably so. After spending time and money preparing and submitting tender documents, a bidder is generally disappointed to lose the bidding competition. And if the low bidder is snubbed in favour of one of their higher-priced competitors, you’ve got great potential for a great big row.
That’s what happened in Dalcon, except the contract was not actually awarded prior to the submission of an application to court. Again, see my post if you’re interested.
Can They Do That?
The question always asked when an owner passes over a low bidder by relying on a provision purporting to give them the power to do so is: Can they do that? The answer is: Maybe.
These clauses are called “privilege clauses.” Some pratitioners are of the opinion that privilege clauses are as enforceable as any other contract term. And while they are generally enforceable, I personally would be a little more cautious before relying on one.
In M.J.B. Enterprises v. Defence Construction (1951), [1999] 1 S.C.R. 619 (“M.J.B.“), which is a leading case in Canadian law on privilege clauses, the tender documents at issue stated: “The lowest or any tender shall not necessarily be accepted.” This type of wording is fairly standard, although privilege clauses have gotten a little more sophisticated in response to developing case law.
But the catch is that the case law, arguably, is not entirely consistent. For example, Iacobucci J’s discussion in M.J.B. indicates that in deciding which bidder to award a contract to, an owner should not make the decision based on “undisclosed” criteria. But some subsequent decisions of lower courts have upheld owners’ decisions made rejecting low bidders based on such critertia.
What is generally agreed on is that inclusion of a privilege clause does not eliminate owners’ duty to deal with all bidders fairly and in good faith. For example, see Martel Building Ltd. v. Canada, 2000 SCC 60.
In any event, privilege clauses are not an overly complex subject, but an in-depth discussion is probably better saved for a subsequent post. What I did want to correct was any impression I might have left that the owner township in Dalcon would be absolutely immune from any liability should they choose to exercise their “discretion” not to accept a bid. In Dalcon, the owner township’s tender documents contained what were essentially privilege clauses. And they did have the right to exercise their discretion under those clauses without seeking a court order stating so. What they couldn’t do was exercise that discretion improperly, for example, in bad faith. That is, a privilege clause may not be available for use if there are no circumstances which could justify its fair use.
Nota Bene
Public Tenders in Newfoundland and Labrador are governed by the Public Tender Act, R.S.N.L. 1990, c. P-45, section 8(1) of which is effectively a statutory privilege clause.
See also the Public Tender Regulations, N.L.Reg. 103/98.
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Privilege Clauses and Dalcon Enterprises
I recently commented on Russell (Township) v. Dalcon Enterprises Inc., [2009] O.J. No. 2560 (Ont. S.C.J.) (“Dalcon“), and I indicated that the owner township had every right to exercise a contractual provision giving it “discretion” to award the contract to a bidder other than the lowest bidder. And it did. But I should mention that although they’ve been around for awhile, those types of provisions are controversial. And understandably so. After spending time and money preparing and submitting tender documents, a bidder is generally disappointed to lose the bidding competition. And if the low bidder is snubbed in favour of one of their higher-priced competitors, you’ve got great potential for a great big row.
That’s what happened in Dalcon, except the contract was not actually awarded prior to the submission of an application to court. Again, see my post if you’re interested.
Can They Do That?
The question always asked when an owner passes over a low bidder by relying on a provision purporting to give them the power to do so is: Can they do that? The answer is: Maybe.
These clauses are called “privilege clauses.” Some pratitioners are of the opinion that privilege clauses are as enforceable as any other contract term. And while they are generally enforceable, I personally would be a little more cautious before relying on one.
In M.J.B. Enterprises v. Defence Construction (1951), [1999] 1 S.C.R. 619 (“M.J.B.“), which is a leading case in Canadian law on privilege clauses, the tender documents at issue stated: “The lowest or any tender shall not necessarily be accepted.” This type of wording is fairly standard, although privilege clauses have gotten a little more sophisticated in response to developing case law.
But the catch is that the case law, arguably, is not entirely consistent. For example, Iacobucci J’s discussion in M.J.B. indicates that in deciding which bidder to award a contract to, an owner should not make the decision based on “undisclosed” criteria. But some subsequent decisions of lower courts have upheld owners’ decisions made rejecting low bidders based on such critertia.
What is generally agreed on is that inclusion of a privilege clause does not eliminate owners’ duty to deal with all bidders fairly and in good faith. For example, see Martel Building Ltd. v. Canada, 2000 SCC 60.
In any event, privilege clauses are not an overly complex subject, but an in-depth discussion is probably better saved for a subsequent post. What I did want to correct was any impression I might have left that the owner township in Dalcon would be absolutely immune from any liability should they choose to exercise their “discretion” not to accept a bid. In Dalcon, the owner township’s tender documents contained what were essentially privilege clauses. And they did have the right to exercise their discretion under those clauses without seeking a court order stating so. What they couldn’t do was exercise that discretion improperly, for example, in bad faith. That is, a privilege clause may not be available for use if there are no circumstances which could justify its fair use.
Nota Bene
Public Tenders in Newfoundland and Labrador are governed by the Public Tender Act, R.S.N.L. 1990, c. P-45, section 8(1) of which is effectively a statutory privilege clause.
See also the Public Tender Regulations, N.L.Reg. 103/98.