LPLC Blog Case Summary – True Construction Ltd. v. Kamloops (City), 2016 BCCA 173 (B.C.C.A.)

Introduction

Owners often attempt to increase their flexibility in the tendering process by drafting “discretion” clauses which state that the owner can accept bids that do not comply with the tender documents by waiving the non-compliance. However, the courts have not always enforced these clauses. This has created difficulty for owners who wish to increase their flexibility and avoid potential court claims.

In True Construction Ltd. v. Kamloops (City), 2016 BCCA 173 (B.C.C.A.), the B.C. Court of Appeal provided some clarity on the approach that courts will take to discretion clauses in tendering documents.

The Decision

The dispute in True Construction centered on whether failing to list subcontractors selected outside of the bid depository system constituted substantial non-compliance with the tendering documents, and whether the owner could waive that non-compliance.

The City of Kamloops issued an invitation to bid for the construction of a new fire hall. The bid documents stipulated that British Columbia Construction Association Bid Depository Rules of Procedure applied. If a bidder did not receive its subcontractor bids through the bid depository, it was required to list the subcontractors in an appendix. Bidders were permitted to amend their bid price by completing a form and faxing it to the City before bid closing.

The bid documents also included a discretion clause, which permitted the City to waive “irregularities”.

True Construction’s original bid was delivered on time, but was missing the list of subcontractors not bid through the bid depository. True Construction amended its bid by submitting the missing list of subcontractors and a price revision before the deadline. Following its revisions True Construction’s bid was the lowest, however, the City disqualified it for non-compliance. True Construction sued the City, arguing that it had been improperly disqualified and should have been awarded the contract.

At trial, the City argued that the amendment form permitted a party to increase or decrease the overall bid price, but could not be used to complete the subcontractor list. The City argued that True Construction’s non-compliance could not be waived as a mere irregularity because it positioned True Construction to gain a competitive advantage over other bidders by permitting them to continue negotiations with their subcontractors after other bidders had already submitted bids.

True Construction argued that it did not intend to gain an advantage through the late submission of its subcontractor list, and the City should have waived the non-compliance as an “irregularity”.

The trial court disagreed with True Construction, holding that since the majority of the work on the project would be performed by subcontractors, late submission of the subcontractor list gave True Construction a competitive advantage. True Construction’s non-compliance was therefore material, and incapable of acceptance. The court also held that the City did not have to prove that True Construction intended to gain an advantage over other bidders. True Construction’s failure to comply with the bid instructions provided it with an opportunity that was denied to other bidders and thus gave it an advantage. True Construction’s action was therefore dismissed by the trial court.

True Construction appealed, arguing that the trial judge had erred in concluding that True Construction had gained a competitive advantage since there was no evidence that it continued to negotiate with subcontractors after submission of its original bid.

The Court of Appeal first considered whether the subcontractor list was an essential requirement of the tender documents. The Court held that where the tendering documents require certain information and there is some indication that the information is material, it is an essential term. Since the bid documents clearly indicated that the subcontractor list was required, and since bidders could negotiate pricing directly with subcontractors that were not obtained through the depository system, the list was an essential bid requirement.

The Court of Appeal also held that there was a substantial likelihood that True Construction’s defect would have been significant in the City’s decision-making process. Timely provision of the subcontractor list would have assured the City that all necessary subcontractors had been lined up, and would have put the City in a position to assess bids based on factors other than price.

Finally, and importantly, the Court of Appeal held that whether True Construction actually secured a competitive advantage over other bidders did not matter. The Court held that bid compliance is measured objectively at the time the bid is submitted. The real issue was therefore whether True Construction’s non-compliance created a potential competitive advantage and undermined the integrity of the bidding process. Concluding that it did, the Court dismissed True Construction’s appeal.

Key Points

The True Construction decision sets out the following key points that should be kept in mind by any owner when reviewing bids:

    1. When a tender contains a discretion clause, the measure for determining whether a bid is valid is substantial compliance with the terms of the tender documents. Substantial compliance is determined according to the following two-part test:
      1. whether the bid fails to address an important or essential requirement of the tender documents; and
      2. whether there is a substantial likelihood that the defect would have been significant in the owner’s decision-making process.
    2. In applying this test, the courts will consider whether the non-compliance has resulted in a tendering competition that is potentially unfair. If the defect could impact the price or performance of the project, and if it violates the reasonable expectations of the bidders by, for example, giving a potential advantage to the non-compliant bidder, the courts will likely be persuaded that the term was “material” and cannot be waived.
    3. It is also important to note that the courts may not care whether a bidder actually secures a competitive advantage through its non-compliance. What matters is whether the bidder’s non-compliance creates a potential competitive advantage and thereby undermines the integrity of the bidding process.
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