Saskatchewan Court of Queen’s Bench Underlines the Need for Clarity and Good Faith in the Competitive Bidding Process

20 février 2018 | Khurrum Awan, Wuraola Dasylva

( Disponible en anglais seulement )

In its recent decision in Surespan Construction Ltd. v Saskatchewan,[1] the Saskatchewan Court of Queen’s Bench reviewed the law of tendering and applied it to a dispute between a bidding contractor and a project owner. In doing so, the Court highlighted several principles for assessing the compliance of bids with the terms of invitations to tender.

Factual Background

In May 2011, the Ministry of Highways and Transportation (the Ministry) published an invitation to tender for the supply, fabrication, delivery and erection of structural steel for a bridge to be constructed across the South Saskatchewan River. The plaintiff, Surespan, and another contractor, Structal, were the only contractors to submit bids. However, both bids were substantially higher than the Ministry’s cost estimate for the project. The Minister also concluded that both bids were non-compliant with the terms of the tender. In Surespan’s case, it did not possess the required welding certification from the Canadian Welding Bureau (the Welding Certification).

The Ministry rejected both bids and retendered the work as two separate projects: (i) first for the supply, fabrication and delivery of structural steel; and (ii) second for the erection of the structural steel. The retendered projects were awarded to other contractors. Surespan then commenced an action alleging that its bid for the original, consolidated project was compliant or, alternatively, any non-compliance was immaterial and had been waived by the Ministry. Surespan also claimed that, in rejecting its bid and retendering the work, the Ministry failed to act honestly and in good faith.

The issues before the Court included:

  1. whether the Welding Certification was an essential requirement for submitting a compliant bid and being awarded the contract for the job;
  2. whether Surespan’s bid was compliant with the invitation to tender;
  3. whether any irregularity in Surespan’s bid had been waived by the Ministry; and
  4. whether the Ministry acted in good faith in rejecting Surespan’s bid and retendering the work as two separate contracts.

The Law of Tendering in the Construction Industry

The Court noted that the case required a review of the “basic principles of law related to competitive bidding.”  These principles had been developed over time by the Supreme Court of Canada in order to protect the integrity of the bidding system. The Supreme Court had established that the tendering process engages two contractual stages.[2] Contract A is formed between the owner and every bidder who submits a compliant bid. Contract B is formed when the owner accepts a bid and it is the construction contract for the subject matter of the tender.

The Supreme Court had also established that privilege clauses in invitations to tender, which state that “the lowest or any tender shall not necessarily be accepted,” do not give owners a right to accept a non-compliant bid.[3] Otherwise, project owners could circumscribe the bidding process by accepting non-compliant bids.

The test for compliance in the tendering process was one of “substantial” compliance where all material conditions of a tender had been complied with.[4] Further, Contract A contained an implied term that an owner would treat all bidders fairly and equally in assessing the bids.[5] Without such a term, the assessment of bids could be based on undisclosed standards, resulting in bidders incurring significant expense in preparing futile bids.

However, the project owner could reserve certain rights, including the right to include stipulations and restrictions, provided there was no breach of the owner’s duty to treat bidders fairly and equally.[6] Further, an owner could waive compliance with an informality, which did not materially affect the price for performance of Contract B, without breaching its duty of fairness to other bidders.[7]

Requirements for a Compliant Bid

The Court concluded that the Welding Certification was a requirement for submitting a compliant bid and, thus, forming Contract A. It was also a necessary qualification for an award of Contract B, being the construction contract. The wording of the relevant provisions of the tender did not support Surespan’s position that the Welding Certification applied only to subcontractors that may be hired for the fabrication of the structural steel or that the Welding Certification could be secured after the award of the contract and prior to the commencement of the fabrication work. Surespan did not hold the Welding Certification at the time it submitted its bid or at any subsequent time. Therefore, the bid was not compliant with the invitation to tender.

Materiality and Waiver of Non-Compliance

The Court also found that Surespan’s non-compliance was material in nature. In order to be certified, the successful bidder had to employ a full-time professional welding engineer who met the certifying body’s minimum educational and experience requirements. The cost of employing a qualified engineer would have been significant in light of the concentrated responsibilities the engineer would have had to assume under Contract B. The Welding Certification requirement would have been significant to the owner in deciding which bid to accept, and to other contractors in the industry in deciding whether to bid on the job. Therefore, the Welding Certification requirement was material in nature, and a non-compliant bid could not form Contract A.

Even if Surespan’s non-compliance had been immaterial, the Ministry was under no obligation to waive the non-compliance and had not done so. In the course of the litigation, Surespan became aware that the Ministry had initially approved Surespan’s bid and prepared an award letter for mailing. However, that letter was not sent out, and Surespan was not notified in writing or in any other manner that its bid had been accepted.

Good Faith in Retendering of the Work

Finally, the Court found that the rejection of the bids was not in bad faith. The bids submitted by Surespan and Structal were materially non-compliant and were rejected for bona fide reasons. Neither was there any prohibited “bid shopping” in the Ministry splitting the work and retendering it under two separate contracts.

Bid shopping had been described by the Supreme Court of Canada as “the practice of soliciting a bid from a contractor, with whom one has no intention of dealing, and then … using that in an attempt to drive prices down amongst contractors with whom one does intend to deal.”[8] Whether bid shopping had occurred would depend upon an assessment of the owner’s conduct in the circumstances of the particular tending process.[9]

In this case, there was no credible assertion that the Ministry did not intend to deal with the lowest bidder. The Ministry in fact dealt with Surespan to seek clarification on the terms of the bid and up until the issue of Surespan’s non-compliance was raised by the competing bidder. The Ministry did not undertake negotiations with other contractors based on Surespan’s bid, and its reasons for cancelling the competition were reasonable.

Key Takeaways

The decision in Surespan Construction Ltd. v Saskatchewan highlights the importance of establishing clear goals and requirements in RFPs and invitations to tender. The RFP should identify with reasonable clarity the factors that are material to the project owner, including (without limitation) the complexity of the project, acceptable price ranges, compliance requirements, such as licenses and approvals, and general qualifications of bidders.

For contractors, the decision underlines the importance of submitting bids that are, as far as reasonably possible, compliant with the terms of RFPs and invitations to tender. The judgment reiterates that project owners have the option to waive immaterial non-compliances with the terms of the tender, but they are not obligated to do so. Further, where a non-compliance is material, an acceptance of the bid could expose the project owner to claims from other bidders. In Surespan Construction Ltd. v Saskatchewan, the possibility of litigation from the competing bidder led the Ministry not to act on an initial, internal decision to award the construction contract to Surespan.

For both contractors and project owners, it is noteworthy that the case was decided under the summary judgment procedure, which was introduced in Saskatchewan in 2013. The summary judgment procedure and its application in Surespan Construction Ltd. v. Saskatchewan indicates that, in some circumstances, resolution of construction disputes may be attainable prior to a lengthy and expensive trial. Project owners and contractors would be well-served to consider whether this option is available to them in the context of a particular dispute.

Finally, the judgment restates the duty of project owners to treat bidders fairly, equally and in good faith. However, where project owners have not breached their duty, the Courts will permit reasonable flexibility in the assessment of bids, the potential cancellation of the competition and the retendering of work.

Attention to the above-noted factors will assist in averting litigation, reducing litigation costs and securing a successful outcome in any litigation. The periodic engagement of legal counsel through the process may be beneficial to project owners and contractors.

[1] Surespan Construction Ltd. v Saskatchewan, 2017 SKQB 55 [Surespan].

[2] R. v Ron Engineering & Construction (Eastern) Ltd., [1981] 1 SCR 111.

[3] M.J.B. Enterprises Ltd. v Defence Construction (1951) Ltd., [1999] 1 SCR 619.

[4] Double N Earthmovers Ltd. v City of Edmonton, 2007 SCC 3,  [2007] 1 SCR 116 [Double N].

[5] As per the Supreme Court of Canada’s judgment in Martel Building Ltd. v Canada, 2000 SCC 60, [2000] 2 SCR 860.

[6] Ibid.

[7] Double N, supra.

[8] Naylor Group Inc. v. Ellis-Don Construction Ltd., 2001 SCC 58, [2001] 2 SCR 943.

[9] Surespan, supra.

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