In recent years most Letter of the Law articles on the law of tenders have focussed on the contractual rights and duties between owners and general contractors. But a general contractor that submits a tender for a large project will also often be involved in a second, parallel tendering process which involves subcontractors submitting bids to the general contractor for the project. Recent case law in British Columbia has confirmed that many of the obligations that exist between an owner and a general contractor during a tender process also exist between a general contractor and a subcontractor.
Depending on the terms of an owner’s invitation to tender, bids from subcontractors for a project may be required to be made through a bid depository (a system for general contractors to receive bids from subcontractors). It allows a general contractor to obtain firm quotations in writing from subcontractors in order to compile a tender bid for the project.
The rules governing a bid depository were recently considered by the Supreme Court of British Columbia in Cranbrook Interior Woodwork Ltd. v. D & T Developments Ltd. The plaintiff, Cranbrook, specialized in supplying and installing architectural woodwork and the defendant, D & T, was a general contractor. Cranbrook submitted bids to five general contractors, including D & T, for millwork for a construction project in Kamloops. Bids by subcontractors for the project were governed by the rules of procedure for bid depositories developed by the British Columbia Construction Association.
D & T was ultimately awarded the head contract. Although Cranbrook was the lowest bidder for the millwork subcontract, D & T gave this subcontract to another contractor, Lortap Enterprises Ltd. Cranbrook subsequently sued D & T, alleging that D & T breached the tender process.
The Court considered a number of issues regarding Cranbrook’s bid. First, Cranbrook said that it should have been awarded the subcontract because it was the low bidder. The Court held, however, that the bid depository rules were clear that the lowest bid need not be accepted. The Court also referred to Supreme Court of Canada case law which stated that a lowest bid might not represent best value to its recipient.
Cranbrook then claimed that Lortap’s bid was non-compliant so D & T should not have awarded the subcontract to that company. D & T responded that Cranbrook’s tender was also not compliant so it could not justifiably complain about not being awarded the subcontract.
The Court did find that Lortap’s bid was non-compliant. Lortap verbally advised D & T of a reduction in its price but did not submit the reduced price in writing through the bid depository. (The bid depository rules required that bids had to be in writing, including alterations to bids.) The Court therefore held that D & T should not have accepted Lortap’s verbal reduction and that D & T breached its obligations to Cranbrookand the other bidders that it would accept only a compliant bid.
However, the Court also determined that Cranbrook’s bid was non-compliant. Cranbrook made a calculated decision not to submit its bid to D & T prior to the bid depository closing. (The bid deposi- tory rules provided that bids submitted after the bid depository closed could not be accepted.) The Court therefore held that the bid was out of time and that Cranbrook’s bid was incapable of being accepted. Given the circumstances, Cranbrook could not complain that D & T had contracted with another party.
Finally, the Court stated that it was troubled by the conduct exhibited by both parties during the tender process. Cranbrook had attempted to seek assurances prior to the bid depository closing that its bid would be accepted if it was the low bidder. It also appeared that D & T leaked Lortap’s bid to Cranbrook before it received Cranbrook’s bid. The Court said that the parties’ conduct “strikes at the heart of the tendering system and undermines its integrity.” Consequently, although D & T was ultimately successful in defending itself against Cranbrook’s court action, the Court declined to award D & T costs.
The decision in this case affirms that the principles that have been developed to uphold the integrity of the tender process between a general contractor and an owner will also be applied to bids that subcontractors submit to general contractors through a bid depository system. In particular, the rules governing the submission of bids will be strictly enforced (including those concerning the bid closing time) and bids, including bid amendments, need to be in writing. The courts will also seek to ensure that all subcontract bidders are treated equally and fairly.