In early 2018 the Alberta Court of Appeal released a decision regarding the tendering of a contract which will be of interest to owners and contractors alike. Everest Construction Management Ltd v Strathmore (Town) confirms that owners have the right to select a contractor during the tendering process based on considerations such as overall cost, scheduling preferences, relevant work experience and prior interactions with the contractor when the tender documents provide the owner with such discretion and notify the bidders of the relevant criteria.
Owners will not breach the implied term that arises under a contract to treat all bids fairly and equally by awarding the contract based on these considerations.
Everest Construction Management Ltd submitted a bid in response to a request for tenders issued by Strathmore town for work on a reservoir and pump station project. The tender documents included an invitation to bid, instruction to bidders and a bid form. These forms contained important clauses as follows:
- the invitation to bid contained a privilege clause, which stated that "the lowest or any bid will not necessarily be accepted";
- the instruction to bidders contained a statement that the bid analysis would be based on the "total bid price, exclusive of GST";
- a discretion clause stating that "Strathmore reserves the right to accept any offer, waive defects in any offer, or reject any and all offers"; and
- the bid form contained another privilege clause stating that Strathmore could "accept other than the low bid".
The bidders were instructed to provide supplemental information to the bid form, including:
- a list of their qualifications to allow the owner to judge the contractor's ability to fulfil the contract requirements; and
- a construction schedule in which the bidder should insert completion dates for all steps in the project, as well as an overall completion date. In this case 31 December 2012 was the owner's preferred completion date.
The two lowest bidders were Everest, at CA$6,440,433, and Graham Construction Infrastructure, a joint venture (Graham), at CA$6,474,084. Everest referenced only one relevant project and projected an overall completion date of 15 May 2013. Graham referenced six relevant projects and projected an overall completion date of 31 December 2012.
Strathmore awarded the contract to Graham, given its projected completion date and greater relevant experience to the project. Everest sued Strathmore, alleging that Strathmore had breached Contract A by failing to treat Everest's bid fairly and equally and accept only a compliant bid. Specifically, Everest alleged that Strathmore had:
- evaluated the bids based on criteria that were not fairly disclosed to the bidders (ie, experience, schedule, completion date and costs associated with later completion); and
- failed to investigate the successful bidder's experience, particularly given that its bid list of reference projects had been completed by related companies.
The Alberta Court of Appeal upheld the owner's right to rely on privilege and discretion clauses and a description of the relevant evaluation criteria in the tender documents, as well as the right to take a nuanced view of the costs and choose the contractor that it considered best suited to the project. Further, the owner had been entitled to rely on information that it already knew from past experience to evaluate the bids (ie, the fact that the resources from the related companies had been available to the successful bidder for the project).
Owner can rely on criteria stated in bid documents The court first evaluated Everest's allegation that Strathmore had breached the implied duty of fairness that had arisen in Contract A to treat all bids fairly and equally by failing fairly to disclose to the bidders that it would use experience, anticipated completion date and costs associated with a later completion date to evaluate the bids.
The court summarised the law that owners may rely on privilege clauses to:
- not accept the lowest or any bid; and
- choose between bids on some basis other than the lowest price.
A privilege clause allows the owner to take a more nuanced view of cost. On the other hand, this discretion is not unfettered and an owner may not depart from the fundamental content of the instructions to bidders in making its selection.
In this case, the tender documents indicated clearly that the owner would use the contractor's previous experience and the expected overall completion date as factors to evaluate the bids. The bid documents specifically included a representation by the contractor that it was providing previous work experience and completion dates so that the owner could judge its ability to fulfil the contract and assess its ability to plan the work and respond to critical deadlines. As such, the court found that Strathmore had clearly and fairly disclosed the criteria for its decision.
Further, although this had not been expressly stated in the tender documents, the court held that – when applying the nuanced view of costs test – the owner had been allowed, in its evaluation process, to adjust a quoted price upwards to reflect the expected costs of a later completion date.
Owner can rely on previous experience of bidder Everest also argued that Strathmore had acted unfairly because it investigated Everest's past experience and not Graham's. Further, since Graham's bid listed projects had been completed by separate corporate entities (the Graham entity bidding on this project was a joint venture), Strathmore had had a duty to investigate Graham's project experience, even though it knew from past experience that the experience and resources of the related companies would be available to Graham on the project.
First, the Court of Appeal found that there is no duty to investigate a bid. Second, in the case at hand, the owner had not had a duty to investigate Graham's bid because it may rely on information that it has already acquired through past experience with a bidder when evaluating bids. Finally, owners do not breach a duty of fairness by using past dealings with and prior knowledge of contractors to assess the qualifications for a project.
The court stated that a "rule requiring an owner to investigate information about a bidder that it already knows through past experience would be wasteful and would offend common sense".(1)
Overall, Everest confirms that owners may choose a bidder based on considerations such as:
- overall cost;
- schedule;
- previous work experience; and
- prior knowledge of or experience with a contractor.
According to Everest, owners can rely on an appropriately-worded privilege or discretion clause, which allows for a more nuanced approach to cost than simply selecting the lowest bid.
Owners should be careful to notify bidders in the tender documents of any additional criteria or significant considerations that may determine their choice of contractor.
Bidding contractors should carefully review the bid documents for a privilege clause, discretion clause and all indications of bid criteria to be considered by the owner.
For further information on this topic please contact Jonathan Hillson or Simon Elzen-Hoskyn at Dentons Canada LLP by telephone (+1 604 687 4460) or email ([email protected] or [email protected]). The Dentons Canada LLP website can be accessed at www.dentons.com.
Endnotes
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