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Jon Rossall, Partner
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McLennan Ross
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Owner's discretion to waive irregularities in a bid must be exercised fairly |
| 04-May-06 |
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A Construction Law Update
The nature of construction tenders, the number of subtrades typically involved, and the current level of activity in the construction industry make submitting a fully compliant tender a challenge for many bidders. Owners who review tenders are frequently required to determine whether a particular irregularity in a tender will mean that the bid, even if lowest, must be rejected.
Most tendering documents provide the owner with the discretion to accept a non-compliant bid by waiving any minor and inconsequential irregularity. However, a recent case from the Alberta Court of Appeal serves as a warning to owners who may wish to rely on such a discretion clause to correct a non-compliant bid.
In Chandos Construction Ltd. v. Alberta (Minister of Infrastructure), Chandos sued the Province for rejecting Chandos’ bid and accepting the non-compliant bid of a competitor, Keller Ltd. The tendering documents specified that the Alberta Construction Tendering System (ACTS) applied to all tenders. Keller’s bid, which was lowest, failed to provide 24 hours’ notice of self-bidding as required by ACTS. Keller had also submitted the name of a trade that could not be accepted because the trade had previously withdrawn its bid (although the price listed was that of a legitimate trade). The Province did not discover these irregularities until after bidding had closed.
The Court held that Alberta Infrastructure could not rely on the discretion clause in the tendering documents to accept Keller’s non-compliant bid. The Court confirmed that the question of whether an irregularity is minor and inconsequential, and capable of being waived, is subject to an objective analysis. In other words, even if tendering documents provide an owner with the sole discretion to waive an irregularity, this discretion must be exercised fairly. This applies regardless of whether the irregularity has allowed the bidder to displace a competitor and make the lowest bid. Once bids are received the owner is under an implied obligation to treat all bidders fairly and equally, and this means that only substantially compliant bids can be accepted.
Alberta Infrastructure had tried to correct Keller’s failure to provide notice of self-bidding by requiring Keller to accept the lowest subtrade bid for the work instead. The Court held that the resulting displacement of the original supply bidder indicated that this was not an irregularity capable of being waived, but an error that rendered the bid substantially non-compliant.
Chandos confirms that a discretion clause will not allow an owner to accept a substantially non-compliant bid, or to amend such a bid after closing. When reviewing bids for compliance, owners should keep in mind that the discretion to waive an irregularity must be exercised fairly and not provide a bidder with an advantage. The fact that the correction would not affect the status of the bid as lowest will not shield the owner from a challenge by a competing bidder.
This update is a general overview of the subject matter and cannot be regarded as legal advice. Please contact Corbin Devlin at cdevlin@mross.com or any member of our Construction Law Practice Group for legal advice on this or any other construction law topic. |
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