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Contracts - Tender (Bidding). Canada Forgings Inc. v. Atomic Energy of Canada Limited
In Canada Forgings Inc. v. Atomic Energy of Canada Limited (Ont CA, 2024) the Ontario Court of Appeal dismissed - but did consider (which I find unusual, it suggests a 'contractual' duty of fairness unique to procurement situations) - a 'fairness' argument in a procurement contract lawsuit, here in the context of assessing the adequacy of trial 'reasons for judgment':[3] ... In April 2009, the appellant moved to add a procurement law claim for an alleged breach of the duty of fairness. ...
[4] The two primary issues at trial were 1) whether the appellant’s procurement law claim was barred by the two-year limitations period, and 2) whether, in breach of an alleged duty of fairness under procurement law, AECL was liable for “steering” the end fitting forgings work away from the appellant towards one of its competitors, Patriot Forge Co. (“Patriot”). ....
[5] The trial judge dismissed the action on the basis that the duty of fairness claim was discoverable prior to April 2007, two years before the appellant amended its statement of claim to add a procurement law claim against the respondent, and was therefore statute-barred. ....
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[41] The bottom line is, there can be no breach of a duty of fairness in procurement law when there is no Contract A, and I would reject the appellant’s submission that the trial judge’s reasons offered only a “conclusory” statement on this point. The reasons clearly explain why the trial judge rejected the appellant’s argument. He specifically considered the evidence the appellant relied upon in support of its position that the Bruce Tender was “extended” beyond its stated expiry in April 2005, and expressly found that there was no basis for that conclusion, since “AECL’s procurement department [had] internally discussed the need to address the now expired major bids received in respect of the Bruce Project”. As the trial judge observed, the appellant “was not a party to the original Bruce Tender – nor would it have been party to any Contract A formed in relation to the Bruce Tender”. The trial judge’s reasons explain how he reached this finding and his conclusion that, since the tendering period expired in April 2005 and was not extended or modified to “sweep” the appellant into the process, AECL owed no duty of fairness, implied or otherwise, to the appellant. . Canada Forgings Inc. v. Atomic Energy of Canada Limited
In Canada Forgings Inc. v. Atomic Energy of Canada Limited (Ont CA, 2024) the Ontario Court of Appeal considers 'procurement law' issues, here in the context of assessing the adequacy of trial 'reasons for judgment':[38] When a business wishes to procure services, and issues a “request for proposal”, or “RFP”, inviting suppliers to bid for a contract, the law divides the procurement process into two separate contracts: “Contract A” and “Contract B”. Contract A is the agreement entered into when a bidder submits a compliant bid in response to an invitation to tender. It imposes certain obligations on the procuring authority about how bidders will be treated. Contract B is the agreement between the procuring authority and the winning bidder: The Queen (Ontario) v. Ron Engineering & Construction (Eastern) Ltd., 1981 CanLII 17 (SCC), [1981] 1 S.C.R. 111. The Supreme Court in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., 1999 CanLII 677 (SCC), [1999] 1 S.C.R. 619, held that Contract A can only be formed between a procuring authority and compliant bidders; in other words, a procuring authority is contractually obliged, by Contract A, to accept only compliant bids and, more importantly for present purposes, only compliant bidders have legal remedies arising from the procurement process as against the procurement authority. Whether Contract A is formed depends on the parties’ intentions to create a legal relationship through a call for tenders and the submission of a compliant bid. . Di Sarra v. Ontario Association of Architects
In Di Sarra v. Ontario Association of Architects (Div Ct, 2021) the Divisional Court considered a leading SCC 1981 case on contractual tendering:The Supreme Court of Canada Decision in R. v. Ron Engineering
[24] The decision of the Supreme Court of Canada in R. v. Ron Engineering is considered a landmark development in the law of tendering. The underlying facts are of no consequence here. The particular impact of the decision is the recognition that a formal tendering process creates two contracts: Contract A (which is a unilateral contract created upon a contractor submitting a bid to do certain work in response to a formal tender package), and Contract B (which is the contract formed between the parties when a bid is accepted). In the tendering process at issue in that case, there was a tendering package calling for bids within a specific period of time. Any contractor submitting a bid was required to pay a deposit. After the time for submitting bids had closed, bids could no longer be withdrawn or amended. If a bid was selected, the offeror was called upon to enter into Contract B in accordance with the submitted bid. A failure to do so would result in forfeiture of the deposit. If a bid was not selected, the deposit would be returned.
[25] These, however, were already the terms of the agreements before the Supreme Court of Canada in that case. The Supreme Court of Canada did not stipulate that in future all tender packages must contain such terms; it merely ruled that in these types of situations there would be a Contract A and a Contract B and that certain rights and obligations would flow from that.
[26] More importantly, at no point in Ron Engineering did the Supreme Court of Canada provide a definition of “tender,” or “bid,” or “tender package,” and nothing in the case turned on the meaning of those terms.
[27] The appellant also relies on Chippewas of Mnjikaning First Nation v. Chiefs of Ontario and in particular on para. 179 of that decision which states:Without probing too deeply into the complexities of the law of tendering, suffice it to say that it is built around the “Contract A/Contract B” analysis articulated by the Supreme Court of Canada in Ontario v. Ron Engineering, 1981 CanLII 17 (SCC), [1981] 1 S.C.R. 111, as revised in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., 1999 CanLII 677 (SCC), [1999] 1 S.C.R. 619. The submission of a bid, or “tender,” in response to an invitation to tender, may result in initial contractual obligations (Contract A), if the parties intend this to be the case. The terms of Contract A are governed by the terms of the tender call but generally include the obligation to enter into a second contract (Contract B), upon acceptance of a compliant bid, in the terms of that bid.[4] . M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd.
In M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd. (SCC, 1999) the Supreme Court of Canada stated as follows on the law of tender:[1] ... The leading Canadian case on the law of tenders is R. in Right of Ontario v. Ron Engineering & Construction (Eastern) Ltd., 1981 CanLII 17 (SCC), [1981] 1 S.C.R. 111, which concerned the obligations of a contractor who submitted a bid in response to a call for tenders. This Court held that, upon the submission of this tender, a contract arose between the contractor and the owner in that case and imposed certain obligations upon the contractor. The contract, referred to as “Contract A”, was distinguished from the construction contract, “Contract B”, to be entered into if the tender was accepted. Contract A imposed certain obligations upon the contractor. ....
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A. General Principles
15 As I have already indicated, any discussion of contractual obligations and the law of tendering must begin with this Court’s decision in Ron Engineering, supra. That case concerned whether the owner had to return the contractor’s tender deposit, a sum of $150,000. The terms and conditions attaching to the call for tenders had included the statement (at pp. 113-14) that:Except as otherwise herein provided the tenderer guarantees that if his tender is withdrawn before the Commission shall have considered the tenders or before or after he has been notified that his tender has been recommended to the Commission for acceptance or that if the Commission does not for any reason receive within the period of seven days as stipulated and as required herein, the Agreement executed by the tenderer, the Performance Bond and the Payment Bond executed by the tenderer and the surety company and the other documents required herein, the Commission may retain the tender deposit for the use of the Commission and may accept any tender, advertise for new tenders, negotiate a contract or not accept any tender as the Commission may deem advisable. Other terms and conditions included the ability to withdraw a tender, under seal, until the official closing (p. 120). In rushing to compile its tender, the contractor omitted to add its own labour costs to its bid, but only discovered its error after the close of the tender call. It was the lowest out of eight bids. The contractor did not seek to withdraw its tender, but instead maintained that because it gave notice of this error to the owner prior to the acceptance of its tender by the owner that the owner could not, in law, accept its tender, and therefore had to return the contractor’s $150,000 deposit.
16 Estey J., for the Court, held that a contract arose upon the contractor’s submission of the tender. This contract, which Estey J. termed “Contract A”, was to be distinguished from the construction contract to be entered into upon the acceptance of one of the tenders, which Estey J. termed “Contract B”. The terms of Contract A were governed by the terms and conditions of the tender call, which included that the contractor submit a deposit that could only be recovered under certain conditions. Estey J., at p. 119, stated:The revocability of the offer must, in my view, be determined in accordance with the “General Conditions” and “Information for Tenderers” and the related documents upon which the tender was submitted. There is no question when one reviews the terms and conditions under which the tender was made that a contract arose upon the submission of a tender between the contractor and the owner whereby the tenderer could not withdraw the tender for a period of sixty days after the date of the opening of the tenders. Later in these reasons this initial contract is referred to as contract A to distinguish it from the construction contract itself which would arise on the acceptance of a tender, and which I refer to as contract B. Other terms and conditions of this unilateral contract which arose by the filing of a tender in response to the call therefor under the aforementioned terms and conditions, included the right to recover the tender deposit sixty days after the opening of tenders if the tender was not accepted by the owner. This contract is brought into being automatically upon the submission of a tender. [Emphasis added.] As the tender call conditions were not met, the deposit was not recoverable by the contractor.
17 This Court therefore held that it is possible for a contract to arise upon the submission of a tender and that the terms of such a contract are specified in the tender documents. The submissions of the parties in the present appeal appear to suggest that Ron Engineering stands for the proposition that Contract A is always formed upon the submission of a tender and that a term of this contract is the irrevocability of the tender; indeed, most lower courts have interpreted Ron Engineering in this manner. There are certainly many statements in Ron Engineering that support this view. However, other passages suggest that Estey J. did not hold that a bid is irrevocable in all tendering contexts and that his analysis was in fact rooted in the terms and conditions of the tender call at issue in that case. As he stated, at pp. 122-23:The significance of the bid in law is that it at once becomes irrevocable if filed in conformity with the terms and conditions under which the call for tenders was made and if such terms so provide. There is no disagreement between the parties here about the form and procedure in which the tender was submitted by the respondent and that it complied with the terms and conditions of the call for tenders. Consequently, contract A came into being. The principal term of contract A is the irrevocability of the bid, and the corollary term is the obligation in both parties to enter into a contract (contract B) upon the acceptance of the tender. Other terms include the qualified obligations of the owner to accept the lowest tender, and the degree of this obligation is controlled by the terms and conditions established in the call for tenders. [Emphasis added.] Therefore it is always possible that Contract A does not arise upon the submission of a tender, or that Contract A arises but the irrevocability of the tender is not one of its terms, all of this depending upon the terms and conditions of the tender call. To the extent that Ron Engineering suggests otherwise, I decline to follow it.
18 I also do not wish to be taken to endorse Estey J.’s characterization of Contract A as a unilateral contract in Ron Engineering. His analysis has been strongly criticized: see R. S. Nozick, Comment on The Province of Ontario and the Water Resources Commission v. Ron Engineering and Construction (Eastern) Ltd. (1982), 60 Can. Bar Rev. 345, at p. 350; J. Swan, Comment on The Queen v. Ron Engineering & Construction (Eastern) Ltd. (1981), 15 U.B.C. L. Rev. 447, at p. 455; G. H. L. Fridman, “Tendering Problems” (1987), 66 Can. Bar Rev. 582, at p. 591; J. Blom, “Mistaken Bids: The Queen in Right of Ontario v. Ron Engineering & Construction Eastern Ltd.” (1981-82), 6 Can. Bus. L.J. 80, at p. 91; S. M. Waddams, The Law of Contracts (3rd ed. 1993), at para. 159. However, each case turns on its facts and since the revocability of the tender is not at issue in the present appeal, I see no reason to revisit the analysis of the facts in Ron Engineering.
19 What is important, therefore, is that the submission of a tender in response to an invitation to tender may give rise to contractual obligations, quite apart from the obligations associated with the construction contract to be entered into upon the acceptance of a tender, depending upon whether the parties intend to initiate contractual relations by the submission of a bid. If such a contract arises, its terms are governed by the terms and conditions of the tender call.
20 I note that the jurisprudence in other common law jurisdictions supports the approach that, depending upon the intentions of the parties, an invitation to tender can give rise to contractual obligations upon the submission of a bid: see Blackpool and Fylde Aero Club Ltd. v. Blackpool Borough Council, [1990] 3 All E.R. 25 (C.A.); Hughes Aircraft Systems International v. Airservices Australia (1997), 146 A.L.R. 1 (F.C.); and Pratt Contractors Ltd. v. Palmerston North City Council, [1995] 1 N.Z.L.R. 469 (H.C.). . Reaction Distributing Inc. v. Algonquin Highlands (Township)
In Reaction Distributing Inc. v. Algonquin Highlands (Township) (Ont CA, 2019) the Court of Appeal had this to say on the law of tender:[6] ... On the first issue, the law is that substantial compliance is the test to be applied in considering tender requirements: Double N Earthmovers Ltd. v. Edmonton (City), 2007 SCC 3 (CanLII), [2007] 1 S.C.R. 116. Consequently, and subject to the second issue, it was open to the trial judge to find that the respondent substantially complied with the tender requirements and thus the appellant’s failure to consider the respondent’s bid constituted a breach of contract. . Rankin Construction Inc. v. Ontario
In Rankin Construction Inc. v. Ontario (Ont CA, 2014) the Court of Appeal gave some useful general characterizations of the law of bidding, in the context of public works tendering:III. THE LAW OF TENDER
[12] Before outlining the trial judge’s findings, the appellant’s arguments on appeal, and my analysis of those arguments, some legal context is helpful.
[13] The Supreme Court’s most recent judgment dealing with the law of tender is Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4 (CanLII), 2010 SCC 4, [2010] 1 S.C.R. 69. Though he and three others dissented in the result, Binnie J. provides a helpful overview of the law of tender, at para. 87:For almost three decades, the law governing a structured bidding process has been dominated by the concept of Contract A/Contract B initially formulated in The Queen in right of Ontario v. Ron Engineering & Construction (Eastern) Ltd., 1981 CanLII 17 (SCC), [1981] 1 S.C.R. 111. The analysis advanced by Estey J. in that case was that the bidding process, as defined by the terms of the tender call, may create contractual relations (“Contract A”) prior in time and quite independently of the contract that is the actual subject matter of the bid (“Contract B”). Breach of Contract A may, depending on its terms, give rise to contractual remedies for non-performance even if Contract B is never entered into or, as in the present case, it is awarded to a competitor. The result of this legal construct is to provide unsuccessful bidders with a contractual remedy against an owner who departs from its own bidding rules. Contract A, however, arises (if at all) as a matter of interpretation. It is not imposed as a rule of law. [Emphasis in original.] [14] Tercon makes clear that the content of Contract A – sometimes referred to as the “bidding contract”[1] – is based on its express, and occasionally, implied terms: para. 17. In M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., 1999 CanLII 677 (SCC), [1999] 1 S.C.R. 619, the Court implied a term, based on the presumed intention of the parties, that notwithstanding a “privilege” clause stating that the owner was not obliged to accept the lowest or any tender, only compliant bids were open for acceptance. And in Martel Building Ltd. v. Canada, 2000 SCC 60 (CanLII), 2000 SCC 60, [2000] 2 S.C.R. 860, the Court implied a term requiring the owner to be fair and consistent in the assessment of tenders.
[15] At para. 93 of Tercon, Binnie J. cautions that “[o]nly in rare circumstances will the Court relieve a party from the bargain that it has made.”[2] He continues, at para. 94, that in determining whether a term should be implied, the focus is on the intentions of the actual parties, not those of reasonable parties, and that if there is evidence of a contrary intention, on the part of either party, a term may not be implied.
[16] Therefore, whether a Contract A has arisen, and what terms, if any, should be implied, are case-specific determinations.
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