Tenderers, should you change your strategy?

January 2011

Tenderers, should you change your strategy?

bouton-vers-francaisJasmin Lefebvre
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The recent Québec Court of Appeal decision in ACQ v. Blenda Construction inc. is a surprising pronouncement regarding the treatment of hidden non-compliance in bids.
 
In ACQ v. Blenda Construction inc. , the Québec Court of Appeal was faced for the first time with a case in which it could adopt – or set aside - the surprising thesis advocated by the majority Supreme Court judges in Double N Earthmovers v. Edmonton.
 
In simple terms, this thesis is that, faced with a seemingly compliant bid which it is in a position to accept, the awarding authority does not have to take steps to determine whether the bid contains hidden non-compliances, i.e. ones not appearing on the face of the bid. By awarding a contract to a tenderer whose bid is compliant on its face, the awarding authority is released from any obligation resulting from the call for tenders vis-à-vis the other tenderers.

The Blenda case

ACQ v. Blenda, leave to appeal granted, stems from an action instituted in the Court of Québec by the Association de la Construction du Québec seeking an order compelling the defendant to pay a penalty for an alleged infringement of the Code of the Bureau des soumissions déposées du Québec. The questions of principles raised by this case prompted the Court of Appeal to hear the appeal despite the small amount of money involved.
 
The BSDQ Code, which was at the heart of the case, is a set of rules governing the awarding of contracts in various specialties in the construction industry.
 
The alleged infringement by Blenda consisted of having granted a roofing contract to a non-compliant contractor, Gercomar. The specifications stated the following: [Translation] "1.3 CONTRACTOR'S QUALIFICATIONS (...) .1 The contractor shall be an active member of the Association des Maîtres couvreurs du Québec (AMCQ)". One of the goals of the owner in setting this requirement was to have the AMCQ issue a guaranties in its favour, which required membership in the association.
 
Gercomar, which submitted the lowest bid, was not a member of the AMCQ. For the ACQ, its bid was therefore non-compliant and Gercomar was not an eligible roofer. The submission of a non-compliant bid and entering into a contract based on such a bid was an infringement of the BSDQ Code.
 
When the time came to perform the work, a sub-sub-contract was set up so that the work would be done by Toitures Trois Étoiles, a member in good standing of the AMCQ. The active participation of Blenda in the signing of this contract led the ACQ to argue that there was an attempt to avoid the rules of the Code, but the Court of Appeal held that there was insufficient evidence in this regard.
 
According to the evidence, Gercomar never took steps to become a member of the AMCQ.

Court of Appeal decision

The appeal filed by the ACQ was dismissed. The parallel drawn by the Court between Blenda and Double N Earthmovers had a decisive impact on the outcome of the case.
 
In its decision, the Court noted the particular characteristic of the BSDQ Code system, which is designed to transfer to the contractor/sub-contractor relationship the requirements prescribed for the general contractor by the owner in its call for tenders. As such, it clearly distanced itself from what the trial judge held when he recognized the liability taken on by the general contractor with respect to compliance of the successful tenderer's bid with the rules of the Code. It did so by referring to and quoting the rule under section K-1 of the Code, which describes the expected conduct of all parties involved in the system to ensure it prevails in every situation.

Contractor's liability

"Tenderers and recipient contractors are responsible for complying with the tendering rules set out in this Code by making sure they get the right information from the owner, from recipient contractors as well as from the BSDQ, and by also making sure that they are made aware of any addenda possibly issued before the closing time and date, by sending this information to the BSDQ and by having a file opened if necessary, the whole in order to prevent any breach or infringement of this Code."

However, according to the Court, notwithstanding section K-1 and the legal framework specific to the BSDQ system, as the tender form submitted by Gercomar did not contain any anomaly or exclusion, not only could Blenda legally grant it the roofing contract, it had to do so.

[Translation] "(24) It is admitted that Gercomar adequately filled out the BSDQ form, correctly identified the sections pertaining to the roofing work, included the necessary addenda and provided the necessary bid bonds. It did not exclude any requirement or work specified in the relevant sections of the specifications. In short, its tender was compliant on its face."
 
"(27) When the tender was submitted, nothing suggested that Gercomar would not fulfil its undertakings. The situation was the same when the contract was signed with Blenda. Accordingly, after the contract was signed, Gercomar could decide to become a member of the AMCQ and perform the contract itself. It could also assign or sub-contract the performance of its contract to a member of the AMCQ by complying with the requirements of the Code including, among others, that under section K-3: (...)"
 
"(30) In other words, assuming that Blenda had learned before signing contract B that Gercomar was not a member of the AMCQ, it could and even had to consider that its tender was compliant."

The Court's reasoning includes a peripheral reason based on a question stemming from Blenda's arguments relating to the time membership in the AMCQ was mandatory for tenderers in this case.

[Translation] "(25) Certainly, Gercomar was not a member of the AMCQ, but did it have to be when it submitted its tender or even when the contract was signed? Nothing in the tender documents specifically required it. One thing is certain: the roofing contractor had to be a member when the work was performed."

Paradoxically, the Court of Appeal, distancing itself in this regard from the conclusions of the trial judge, had stated earlier that, for the purpose of this call for tenders, [Translation] "the roofing contractor's membership in the AMCQ was vital for tenderers". Its decision that membership in the AMCQ was not essential at the time of the call for tenders is therefore surprising.
 
The Court of Appeal confirms that the BSDQ Code does not constitute a contract of adhesion
 
An overview of the Blenda case would not be complete without noting the fact that this decision was also an opportunity for the Québec Court of Appeal to reiterate its case law to the effect that the BSDQ Code should not be considered or construed as a contract of adhesion, i.e. a contract which should be interpreted against the signatories to the agreement which set it up, i.e. the appellant, the Association de la Construction du Québec, among others.
 
Although this referral by the Court to its own case law was not very surprising, it raised a few hackles! Even though the outcome of this case before the Court of Appeal was completely favourable to it, Respondent Blenda nonetheless asked for leave to appeal to the Supreme Court to have this passage of the Court of Appeal decision set aside.
 
At the time these lines were written, the Supreme Court had not yet decided on the application for leave to appeal.

Comments

In our opinion, the Blenda case did not lend itself to the application of the Double N Earthmovers rule or, at a minimum, it would have been better if the Court had been more convincing that this case should not be seen to involve an ineligibility to bid and that this is why it agreed to apply the Supreme Court doctrine. In our opinion, under the circumstances, the Court could have been much more cautious in following the precedent it did.
 
In our opinion, in this case, given the way the BSDQ system works and the way the roofing specifications were written, it should have been held that membership in the AMCQ was a prerequisite for being able to bid on the project.
 
In our view, the Double N Earthmovers case followed by the Court of Appeal does away with the fairness which should reign between tenderers by making form prevail over substance, concealment over transparency.
 
It is disappointing to note that, by rendering a decision relying on Double N Earthmovers without reserve, the Court of Appeal has created a situation where the apparent compliance of the lowest tenderer seems to prevails over its true compliance, in every respect.
 
Tenderers would be justified in asking themselves whether, in future, the only goal should be to be ranked as the lowest bidder and to negotiate later to make up for any hidden non-compliances in the tender they submitted.

 

 

This bulletin provides general comments on recent developments in the law. It does not constitute and should not be viewed as legal advice. No legal action should be taken on the basis of the information contained herein.

 

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