An issue that consistently arises in tendering disputes involves an owner’s right to forgive or waive a defect in a submitted bid. In the recent decision of Maglio Installations Ltd. v. Castlegar (City), 2018 BCCA 80, the BC Court of Appeal addressed the general legal principles underlying this complicated issue.
In February 2013, the City of Castlegar issued an invitation to tender bids for the construction of a swimming area next to the Columbia River. Several companies responded to the invitation, including Marwest Industries Ltd. and Maglio Installations Ltd. The invitation to tender required bidders to complete a preliminary construction schedule (“PCS”) and stated that time would be of the essence in completing the project. The invitation to tender also required bidders to confirm their ability to comply with construction milestone dates. Due to various regulatory approval and water level forecasting issues, the City revised the milestone dates on several occasions through a series of addendums and the milestone dates remained unconfirmed at the tender closing date.
Maglio submitted a bid which complied with all requirements of the invitation to tender, including the requirement to submit a PCS. Marwest’s bid failed to include a PCS, but committed to complying with milestone dates and indicated that Marwest would submit a PCS after the City confirmed the milestone dates.
The City accepted Marwest’s bid and Maglio subsequently commenced a lawsuit against the City arguing that Marwest’s bid was non-compliant and should not have been accepted. The City relied on the discretion clause in the invitation to tender which enabled it to waive defects in a bid and to accept any tender which it considered to be in the best interests of the City.
At a summary trial of the matter, the lower court judge held the discretion clause in the invitation to tender did not permit the City to waive the requirement for a PCS in Marwest’s bid and the City’s decision to accept Marwest’s defective bid constituted a breach of Contract A between the City and Maglio. In coming to this conclusion, the judge applied the two-part test from Graham Industrial Services Ltd. v. Greater Vancouver Water District, 2004 BCCA 5, for determining whether a defect in a bid is material: (1) Does the bid’s non-compliance relate to an important or essential element of the invitation to tender? (2) Is there a substantial likelihood that non-compliance would be a significant factor in the deliberations of a reasonable owner?
The judge found that the PCS was an important and essential element of the City’s invitation to tender as it was noted as being mandatory and a reasonable owner would likely consider the PCS to be a significant factor in its deliberations because there were repeated references to time being of the essence in the invitation to tender. The judge rejected the City’s submission that the lack of firm milestone dates made the PCS requirement immaterial and characterized this argument as a subjective, after-the-fact excuse for disregarding the absence of a PCS in Marwest’s bid. The City appealed the judge’s decision to the Court of Appeal.
On appeal, the Court summarized the relevant legal principles that applied to the case:
- Courts must adopt a stringent analytical framework in evaluating tendering contracts in order to promote certainty and fairness for compliant bidders.
- The rights of the parties crystallize at the time a tender capable of acceptance, i.e. compliant with the invitation to tender, is submitted.
- A discretion clause only allows the owner to forgive non-material defects. In other words, even if the invitation to tender contains a discretion clause, a bid must be substantially compliant with the invitation to tender to be accepted.
- The assessment as to whether a bid is substantially compliant is measured objectively in the context of the other terms and conditions of the tender.
- The test for substantial compliance is a two-part test:
- Did the bidder fail to include an important or essential requirement of the tender documents?
- Was there a substantial likelihood that the defect would have been significant to the owner’s decision making?
- If the invitation to tender requires the submission of certain information on its face and the tender documents indicate that the information is material, this provides prima facie proof of the importance or essentiality of the information.
- At the second part of the two-part test for materiality from Graham, the court must consider the underlying rationale of the law of tendering, which is to effect fair competition and protect the integrity of the tendering process.
The Court held that although the facts of the case were unique and difficult, the judge made no error in finding that the PCS requirement was material to the invitation to tender. In dismissing the City’s appeal, the Court emphasized that the courts must apply a stringent analysis to the issues surrounding the tendering process to preserve certainty and fairness to compliant bidders.