Building contracts sometimes arise from an invitation to tender. Usually, an owner or contractor (sometimes called the “tendering authority”) will issue an invitation to tender, and a contractor or subcontractor (as the case may be) may respond by offering to carry out the work on certain terms and conditions. Historically, strict compliance with the terms of the invitation were required in order for (a) any obligations to arise among the tendering authority and the responding parties, (b) a responding party’s tender to be “compliant” with the terms of the invitation and thus capable of acceptance by the tendering authority.
In recent years, the requirement for strict compliance with the requirements of the invitation has been relaxed by the courts’ approval of the use of “privilege clauses” which may allow the tendering authority to (a) evaluate tenders on factors other than price alone and/or (b) accept tenders which do not strictly comply with the terms of the invitation.
In M&G Logging & Sons Ltd. v. British Columbia (Forests, Lands & Natural Resource Operations), 2015 BCCA 526 (“M&G”), the British Columbia Court of Appeal held that the substitution of the name of related company in place of the intended bidder rendered a bid non-compliant and thus incapable of acceptance by the tendering authority. This was so even though the tendering authority (a) initially notified the bidder that its bid was accepted, and (b) seemingly knew of the mistake in bidder’s name.
In M&G, the principal of M.G. Logging & Sons Ltd. (“Sons”) bid on a timber licence (the “Licence”) auctioned by the Province of British Columbia’s Ministry of Forests, Lands and Natural Resource Operations (the “Ministry”). The invitation to tender stated that only a registered BC Timber Sales Enterprise (“BCTSE”) could bid for the Licence. Every BCTSE has its own registration number with the Ministry. When submitting the bid, Sons’ registration number was used but the name of the applicant was identified as “M.G. Logging Ent. Ltd.”, which was another company owned by the principal but was not a registered BCTSE.
The Ministry initially awarded the Licence to Sons but then told Sons it could not award the Licence to Sons because its bid was non-compliant. Sons sued the Ministry alleging, among other things, that the ambiguity in its bid could be resolved by looking to the circumstances surrounding the preparation and evaluation of its bid. Sons was successful in the Supreme Court of British Columbia. The Ministry appealed and argued that the judge in the Court below should have considered whether the bid was compliant before considering whether the ambiguity in the bid could be resolved by examining the surrounding circumstances.
The appeal was allowed. The Court of Appeal held that the judge in the Court below should have determined whether the bid was compliant with the invitation to tender before seeking to resolve the ambiguity. The Court noted that there was no “privilege clause” in the invitation to tender which might allow the Ministry to consider non-compliant bids. To the contrary, the invitation stated that bids must comply with the terms of the invitation. The Court of Appeal remarked that “[d]isregarding that framework designed to protect the integrity of the tendering process”…“to do what may seem reasonable in a particular case would beget uncertainty and unfairness in the tendering process” and would not be fair to other compliant bidders.
It is interesting to consider the outcome of this appeal had the invitation to tender included a privilege clause. The judge at the Supreme Court level was of the view that the Ministry knew which company was the intended bidder. If there had been a privilege clause, it would have been difficult for the Ministry to reject the bid after having accepted it without exposing itself to liability for damages for breach of contract.
