April 2007.pdf - Electrical Business Magazine

From the Legal Desk
Non-compliant bids and fairness
And other specific tender questions
By Stephen
Tatrallyay
Do the rules of fairness in tendering apply to
relations between a GC and a subtrade, or just
between owners and contractors
The Supreme Court of Canada answered this in Ellis Don
v. Naylor Electric. 1 There was clear evidence that Ellis was
bid shopping among the electrical trades while it waited for
a decision from the owner as to whether the project would
proceed. Ellis told one subtrade, Naylor, that it could base
its price on non-union workers, although Ellis knew there
was an application against it at the Labour Relations Board
(LRB) wherein the IBEW claimed bargaining rights for all
electrical workers on Ellis projects in Ontario.
Ellis continued to negotiate with Naylor, carrying its
price in the final submission to the owner, which was made
some time after an adverse LRB ruling declaring the IBEW
Collective Agreement covered all electricians employed by
both Ellis and Naylor on Ellis projects. In the end, Ellis
contracted with a union electrical subtrade and Naylor sued,
claiming it had been unfairly treated by Ellis.
Ellis argued that a clause in the contract gave it the right to
refuse to deal with Naylor if it had a “reasonable objection”
to using them. Apart from the fact that the clause was clearly
drawn to protect the owner, the court held that Ellis—by its
actions in inviting Naylor’s bid and negotiating with Naylor,
not to mention carrying Naylor’s price in its final tender
with full knowledge of Naylor’s affiliation with another
union—had waived any right of objection it may have had
under this clause.
This was further reinforced by the fact that Ellis had continued
to use Naylor’s price, especially to get better prices
from other subtrades, even after it learned of the LRB’s decision
against it. Ultimately, Naylor was awarded damages for
breach of the duty of fairness in Contract A, leading to the
reasonable conclusion that such a duty exists between GCs
and subtrades, as well as owners and GCs.
What about when all bids are non-compliant
This situation often arises in circumstances where there is an
upset price for an improvement. A fixed price is allocated to
part of the improvement—say, the gymnasium in a school—
and the architect designs it to a performance specification.
The trades tender to what the architect has designed, and all
the prices come in way over budget.
There are two theories as to what should be done in this
situation. The first says you reject all bids, tear up the specs
and try to design something cheaper, then allow all previous
tenderers to provide a new price. The other says you
negotiate with the lowest bidder complying with the original
specs. (The Canadian Construction Documents Committee
[CCDC] takes this position in its Document 23.)
In Dominion Construction v. Keewatin-Patricia District
School Board, 2 the lowest price—which was still more than
the upset limit—came from a contractor who found a different
way of doing the work. In essence, both the work and
the price he proposed were non-compliant. When the owner
let all trades re-tender on the basis of the revised specs, then
awarded the contract to another trade (whose original price
was non-compliant but at least based on the specs), the first
contractor sued.
Justice Zielinski held that since all bids were non-compliant,
the owner could essentially do what it wanted. It did
not have to comply with CCDC Document 23 (which, in
any event, is only a suggestion). The fact that the owner
did let the non-compliant bidder back into the rebidding
process made no difference: once non-compliant, always
non-compliant.
Most recent decision: are the times a-changin’
On 25 January 2007, the Supreme Court of Canada rendered
its decision in Double N Earthmoving v. City of
Edmonton. 3 This decision signals a change in the nature
of the way the majority of the court thinks tendering fairness
claims should be treated, and suggests that the owner’s
duty to tenderers is much less substantial than previously
thought. We will explore this decision, and hopefully early
judicial reaction to it, in the next column.
The information contained in this column is not a legal opinion.
For more specific interpretations, feel free to contact the author or
consult your own legal counsel.
Notes
1. [2001] 2 SCR 943.
2. An unreported decision of the Ontario Superior Court
(Zielinski J) released 4 June 2004, Court File No. Thunder
Bay 010758).
3. Not yet reported, [2007] SCC 3.
Stephen Tatrallyay is a prominent Toronto construction lawyer and can
be reached via e-mail at statrallyay@rogers.com or by calling (416)
482-5164. He is also a member of EB’s Editorial Advisory Board.
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