Tercon Construction Law Case

Tercon Construction Law Case

Introduction

An owner contemplating procurement of services (whether construction services or otherwise) has a variety of procurement processes to choose from, ranging from requests for proposals (RFP) to invitations to tender, with a variety of so-called "hybrid" procurement processes in between. The interest of the owner is generally in preserving some degree of flexibility in the selection of the winning proposal or bid, rather than being obligated to accept the lowest price regardless of other relevant considerations. All compliant tenderers can be expected to say that accepting a noncompliant bid would represent a breach of their bid contracts with the owner. Non-compliant bidders may be waiting until all bids are opened before revoking their bids.

Tensions in the Tendering Process

The tendering process is normally a competitive bidding process in which the offerors (the contractors) tender their offer to the offeree (the owner). It usually commences when an owner, or someone on the owner's behalf, issues a tender package to prospective tenderers, normally general contractors. The tender package usually contains a "privilege clause" to the effect that the lowest or any tender will not necessarily be accepted.

Contract A/Contract B Analysis

In The Queen (Ont.) v. Ron Engineering, [1981] 1 S.C.R. 111, the Supreme Court of Canada developed the Contract A/Contract B analysis in dealing with tendering. Prior to Ron Engineering, tenders were seen to be offers to owners where no contract arose unless the tender was accepted. Ron Engineering had tendered a construction project and made an error of $750,058 in its tender. The Province of Ontario accepted the tender and when Ron Engineering refused to execute a construction contract, the tender deposit of $150,000 submitted by Ron Engineering was forfeited to the Province. The Supreme Court of Canada upheld the forfeiture of the deposit. The Court described the Contract A/Contract B analysis at pages 122-123:

The tender submitted by the respondent brought contract A into life. This is sometimes described in law as a unilateral contract, that is to say a contract which results from an act made in response to an offer, as for example in the simplest terms, "I will pay you a dollar if you will cut my lawn". No obligation to cut the lawn exists in law and the obligation to pay the dollar comes into being upon the performance of the invited act. 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.

After Ron Engineering, numerous courts in Canada applied the Contract A/Contract B analysis. Three principles emerged from the application of Ron Engineering:

1. Only a compliant tender could be accepted by an ...