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Tender With Caution - Toronto Transit Commission v. Gottardo Construction Limited et al.
The tendering process in Canada is governed by the traditional common law principles of contract law, as well as some unique principles not applicable to other areas. On September 7, 2005, Ontario’s Court of Appeal released its decision in Toronto Transit Commission v. Gottardo Construction Limited et al. which re-affirmed one of the unique aspects of the law of tendering. A contractor will not be entitled to rely on its own pricing errors in order to avoid being bound by its original tender bid.
In December 2000, the TTC opened
tenders it received for a major project and Gottardo Construction Ltd. was the
lowest bidder. Shortly after tenders
were made public, Gottardo informed the TTC that it had made a $557,000 error
in its tender bid and that as a result it was not obligated to honour the
tender price. The TTC took the position
that Gottardo was bound by its bid and when Gottardo refused to sign the
contract, they awarded the contract to the next lowest bidder, which was
$434,000 greater than Gottardo’s. The
TTC sued Gottardo and its insurer in order to make up the difference.
The leading authority in the area
of tenders is the Supreme Court of Canada decision of R. v. Ron Engineering & Construction (Eastern) Ltd. [1981] 1
SCR 111, which determined that a unilateral contract, referred to as “Contract
A”, arises automatically between a tenderer and owner upon the submission of a
tender bid. One of the terms of this
contract is that the tenderer cannot withdraw the bid during the period set out
in the tender instructions. If the
tender is accepted, the tenderer and the owner enter into a construction
contract, called “Contract B”.
In this case, the trial judge found
that Contract A was not complete because the tender instructions called for
additional documents to be provided by Gottardo. Once these documents were submitted, the
error in the tender amount was obvious and the TTC could not compel Gottardo to
honour the price.
The Court of Appeal disagreed with the trial judge’s reasoning and allowed the appeal, holding that Contract A comes into existence upon the delivery of the tender by the contractor. Once the tender is accepted, the parties enter into Contract B. The fact that certain steps are taken and certain documents are to be produced by the tenderer after the submission and opening of tenders will not delay the formation of Contract A when the intent of the parties is to be bound as of the opening of the tenders.
In
this case, it was clear from the tender documents that the parties
intended to initiate contractual relations the moment the tenders were opened. The Court of Appeal awarded damages in the
amount of $434,000.
This decision highlights the fact that those participants in the construction industry must ensure they read tender instructions carefully before submitting their bids and understand the particular principles applicable to the tendering process.
March 31, 2006 in Other | Permalink
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Comments
Definitely something that everyone should think about when submitting for any tender. A big lesson thats for sure!
Posted by: Tenders | Nov 4, 2007 10:08:59 AM
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