March 19, 2012
Previously published on Winter 2012
In CMH Construction Ltd. (CMH), the Town of Victoria undertook to renovate its municipal centre.1 The town hired an engineering consulting firm to prepare the project specifications and manage the tendering process. The estimated cost of the project was $105,000 and the Government of Newfoundland and Labrador approved funding in the amount of $120,000. The town, through the consulting firm, issued a call for tenders. CMH was the sole bidder on the project. Its bid complied with the tender requirements but was significantly higher than both the estimated project cost and the approved funding amount. Several weeks after the tender closing date, the town decided to scale back the work and, with the assistance of the consulting firm, identified three major components of the project which had to be done and could be completed within the approved budget if carried out on a project management basis. The town then awarded a series of smaller contracts for portions of the work direct to subcontractors. They did not have to tender to follow this procedure. They also obtained government approval prior to proceeding with this process. The specifications for the smaller contracts were different from those in the tender call. Managing the project themselves, with no general contractor, the town succeeded in completing the renovations within the approved funding amount. The town had previously advised CMH that the project was over budget and that it was "not sure" whether it was going to proceed, but it did not formally reject CMH's bid or cancel the tender. Instead, the town simply let the 30-day period under which CMH was bound to its bid lapse. The tender documents reserved the right to the town not to accept the lowest or any tender, and contained no obligation on the part of the town to notify bidders whose bids were not accepted. At no point in time did the town accept CMH's bid, nor did it award any of the smaller work contracts prior to the expiration of the 30-day at risk period. It also did not inform CMH of its decision to carry out the work on a project management basis with new specifications, nor did it request or invite CMH to bid on the reconfigured project. The town's reason for not awarding the tender to CMH and instead completing the reconfigured project on a project management basis was due to budgetary concerns. On a summary trial application, Justice Hoegg dismissed CMH's claims against the provincial government and the consulting firm on the basis that there was no privity of contract between the parties. With regards the town, Justice Hoegg held that it treated CMH unfairly and in so doing breached its duties owed to a bidder responding to its request for bids. CMH had argued that the town breached its duty of fairness by failing to cancel the tender and notify CMH that the tender was cancelled, by altering the specifications for the work ultimately performed from those set out in the tender call without notice to CMH, and by failing to notify CMH that its bid was rejected before entering into negotiations with other contractors and awarding the smaller contracts. The town, on the other hand, argued that it had no duty to award CMH the contract or to notify CMH that the tender was cancelled or its bid rejected. The tender call mandated bidders to maintain their bids for 30 days; accordingly, a bidder who was not notified by the town that its bid was accepted within that 30-day period would know its bid was rejected. The town also argued it had no statutory or common law duty to enter into post-bid negotiations with CMH. In what in our view is a surprising decision, Justice Hoegg held that the town treated CMH unfairly in failing to prepare a reasonable estimate of the project cost when it issued the tender call, thereby resulting in a bid from CMH that was "doomed from the start", and then failing to consider CMH's interests by cancelling the tender, by not notifying CMH its bid was rejected and by not involving CMH in the subsequent discussions with respect to the reconfigured project. In terms of project cost, Justice Hoegg essentially found that it was inevitable CMH's bid would exceed the project budget since the town had provided specifications in the tender which did not realistically permit CMH to bid within that budget. The town should have known that the project as tendered had little or no chance of being performed within the budget. Further, there was nothing unusual or unforeseen about the project which would have prevented a more realistic estimate of project costs in advance of the tender call. As far as notice goes, Justice Hoegg accepted that there is no statutory requirement to formally reject a bid or give notice of tender cancellation or a decision to reconfigure a project, but held that the law may still require such notice in certain situations. In this case, the town's failure to formally cancel the tender or reject CMH's bid before negotiating with other contractors, as well as its failure to advise CMH that the work was being completed by project management on the basis of modified specifications and its failure to provide CMH with the opportunity to bid on or propose to do the reconfigured work, constituted a breach of the town's duty of fairness to CMH. Interestingly, Justice Hoegg also stated that "it may have been decent" for the town to conduct post-tender negotiations with CMH, although she did not go so far as to say that its failure to do so was itself an act of unfairness. This would appear to be a departure from the practice in Newfoundland and Labrador, and negotiation should not be undertaken in situations where there are multiple bidders, as that could be viewed as unfairness. What This Means For You Although not expressly required by the governing legislation, owners would be wise to give timely written notice of a cancellation of tender in order to combat any potential allegations of unfairness. Owners should also exercise care in devising realistic project budgets and tender specifications. 1 CMH Construction Ltd. v. Town of Victoria, 2010 NLTD 145.
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