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Supreme Court weighs the rules around bidding

|Written By Ian Harvey

Will the Supreme Court of Canada undermine itself and throw the bidding process back to the “wild, wild West” when it renders a decision in the much anticipated Tercon case?

Ian Houston says it’s ‘difficult to think the court will make a U-turn.’

It’s a dramatic way of putting things but Clive Thurston, president of the Ontario General Contractors Association says that’s exactly the risk the SCC may be taking if it redraws the legal boundaries around contracts.

“With the creation of the ‘exclusion of liability clause’ in the Tercon case we may be headed back to the Wild West,” he says.

“With the case being appealed to the Supreme Court, should this language be upheld, I and many in the legal profession believe it will be the end of Ron and all the established rules for accepting a bid.”

The case in the spotlight is Tercon Contractors Ltd. v. B.C. Ministry of Transportation and Highways which some like Thurston fears could throw the bidding process into turmoil.

But that’s probably not going to happen, says Ian Houston, a construction law specialist at Borden Ladner Gervais LLP and the firm’s regional practice group leader.

“It’s difficult to think the court will make a U-turn,” says Houston. “That’s just not their pattern. They really have an appreciation for the entire construction industry because so many cases have been decided there.”

The guiding case for the most in construction is the celebrated R. (Ont.) v. Ron Engineering which held that a bid constitutes a contract - Contract A - while the awarding of the job is a separate contract - Contract B.

Ron Engineering and Construction (Eastern) Ltd. had bid on a job and then discovered there was an error and that $750,058 had been omitted from the total sum tendered. It tried unsuccessfully to convince the owner to let them withdraw the bid without penalty.

However, the owner selected their bid as the lowest bid and proffered a contract. When Ron refused to accept the contract for the job the owner considered them to be in default and seized their $150,000 deposit.

Ron Engineering sued for recovery of the deposit and lost the first round, winning at the Ontario Court of Appeal before losing at the Supreme Court of Canada which encapsulated the concept of Contract A and B in the decision.

Some 860 cases including M.J.B. Enterprises Ltd. v. Defence Construction (1951) and Martel Building Ltd. v. Canada have since flowed. More recently Double N Earthmovers Ltd. v. Edmonton (City) seems to have caused a rift and some backtracking on procurement law.

Double N involves a 20-year battle between the City of Edmonton and Double N Earthmovers Ltd. in which the company submitted a bid to provide equipment and operators at a landfill site. It was the lowest bid and was accepted but a competitor complained Double N’s equipment as listed was older than 1980 and in contravention of the terms of the Request for Proposal.

“The competitor told the city of Edmonton to check its own registry,” says William Pigott, a construction law specialist at Miller Thomson LLP. “But instead of doing what we’d expect a public body to do, the city shrugged it off. All they had to do was press a computer key but they didn’t.”

The contract was awarded and the older equipment was utilized, says Pigott, and the Supreme Court of Canada held that regardless of the rules under Contract A, Contract B, the job itself was a whole new game and therefore not constrained by anything stipulated in the tendering rules. If the winning contactor wanted to use older equipment, they were entitled to do so as long as Edmonton was agreeable.

Still, he says, the court split 5-4, with some strong opinions.

Tercon, he says, is interesting because it deals with the rules under Contract A, the bidding portion.

The case starts in 2000 when the province called for bid for construction of 25 kilometres of highway in tough terrain. The RFP stipulated all bidders must be pre-qualified.

The winning bidder in fact was a partnership between Brentwood Enterprises Ltd. and Emil Anderson Construction (EAC) Inc. but unsuccessful bidder Tercon cried foul saying while Brentwood was pre-qualified, their partner was not.

The B.C. government hid behind a liability clause which it claimed protected them from any action arising out of the tendering process. Alberta-based Tercon sued and won $3.3 million from British Columbia but it was reversed on appeal.

“What the court said was that the liability clause may have been vague or not specific but it was there and it was valid,” says Pigott. The question now, he says, is whether the SCC will uphold it or strike down but in either way he doesn’t think it’s “going to drive a wooden stake through the heart of Ron.”

What the industry wants, he says, is a sense of fairness and common sense to prevail in these matters.

“The risk,” agrees Thurston, “is that any form of ethics or standards that have flowed from Ron will vanish and owners will have free reign to bid shop and that’s not how we should do business.”

Houston says the privilege clause is a thorny one because in road building, for example, the issuing body would like to indemnify itself from everything, giving carte blanche to do almost anything.

“This is a problem because in Ontario there’s really only the Ministry of Transportation,” he says adding the result is an imbalance of power in which bidders are at the mercy of an omnipotent, unchallengeable entity. “It’s about how the court balances those policies and considerations with the freedom to contract.”

He’s also betting that in settling Tercon the SCC may in fact open up a new set of issues. “A lot of these anticipated cases end with a bittersweet taste,” he says. “M.J.B. and Double N were like that. It’s confounding if you’re in the construction sector but great if you’re a lawyer, I suppose.

A client calls you and asks a question and you’d love to give them a perfect answer about the law, that’s if it’s X or Y, but then you have to give the equivocal answers which they hate and we hate giving.”

In any event, life before Ron wasn’t a disaster, he says, and if the SCC undermines the case then the construction industry will adapt.

“This industry is always going to adapt, they’ve been doing it for years,” he says. “It’s like hockey, the rules change all the time. Each game is played under a specific set of rules but they evolve. Bidding has been going on for thousands of years.”

In fact, he says, there’s been more litigation post Ron than before it.

Thurston, however, isn’t so confident the industry will simply adjust if Ron dies.

“The landscape has changed from what it was 20 or so years ago,” he says. “Contracts and jobs are so much more complex. We can’t just go back.”

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