Changing the terms of a construction contract does not expose the owner to claims by unsuccessful bidders

A Construction Law Update

In the McLennan Ross LLP Construction Law Seminar held in Edmonton on March 1, 2005, we raised a warning about a recent case that demonstrated the potential for lawsuits by unsuccessful bidders where the construction project owner makes a contract with the successful bidder on different terms than were advertised in the bid documents. A recent case from the Alberta Court of Appeal has shown that this risk is so remote as to be non-existent in Alberta.

The warning arose out of a 2004 decision of the Newfoundland and Labrador Supreme Court: AON Reed Stenhouse Inc. v. Newfoundland and Labrador (Treasury Board). The government had invited insurers to submit bids to provide insurance on government property. AON and Marsh submitted bids. The government awarded the contract to Marsh, but on terms that differed from Marsh's original bid and the requirements advertised by the government. (Specifically, the insurance coverage was ultimately allocated among various insurers in different percentages than indicated in Marsh's original bid.)

AON sued on the basis that it was a breach of the bidding contract (Contract A) with AON for the government to enter into an agreement with Marsh on terms that were different than the terms that were contemplated in the bid documents and Marsh's original bid. AON was successful and was awarded damages in the amount of $200,000 for loss of profit.

While the principles of bidding and tendering law are theoretically the same regardless of the context (i.e., whether it is a construction contract or an insurance contract), the result of this case from Newfoundland and Labrador seems absurd in the context of the construction industry. The practical reality of construction often requires changes to construction contracts after bidding and also during the course of a project. In our March seminar, we expressed doubt that this result would carry over to the construction context in Alberta, but we nevertheless provided a warning that this case might present an opportunity for new claims.

More recently, the Alberta Court of Appeal had an opportunity to consider a similar situation in Double N Earthmovers Ltd. v. The City of Edmonton. Double N and Sureway were among several contractors that submitted bids to the City for refuse removal work. Sureway's bid was the lowest and the City awarded the contract to Sureway. Double N discovered later that Sureway had misstated the age of certain equipment to comply with City requirements. In addition, Double N discovered that the City ultimately entered into a contact with Sureway that allowed Sureway to use this older equipment, contrary to the requirements in the bid documents.

Double N sued the City, alleging that the City breached the bid contract with Double N (Contract A) first by accepting a bid from Sureway that inaccurately described Sureway's equipment, and second by making a contract with Sureway that differed from the contract contemplated in the bid documents. Regarding the first point, the court held that the City was not aware of the misstatement in Sureway's bid when the City determined the successful bidders (Sureway's bid was compliant with the City's requirements on its face). As a result, the City did not have any obligation to reject Sureway's bid as non-compliant. Regarding the second point, the Court decided that, provided the City did not violate the terms of the bid documents in selecting the successful bidder (which the Court had already determined to be the case), the City could negotiate new terms with the successful bidder if it wanted. The City's bid contract (Contract A) with Double N came to an end when the City issued the construction contract (Contract B) to Sureway on the basis of an unqualified bid that (on its face) substantially complied with the City's bid requirements. Since the City's Contract A with Double N was at an end, Double N could not sue the City for allegedly breaching Contract A after the bid process was complete.

This case confirms that owners can negotiate different terms with successful bidders once the bid process is complete. Such actions do not expose the owner to claims by the unsuccessful bidders, provided that the owner complies with the express bid requirements (and any bid requirements implied by common law) up to the time the successful bidder is announced.

This update is a general overview of the subject matter and cannot be regarded as legal advice. Please contact Corbin Devlin at cdevlin@mross.com or any member of our Construction Law Practice Group for legal advice on this or any other construction law topic.