Earlier this year, the Alberta Court of Appeal released a decision that will be of interest to owners and contractors alike in the situation of tendering a contract. Everest Construction Management Ltd. v. Strathmore (Town) (Everest v. Strathmore) confirms that owners have the right in the tendering context to select a contractor based on considerations such as overall cost, scheduling preferences, relevant work experience and prior interactions with the contractor when the tender documents provide the owner with such discretion and notify the bidders of the relevant criteria. An owner does not breach the implied term that arises under Contract A to treat all bids fairly and equally by awarding the contract based on these considerations.

Facts

Everest Construction Management Ltd. (Everest) submitted a bid in response to a request for tenders issued by the Town of Strathmore (Strathmore) for work on a reservoir and pump station project. The tender documents included an invitation to bid, instruction to bidders and a bid form. These forms contained important clauses:

• The invitation to bid contained a privilege clause, which stated “the lowest or any bid will not necessarily be accepted”.
• The instruction to bidders contained:
  • A statement that bid analysis would be based on “total bid price, exclusive of GST”; and
  • A discretion clause stating that “Strathmore reserves the right to accept any offer, waive defects in any offer, or reject any and all offers”.
• The bid form contained another privilege clause stating that Strathmore could “accept other than the low bid”.

Bidders were instructed to provide supplemental information to the bid form, including:

• A list of their qualifications to allow the owner to judge the contractor’s ability to fulfill the contract requirements; and
• A construction schedule in which the bidder was to insert completion dates for all steps in the project, as well as an overall completion date. In this case, December 31, 2012, was the owner’s preferred completion date.

The two lowest bidders were Everest, at CA$6,440,433, and Graham Construction Infrastructure, a joint venture (Graham), at CA$6,474,084. Everest referenced only one completed project of relevant experience, and projected an overall completion date of May 15, 2013. Graham referenced six relevant projects, and projected an overall completion date of December 31, 2012.

Strathmore awarded the contract to Graham, given its projected completion date and greater relevant experience to the project. Everest sued Strathmore, alleging that Strathmore had breached “Contract A” by failing to treat Everest’s bid fairly and equally, and failing to accept only a compliant bid. Specifically, Everest alleged Strathmore had:

• evaluated the bids on the basis of criteria that were not fairly disclosed to the bidders – experience, schedule, completion date and costs associated with later completion; and
• failed to investigate the successful bidder’s experience, particularly given that its bid list of reference projects were completed by related companies.

Decision

The Alberta Court of Alberta upheld the owner’s right to rely on privilege and discretion clauses and a description of the relevant evaluation criteria in the tender documents, as well as the right to take a “nuanced” view of costs, to choose the contractor that it considered best suited to the project.  Further, in so doing, the owner was entitled to rely on information it already knows from past experience to evaluate a bid (in this case the fact that the resources from the related companies were available to the successful bidder for the project).

1. Owner can rely on criteria stated in bid documents

The Court first evaluated Everest’s allegation that Strathmore had breached the implied duty of fairness that arises in “Contract A” to treat all bids fairly and equally by failing to fairly disclose to the bidders that it would use experience, anticipated completion date and costs associated with later completion date to evaluate the bids.

The Court summarized the law that owners may rely on privilege clauses to not accept the lowest or any bid, and to choose between bids on some basis other than the lowest price. A privilege clause allows the owner to take a “more nuanced view of cost.” On the other hand, this discretion is not unfettered and an owner may not depart from the fundamental content of the Instructions to Bidders in making its selection.

In this case, the tender documents clearly indicated the owner would use the contractor’s previous experience and the expected overall completion date as factors to evaluate bids. In fact, the bid documents specifically included a representation by the contractor that it was providing previous work experience and completion dates so the owner could judge its ability to fulfill the contract, and assess its ability to plan the work and respond to critical deadlines. As such, the Court found Strathmore had clearly and fairly disclosed the criteria for its decision.  

Further, although this was not expressly stated in the tender documents, the court held, applying the nuanced view of costs test that the owner was allowed, in its evaluation process, to adjust a quoted price upwards to reflect the expected costs of a later completion date.

2. Owner can rely on previous experience of a bidder

Everest also argued that Strathmore acted unfairly because it investigated Everest’s past experience, but it did not investigate Graham’s experience, and further, that since Graham’s bid listed projects were completed by separate corporate entities (the Graham entity bidding on this project was a joint venture), Strathmore had a duty to investigate Graham’s project experience, even though it knew, from past experience, that the experience and resources of the related companies would be available to Graham on the project.

The Court of Appeal found first of all that there is no duty to investigate a bid.  Second, there was no duty to investigate Graham’s bid because an owner may rely on information already acquired through past experience with a bidder when evaluating bids. Owners do not breach a duty of fairness by using past dealings with and prior knowledge of contractors to assess qualifications for a project.

The Court stated, “A rule requiring an owner to investigate information about a bidder that it already knows through past experience would be wasteful and would offend common sense” (at para 36).

Takeaways

Overall, Everest v. Strathmore confirms that owners may choose a bidder based on considerations such as overall cost, schedule, previous work experience, and prior knowledge of or experience with a contractor. 

According to Everest v. Strathmore, owners can rely on an appropriately-worded privilege clause and/or discretion clause, which allow for a more nuanced approach to cost than simply selecting the lowest bid.

Owners should be careful to notify bidders in the tender documents of any additional criteria or significant considerations that may determine the owner’s choice of contractor.

Bidding contractors should carefully review the bid documents for a privilege clause, discretion clause, and all indications of bid criteria to be considered by the owner.

For more information, please contact a member of Dentons’ construction team.