T15: A CONSTRUCTION LAW UPDATE: EMERGING TRENDS AND COMMON PITFALLS

THURSDAY, FEBRUARY 25, 201610:30AM-12:30PM

Speakers: Seema Lal, Principal, Shapiro Hankinson & Knutson Law Corporation

Marc MacEwing, Associate Counsel, Shapiro Hankinson & Knutson Law Corporation

Vanessa S. Werden, Associate, Shapiro Hankinson & Knutson Law Corporation

SPONSORED BY

TENDERING & PROCUREMENTBASIC PRINCIPLESSeema LalBuildex 2016 – February 25, 2016

TENDERING & PROCUREMENTBASIC PRINCIPLES Is it a tender?

Obligations of Tendering Authority

Privilege/Discretion Clauses

IS IT A TENDER? Competitive procurement process

Period of irrevocability

Process replaces negotiation with competition

CONTRACT A/CONTRACT B The fundamental principle of the law of tendering for

construction in Canada is that that method of contract procurement involves two stages of contractual relationships:

R v. Ron Engineering & Construction (Eastern) Ltd.

a) Contract A, which arises between the tendering authority and each “materially compliant” bidder, the terms of which are generally as set out in the tendering documents; and

b) Contract B, which is the tendered contract entered into between the tendering authority and the successful bidder.

Note: Contract A only arises if bid submission is compliant with tender documents (MJB Enterprises v Defence Construction)

TENDERING AUTHORITY OBLIGATIONS Duty to follow express terms of Contract A Duty to treat all bidders fairly and equally Duty not to accept non-compliant bid and duty not to

accept bid that has an obvious mistake regarding price No negotiation with individual bidders No bid shopping Note: No duty owed by owner to subcontractor

DUTY OF FAIRNESS Consider only compliant bids

Treat all bids fairly/equally

Must disclose all evaluation criteria – no hidden preferences

DAMAGES

The Contract A/Contract B analysis means that both the tendering authority and bidders may be liable for damages if, for example:

a) an owner purports to award a construction contract to a materially non-compliant bidder in preference to the lowest compliant bidder; or

b) a materially compliant bidder refuses to sign a construction contract and proceed with the work after being awarded the contract.

PRIVILEGE & DISCRETION CLAUSESPrivilege Clauses

The lowest or any tender will not necessarily be accepted• Can be invoked if tendering authority has valid objective reason

for rejecting lowest bid Price + other criteria + best interest can be taken into

consideration• However, cannot be used to evaluate bids based on

undisclosed criteria Limited or no liability for treatment of tender (Tercon)

PRIVILEGE & DISCRETION CLAUSESDiscretion Clauses

Permit tendering authority to waive minor defects in a bid that is otherwise compliant

• However, material non-conformance with tender requirements cannot be waived

PRACTICE POINTS FOR TENDER SUBMISSIONS Have a basic knowledge of tendering law

Read and understand the totality of the procurement documents

Clarify pre-bid questions using designated process

Quality assurance for tender preparation

Comply with all tender requirements

Common Problems in the Drafting of Tender DocumentsJ. Marc MacEwingBuildex 2016 – February 25, 2016

POOR DRAFTING- Inconsistent provisions

- Inclusion of Contract B provisions

- Unclear or ungrammatical wording

- Inadequately worded privilege clauses

Counter-productive “philosophy”- Unreasonable privilege clauses

- Complicated tender procedures

- Mixing of negotiation with tendering

Approaches to tendering- Lack of knowledge of tendering law

- Lack of care in setting, understanding and following tender “rules”

Practice points for tender submissions1. Have a basic knowledge of tendering law2. Read and understand the totality of the

procurement documents3. Clarify pre-bid questions using designated

process4. Quality assurance for tender preparation5. Comply with all tender requirements

Case Law Update Vanessa S. WerdenBuildex 2016 – February 25, 2016

Tercon Construction Ltd. v. British Columbia (Transportation and Highways) 2010 SCC 4• The Court held that the particular exclusion

clause contained in the request for proposals (“RFP”) did not permit the Ministry to accept a non-compliant bid.

• The Court also affirmed the continued application of the obligations imposed on the tendering and procurement process by the courts (see Ron Engineering).

Tercon Construction• Following Ron Engineering, three key principles in

the law of tendering emerged:

    (a)  Only a compliant tender can be accepted by an owner; 

    (b)  The lowest compliant tender should be accepted; and 

    (c)  The owner owes bidding contractors a duty of fairness in analyzing the tender bids.

Tercon Construction

• The application of the Ron Engineering principles was modified by the inclusion of exclusion clauses or “privilege” clauses by owners in tendering documents.

• However, an exclusion clause does not give an owner the ability to accept any bid; a decision to accept a bid other than the lowest bid must be done in good faith and based on objective reasons

Tercon Construction

• The Supreme Court of Canada's decision in Tercon SCC leaves open the possibility for a properly crafted exclusion clause to permit an owner to breach a fundamental term of Contract "A", such as the requirement to only accept a compliant bid.

• However, the Court stressed that such a result would require a clear and unequivocal exclusion clause.

Bhasin v. Hrynew, 2014 SCC 71• This decision of the Supreme Court of Canada

represents a very significant development in the law of contract in this country, which applies equally to tendering and other construction-related types of contract.

• The Court confirmed as a new principle of Canadian law that all contracting parties have a duty to perform their contractual obligations honestly, based on the existence of an implied term of good faith.

Bhasin v. Hrynew

• The decision reflects the evolution of the common law to favor “open” business behavior.

• The requirement for honesty in existing contractual relations is not totally new, but was previously recognized in the context of pre-contractual misrepresentation.

Bhasin v. Hrynew

• The Court relied in part on the fact that Canadian common law has previously identified the existence of a duty of good faith in certain specific contractual contexts, including tendering:

[56]        This Court has…recognized that a duty of good faith, in the sense of fair dealing, will generally be implied in fact in the tendering context. When a company tenders a contract, it comes under a duty of fairness in considering the bids submitted under the tendering process, as a result of the expense incurred by parties submitting these bids…

How has Bhasin been applied in the context of tendering?• Recently cited in a tendering case in the Court of

Queen’s Bench of Alberta in Elan Construction Limited v. South Fish Creek Recreational Association, 2015 ABQB 330.

• Key take-away: The “duty of good faith” requires more than honesty. It requires, particularly in the tendering context, “honest, candid, forthright or reasonable contractual performance”.

So what does it all mean?

• In the tendering context, Bhasin confirms the elevated standard of good faith and a duty to act honestly in the performance of contractual obligations.

• The principle of good faith will have different

implications in the context of a long-term contract of mutual cooperation than it will in a more singularly transactional exchange, such as a tender.

T15: A CONSTRUCTION LAW UPDATE: EMERGING TRENDS AND COMMON PITFALLS

THURSDAY, FEBRUARY 25, 201610:30AM-12:30PM

Speakers: Seema Lal, Principal, Shapiro Hankinson & Knutson Law Corporation

Marc MacEwing, Associate Counsel, Shapiro Hankinson & Knutson Law Corporation

Vanessa S. Werden, Associate, Shapiro Hankinson & Knutson Law Corporation

SPONSORED BY