Tender Errors and Contract A, Contract B
Evan Stregger, PQS, C.Arb.
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Since writing of the M.J.B. Enterprises Ltd. (MJB) v. Defence Construction (1951) Ltd. last year it has appeared that it is also necessary to review Ron Engineering & Construction (Eastern) Ltd. v. Ontario and Water Resources Commission, [1981] 1 S.C.R. 111 (S.C.C.)] (Ron Engineering) which was where the Supreme Court of Canada created the paradigm known as "Contract A" and "Contract B". Contract A is the tender process including the rules of the game, and Contract B is the prize - the job.

In Ron Engineering & Construction (Eastern) Ltd. v. Ontario and Water Resources Commission, Ron the low bidder made an invisible error in its tender - it omitted work in preparing its price. There was nothing in the tender to alert the owner to this error. The contractor discovered its mistake after all bids were open. The owner refused the contractor's request to withdraw. Then, Ron refused to sign the contract and the work was awarded to another contractor. Ron then sued for return of its $100,000 deposit that the owner had refused to return. In its decision, the Supreme Court said that there was a preliminary, initial and "unilateral contract" which the court called "Contract A" and the main contract, which the court called "Contract B."

Contract A (which creates no obligation on any party until a bid is made) provides that the person issuing the tender can select one of the tenderers and enter Contract B with the tenderer so selected. Upon the person doing so, the tenderers, other than the one so selected, would be discharged from any obligation under Contract A. The tenderer selected, however, would then be required to enter into contract B with the person issuing the tender (the process has been compared to a leaseholder exercising an option to purchase). Contract B, however, does not come into force until executed by both parties. Here, under the terms of Contract A, the deposit was not refundable. The court said that the person that issues a call for tender creates an "offer to contract" which, once a bid is submitted both in conformity with, and in response to, the invitation to tender, is binding and is irrevocable if the tender conditions say that the bids are irrevocable.

Ruling for the owner,

In Ron, Mr. Justice Estey made the following statement in his reasons: "There is no disagreement between the parties here about the form and procedure in which the tender was submitted by the respondent and that it complied with the terms and conditions of the call for tenders. Consequently, Contract A came into being. The principal term of Contract A is the irrevocability of the bid, and the corollary term is the obligation of both parties to enter upon the contract (Contract B) upon acceptance of the tender. Other terms include the qualified obligations of the owner to accept the lowest tender, and the degree of this obligation is controlled by the terms and conditions established in the call for tenderers."

In a recent case, Canvar Construction (1991) Inc. v. Ottawa City Non-Profit Housing Corp, Canvar submitted a tender which included a Bid Bond in the amount $149,500 that was of 5% of the intended tender price of $2.989,000. However the stated tender price, had been entered at $2,289,000. Canvar was immediately aware of the error and advised the City requesting that their tender price be adjusted to reflect the intended tender price. The City refused and awarded the contract, which Canvar in turn refused. The city then awarded the contract to the next bidder at an increased cost of $841,000 and commenced an action against Canvar. At trial the judge, based on the Ron Engineering ruling awarded the City damages of $841,000. On appeal it was found that the error in Canvar's tender was evident and one that did not require an explanation outside the tender documents, the error could have been determined from a perusal of the documents and the quantum of the tender and bid bond and that the error would have been obvious to a reasonable person. The Ontario Court of Appeal held that the error committed by Canvar was an "error on the face of the tender" and therefore outside the scope of Ron Engineering and that Canvar was within its legal right to refuse to execute the contract.

In the next issue I discuss with several developments that have arisen out of the M.J.B. Enterprises Ltd. (MJB) v. Defence Construction (1951) Ltd. decision.

Evan Stregger, PQS, C.Arb. practices in mediation, arbitration , legal support and as an expert witness in British Columbia and elsewhere. The above is provided for information only and it is not intended to replace the need for qualified legal advice. Opinions expressed above are not necessarily those of the Canadian Institute of Quantity Surveyors.

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