July 21, 2008

Construction Law

Supreme Court sides with owners in three construction contract disputes

PETER KENTER

correspondent

Construction contract law is often shaped by significant legal decisions. Three recent cases stand to have an impact, said Glenn W. Ackerley, a partner with legal firm WeirFoulds LLP of Toronto.

The decision in Double N Earthmovers Ltd. v. Edmonton (City) was handed down by the Supreme Court of Canada in January 2007.

In that case, Edmonton issued a tender for construction equipment and operators, but awarded the contract to a company that supplied equipment older than that specified in the tender, despite warnings from Double N, the second-lowest bidder.

The contractor argued that the city had failed to treat bidders fairly and equally.

“The Supreme Court decided that they were not going to impose on an owner an obligation to investigate every suspicion offered by other bidders,” said Ackerley.

“They’ve essentially said that, once you award a contract, the bidding process is over and any obligations you might owe to other bidders are at an end.”

The case may discourage unsuccessful bidders from both monitoring contracts after they’re awarded and from seeking legal redress when they believe contracts have been awarded unfairly, said Ackerley.

Similarly, the decision may also draw a sharper line between Contract A and Contract B in general.

“If a contract to build a library is legitimately awarded and the owner later says they’re going to add some city administration offices to the job, the unsuccessful bidder won’t be able to say that they would have bid differently had they known about the additional work,” he said.

That principle was refined in another Supreme Court decision, Design Services Ltd. v. Canada, handed down in May.

That case concerned a bid on a federal government design-build project in which an unsuccessful bidder settled a case with the government over a contract awarded to a non-compliant bidder.

A sub-contractor to the bidder, however, argued that it was also entitled to a settlement. In its decision, the court ruled that “...recognition of a new duty of care between an owner and subcontractors in the context of a tendering process is not justified.”

“The Court had concern that owners could face claims from literally anyone involved in a contract, from sub-contractors to suppliers,” said Ackerley.

“This limits the obligations to the direct relationship between the owner and the bidders.”

A third case, Tercon Contractors Ltd. v. British Columbia (Transportation and Highways) is a “tender case killer,” said Ackerley.

In that case, a winning bidder who was pre-qualified joined forces with another contractor who was not, between the pre-bid and bid.

The losing bidder took the matter to trial and won, but the ruling was overturned by the B.C. Court of Appeals in December 2007.

“The case was decided in favour of the province because it had inserted a clause in its documentation stating that no proponents would have any claim for compensation as a result of participating in the RFP,” said Ackerley.

“Essentially the decision says that if the construction industry doesn’t like that clause, it’s up to the industry to do something about it. If they don’t like the rules, don’t bid. The decision may have ramifications across Canada if every owner inserts that clause into their documentation.”

But Tercon is seeking leave to the Supreme Court of Canada.

“It will be interesting to see if they agree to hear the case,” said Ackerley. “But, just because they’re willing to hear the appeal doesn’t mean they want to overturn the decision. It just indicates that they’re interested in speaking on this issue.”

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