LATEST NEWS Heavy Equipment
August 26, 2013
The issues with latent deficiencies
Procurement Perspectives | Stephen Bauld
There is a problem that is often discovered after the project has been awarded and is under construction.
If the authority is under a duty of fairness that requires it to accept only a compliant bid, one must then decide upon whether the contracting authority remains liable to unsuccessful bidders where some latent non-compliance is not discovered until after the award of the supply contract.
This question was considered by the Alberta Court of Appeal in Double N Earthmovers Ltd. v. City of Edmonton. In that case, a supplier submitted an apparently compliant bid for a municipal contract to move refuse. The tender specification required that the heavy equipment to be used be made in 1980 or later. The plaintiff advised city officials that the third party was probably bidding on pre-1980 equipment, but no investigation was made.
On being advised that its bid was too high, the plaintiff requested permission to bid on older equipment, but was refused. After the city awarded the contract to the third party, it discovered that the equipment of the successful bidder was manufactured in 1977 and 1979. The city attempted to compel it to use newer machines, but later permitted it to use the older machines.
The plaintiff claimed against the city. At trial, it was held that the condition as to the equipment age was essential, that the third party had deceptively misstated the age of the equipment, but that as soon as the service supply contract was awarded, all Contracts A were terminated. The duty of fairness to all bidders under the tender contract ceased upon the award of the service supply contract. The plaintiff and the appeal were dismissed.
The plaintiff, Double N, argued the city owed all bidders a duty to ensure compliance with the tender specifications, including the 1980 requirement.
Although the accepted bid (of “Sureway”) was non-compliant on its face, and it was found that there was no evidence that anyone in the city knew, prior to acceptance of Sureway’s bid, that the serial numbers listed on the bid was that of a 1979 machine, the plaintiff argued that the city had been put on notice by virtue of the information that Double N had provided.
The receipt of such notice imposed a duty of investigation. The city replied that if Sureway’s bid was compliant on its face, it was not obligated to investigate suspicions of potential non-compliance. It argued that to impose a duty on owners to investigate whether a bidder will comply with the terms of its bid would overwhelm and ultimately fracture the tender process by creating unwelcome uncertainties. Russell J.A. stated:
Sureway’s bid indicated that it was tendering compliant equipment. Allegations communicated by Double N were mere suspicions of potential inability to comply. Whether or not Sureway had that present means to comply was not in issue at that stage. City officials were entitled to assume if its bid was accepted, Sureway would be obligated to comply with its terms.
In accepting Sureway’s bid, the city did not knowingly accept a non-compliant bid, or agree to alter the terms of its bid specifications, or treat any bidder inequitably.
While the request for specifics of the units in the tender implies a duty on the city to only accept a tender that meets those specifications, it does not support an implied duty on the part of the city to verify the bidder’s capacity to meet those specifications.
Once Sureway’s bid was later determined to be deceptive, the city had legal recourse against Sureway to compel compliance or pursue a claim in breach of contract. But the city owed no contractual duty to other bidders in relation to contract A, arising from Sureway’s deceptive breach of its contract.
Stephen Bauld, Canada's leading expert on government procurement, is a member of the Daily Commercial News editorial advisory board. He can be reached at email@example.com.
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