Acting in good faith is no defence for breach of contract says a recent Court of Appeal for Ontario ruling on a tendering process for a multi-million-dollar recreation centre.
In denying the appeal the decision in Maystar General Contractors Inc. v. Newmarket (Town) reaffirms the integrity of the tendering and bidding process, while highlighting it needs to be a “two-way street,” says Borden Ladner Gervais LLP partner Matthew Alter, who acted on behalf of Maystar.
The town was found to be in breach of contract when it asked for a clarification of bid without having an “express provision” allowing it to do so in the tendering contract.
“There wasn’t any assertion of bid shopping, it is important to note there was no contention of bad faith,” he says. “In fact the Court of Appeal recognized the town was in a difficult situation in that it believed it was acting in good faith, but ultimately found that acting in good faith is not a defence to a breach of contract claim.
“I think the important principle out of this is that it reaffirms the notion that tendering is a two-way street and that owners and bidders alike have reciprocal obligations and there’s an obligation on the part of both parties to ensure that the prescribed terms of the tender call are followed.”
The town asked for four bids from pre-qualified contractors to build the Stickwood Walker Recreation Centre.
On the surface, Maystar had the lowest bid at $35,524,000, however, the town noticed a discrepancy in the bid prepared by Bondfield Construction Co.
Bondfield’s stipulated price was $33,000,528. However, the GST was seven per cent of $33,528,000, creating a total price for the project of $35,874,960. Realizing the error in the GST amount, the town sought clarification from Bondfield.
Its amended bid was eventually accepted as the lowest and the contract was awarded to Bondfield. According to court documents, Newmarket based the rationale for the clarification on the Ontario Court of Appeal’s Bradscot (MCL) Ltd. v. Hamilton-Wentworth Catholic District School Board.
While Bradscot also concerned a GST calculation, in that decision the judge found the total bid price to be “superfluous or subordinate.”
In the Stickwood Walker Recreation Centre project the individual breakdown of stipulated price, GST, and GST plus stipulated price was an “operative part of the bid.”
In her decision, Justice Kathryn N. Feldman wrote she believed the town was acting in good faith and only trying to secure the lowest possible bid “in the best interests of its citizens” but that did not give it the right to breach a contract.
“[The town] no doubt believed it was acting in good faith. However, the Supreme Court has made it clear in the cases it has decided that the integrity of the tender process is essential in order to foster a fair and orderly bidding process where contractors will expend the time, effort, and expense to bid, knowing they will be treated fairly and equally.
“A public owner cannot undermine that process by purporting to accept a bid with an uncertain price, or to encourage contractors to believe that they can communicate with owners after the fact to clarify or explain inconsistencies in their bids.”
For its part, Newmarket believed it made the right decision in awarding the contract to Bondfield. The town council is looking at its options and will be discussing those at an upcoming meeting, says chief administrative officer Bob Shelton.
“The decision was based on clear recommendations from the architectural firm and the project management consultants retained for the project, as well as legal opinion,” he says. “Unfortunately, the courts saw it differently, but did identify the difficult position the town was in and the fact that the Town of Newmarket acted in good faith.”
The decision is noteworthy as it could be seen to provide legal coverage in the future for a tendering party to toss out a bid containing discrepancies.
“Each tender situation turns on its own facts,” says Alter. “But assuming the town in the future is using the same set of tender terms, it should be on safe footing to reject a bid containing an uncertain or ambiguous price.”
The Ontario General Contractors Association could not be reached for comment.