Vicky Berthiaume, Ariane Asselin
For a construction contractor who is about to bid, the obligation of good faith implies the duty to fully examine the terms and conditions of the call for tenders. Failure to meet these obligations can be fatal.
The client has a duty to inform the contractor of the aspects relevant to the contractor’s bid. This duty to inform is a direct consequence of the contractor’s assumption of the project risks.
Therefore, the contractor has an obligation to obtain information and ask any questions that may arise from the tender documents during the preparation of their bid. If in doubt as to what is expected of them as per the tender documents, the bidder cannot remain idle. They must be proactive and ask questions.
Can a Default Be Justified by a Client’s Poor Behaviour?
Sometimes a lack of care by the contractor may not be a fatal factor for obtaining a remedy. The fact that the contractor failed to fully or completely meet their obligation to carefully analyze the tender documents does not necessarily mean that no remedy can be sought.
Furthermore, the client’s obligation to act in good faith in the tendering and contracting process is an ongoing obligation: just because the bidder makes a mistake doesn’t mean that the client’s obligation to act in good faith ends. Case law illustrates precisely this point.
CLIENT’S DUTY TO INFORM A BIDDER ABOUT THE PRESENCE OF A HAZARDOUS PRODUCT
The Entreprises électriques LM Inc. v. Société de transport de Montréal decision stems from a contract awarded to Entreprises électriques LM Inc. (hereinafter “LM”) after a public call for tenders by the Société de transport de Montréal (hereinafter the “STM”). Through this call for tenders, the STM sought to have subway car armatures and motor casings repaired.
Among the documents provided by the STM was a drawing on which appeared a list of materials. It could be seen in the list that the concrete found in the engines to be repaired was contaminated with asbestos. However, this list of materials had not been provided by the STM along with the tender documents.
This raised the question of whether LM, by not noticing on the drawing the mention of a list of materials and therefore not asking the STM for such list, failed in their duty to do a thorough analysis of the tender documents, which would have informed them about the presence of asbestos. The issue was also whether the STM had breached its duty of good faith by failing to inform LM that the concrete they would be working with was contaminated with asbestos.
The Superior Court of Québec found that, although LM could have been more careful in their analysis of the tender documents, the STM had a duty to inform them of the asbestos they knew was in the concrete. Given that asbestos is a publicly known hazardous material, the STM had a duty to explicitly disclose this fact. LM was therefore entitled to compensation for damages due to the STM’s negligence.
This decision shows that, even if it could be proven that the bidder had not been perfectly thorough in their analysis of the tender documents, the fact that a client refrains from disclosing to the bidder information of which they have knowledge, and which is essential to the allocation of risks, may be wrongful.
The bidder’s expected standard is not one of perfection.
In this case, asbestos was not likely to be found in the armatures. Given the dangerous nature of the product and the fact that the STM was aware that it was there, they had an obligation to communicate it transparently to the bidders.
OBLIGATION TO POINT OUT THE OBVIOUS MISTAKE OF THE BIDDER AND REJECT ITS BID
In Ville de Salaberry-de-Valleyfield v. Construction NRC Inc. the Court of Appeal of Québec was asked to hear an appeal of a decision in which the trial judge had ordered the City of Salaberry-de-Valleyfield (hereinafter the “City”) to compensate Construction NRC Inc. (hereinafter “NRC”) for damages caused by the City’s fault, notwithstanding the fact that NRC had made an inexcusable error.
While the City had issued a public call for tenders for duct burial work as part of the development of a new industrial park, NRC had bid as a subcontractor and mistakenly used the wrong unit of measurement to determine the cost for the work. In the weeks following the filing of the bid, NRC was informed by a competitor that their price was significantly lower than that of other bidders, due to their calculation error, even though the bid documents were clear on the calculation method.
Although the City was aware of NRC’s mistake, they nonetheless required NRC to do the work, rather than rejecting their bid for noncompliance.
Notwithstanding the finding of fact that NRC had made an inexcusable error in submitting their price, the trial judge still found that the City’s breach of their duty of good faith and their deceitful reluctance towards NRC made NRC’s error forgivable and justified obtaining compensation for the loss associated with the low price. The Court of Appeal confirmed this judgment.
This appeal demonstrates that a client who refrains from notifying the bidder of an obvious error and thereby rejecting the bid constitutes deceitful concealment.
According to the Court of Appeal, it was a determining factor that both the client and the professionals knew of the bidder’s mistake and that it would be impossible to carry out the contract for the price submitted. In this situation, the client and the professionals could not be passive. They were supposed to correct NRC and disqualify the bid on the grounds that it was not compliant.
Be Mindful of the Duty of Good Faith’s Scope
The contractor must remember that they have a duty to be thorough when reviewing tender documents. However, the contractor’s duty does not extend to a thorough examination of the tender documents, and, in any event, a bidder’s error should not negate the client’s obligation to act in good faith when opening the bids and awarding the contract.
Should you have any questions about a general contractor’s obligations related to a call for tenders, do not hesitate to contact our construction litigation team, who will be pleased to assist you.
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