Colautti Brothers Marble Tile and Carpet (1985) Inc. v.
Colautti Brothers Marble Tile and Carpet (1985) Inc.,
The Corporation of the City of Windsor, defendant
 O.J. No. 4527
21 O.T.C. 68
36 M.P.L.R. (2d) 258
67 A.C.W.S. (3d) 1105
Ontario Court of Justice (General Division)
December 16, 1996.
Building contracts -- Tender calls -- Duty of care -- Opening of tenders, procedure -- Breach of tender -- Action for breach.
Action for a declaration that the defendant was obligated to award a contract pursuant to the plaintiff's tender, and for damages for breach of contract. The plaintiff was a flooring contractor and had submitted a bid for a flooring contract to the City. The plaintiff's bid was the only one submitted, but it was much higher than the City's budget allowed. Negotiations did not result in an acceptable bid price. The City divided the work into three contracts and invited tenders, but the plaintiff did not submit a bid, as it had another project commitment at that time. The City received bids from other contractors for the work which came within its budget. The City relied on the privilege clause in which it reserved the right to accept or reject any tenders. The plaintiff argued that the City was obligated to accept its bid as the lowest one received, even though it was the only one received.
HELD: Judgment for the plaintiff. The City was entitled to rely on the privilege clause and was not obligated to accept the lone bid received. However, the City breached its duty of fairness by failing to advise the plaintiff that only one bid was received, by failing to negotiate an agreement with the plaintiff the rules under which its bid might be opened and by failing to offer to return the plaintiff's bid unopened. The plaintiff was awarded damages for the reasonable cost of preparing and submitting its bid and subsequent price quotes requested by the City.
Raymond G. Colautti and David W. Kunsch for the plaintiff.
Patrick T. Brode for the defendant.
1 Valin J.:-- The plaintiff has carried on the business of a flooring contractor in the Windsor area since 1919. In 1990, the defendant ("the City") undertook certain renovations and additions to Cleary Auditorium, a convention centre which it owned and operated. In response to a call by the City to submit tenders, the plaintiff submitted a bid for the flooring package. It was the only bid submitted. The City opened the bid. The plaintiff's bid was significantly over the municipality's budget. The City entered negotiations with the plaintiff to attempt to lower the bid price. Those negotiations did not result in an acceptable price. The City then proceeded to divide the flooring work into three packages and invited tenders on those packages. The plaintiff did not bid on any of those packages. The plaintiff commenced this action in which it seeks (i) a declaration that the City was obligated to award the flooring contract to it and (ii) damages for breach of that contract.
2 At the opening of trial, the parties filed an agreed statement of facts as Exhibit #1. The parties called a limited number of witnesses to give viva voce evidence. From those sources and the other Exhibits filed at trial, I make the following findings of fact:
3 1. In the usual course of business, the City would normally have hired a general contractor. In this case, however, because it was using a fast tracking process, the City acted as its own general contractor.
4 2. The City hired McKay-Cocker Construction Limited ("the project manager") to facilitate the submission of tenders, evaluate them, and manage the progress of the work.
5 3. The City pre-qualified various trade contractors prior to tendering the various packages associated with the work. Five contractors were originally pre-qualified to tender on the flooring package. However, as a result of Addenda #2 to the contract, three contractors who had previously been pre-qualified, were deleted, and one new contractor, who had been pre-qualified, was added.
6 4. The City invited the plaintiff and the two other pre-qualified contractors to submit a bid on the flooring package. The amended and final closing date was 11:45 a.m. on September 6, 1990.
7 5. The flooring tender package involved the supply and installation of all tile and terrazzo, carpeting and resilient flooring in the Cleary Auditorium.
8 6. The relevant terms contained in the Instructions to Bidders (Exhibit # 2 - tab 6) are as follows:
(i) Tenders are to be submitted on a "stipulated price bid form" prepared by the Canadian Construction Documents Committee (CCDC), a blank form of which is included in the tender package.
(ii) Tenders are to be sealed and received by the Director of Purchasing for the City by 11:30 a.m. on September 6, 1990.
(iii) A bid bond or certified cheque payable to the City for 10% of the tender amount has to be submitted with the tender.
(iv) The City reserves the right "to accept or reject any and all tenders".
(v) It is to be understood by all bidders that their tender shall be valid and subject to acceptance by the City and that no adjustments shall be made to the tendered amount for a period up to and including 30 days from the date of closing.
(vi) The trade contractor shall provide public liability insurance in the minimum amount of $5,000,000.00.
(vii) The tender is to be for a stipulated sum for the total performance of the specified work and includes the supply and installation of all equipment, material, labour and other expenses. In addition to submitting its bid or stipulated price for doing the work, each tenderer must include the applicable unit prices indicated in Appendix C in the Tender Form. Those unit prices will form the basis for the credits and extras and shall include overhead and profit.
(viii) The tender price is to include a cash allowance of $50,000.00 as a contingency for changes during construction.
9 7. The plaintiff submitted its tender before the stated closing time on September 6, 1990. Its bid was in the correct form, was submitted on time and conformed with all requirements of the City including the filing of a bid bond, which was valid for 60 days, for 10% of the value of the tender price.
10 8. Two employees of the plaintiff attended at the opening of tenders on September 6, 1990. The plaintiff's bid was the only bid received by the City for the flooring package. The plaintiff's employees were not aware of that fact. They did not object to the bid being opened. The Director of Purchasing for the City did not recall any discussion about whether he should proceed to open a single tender. The plaintiff's tender was opened and its price was disclosed in public.
11 9. The City had a budget for the flooring package in the amount of $700,000.00. The plaintiff's bid was for the sum of $977,322.00, an amount that was substantially in excess of that budget. The budget amount had not previously been disclosed to the plaintiff. The bid was open for acceptance for a period of 30 days.
12 10. In an attempt to bring the plaintiff's bid within the budgeted amount, the City decided to approach the plaintiff with changes that its architect felt would be acceptable to the project.
13 11. By letter dated September 10, 1990, the project manager invited the plaintiff to provide a quotation on specified items of work where it was felt some cost savings could be achieved. By letter dated September 14, 1990, the plaintiff indicated that the changes suggested would result in a savings of $99,684.00.
14 12. On September 17, 1990, the project manager wrote to the plaintiff regarding additional cost savings in two specified items of work. The plaintiff's written response on September 19, 1990 indicated that there would be a further cost savings of $43,388.00. The plaintiff's bid was thereby lowered to $834,250.00.
15 13. The City was not satisfied with the reduced price resulting from the proposed changes. This was not communicated to the plaintiff.
16 14. At no time did the City or its agents indicate, either orally or in writing, that the plaintiff's bid was either accepted or rejected. The City did not enter into a formal contract with the plaintiff.
17 15. The City decided to re-tender the flooring package by breaking it up into three packages instead of one. No additional pre-qualification of contractors took place with respect to the re-tender. However, the previously pre-qualified contractors and certain designated additional contractors, who had not previously been pre-qualified, were invited to submit tenders.
18 16. The plaintiff was invited to re-tender on the three flooring packages. The plaintiff did not re-tender on the project because of another project commitment it had at the time of the re-tender.
19 17. The result of the re-tender was that, on April 17, 1991, the City received low bids for the work originally bid on by the plaintiff in the total amount of $707,244.00.
20 The Issues in this case can be condensed into the following questions:
(1) In the circumstances of the tender submitted by the plaintiff on September 6, 1990, was the City entitled to rely on the privilege clause in which it reserved the right to accept or reject any and all tenders?
(2) Again, in the circumstances of the tender submitted by the plaintiff, and assuming that the City owed a general duty to treat all bidders fairly, was the City obligated to accept the lowest bid it received, notwithstanding that it was the only bid received?
(3) If the answer to question (2) is "No", was the City nevertheless in breach of its implied duty of fairness and, if so, what is the measure of the plaintiff's damages?
Positions of the Parties
21 Counsel for the plaintiff submitted that the issues in this case must be considered in light of the decision of the Supreme Court of Canada in R. v. Ron Engineering Construction (Eastern) Ltd.,  1 S.C.R. 111. In that case, shortly after tenders were opened, the contractor discovered that an error had occurred in the calculations used to complete its tender. The contractor refused to execute the contract documents. Estey J. held that contract A came into existence when the contractor submitted its bid to the owner. He referred to it as contract A to distinguish it from the construction contract itself, which would arise on the acceptance of a tender, and which he referred to as contract B. By failing to enter into the construction contract, the contractor breached contract A. In the circumstances, the owner was entitled to retain the deposit.
22 In Ron Engineering, Estey J. held that contract A comes into being forthwith upon the submission of the tender. At pp. 122-23, he discussed the circumstances under which contract A can be formed:
The tender submitted by the respondent brought contract A into life. This is sometimes described as a unilateral contract, that is to say a contract which results from an act made in response to an offer, as for example in the simplest terms, "I will pay you a dollar if you will cut my lawn". No obligation to cut the lawn exists in law and the obligation to pay the dollar comes into being upon the performance of the invited act. Here the call for tenders created no obligation in the respondent or in anyone else in or out of the construction world. When a member of the construction industry responds to the call for tenders, as the respondent has done here, that response takes the form of the submission of a tender, or a bid as it is sometimes called. The significance of the bid in law is that it at once becomes irrevocable if filed in conformity with the terms and conditions under which the call for tenders was made and if such terms so provide. 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 in both parties to enter into a contract (contract B) upon the 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 tenders.
23 A line of cases, purporting to follow the decision of the Supreme Court of Canada in Ron Engineering, has developed which suggests that, once contract A comes into being:
(a) the law imposes rights and obligations on the parties that are consistent with the protection and promotion of the integrity of the tender system where, under the law of contracts, it is possible to do so;
(b) the owner owes a general duty to treat all bidders fairly;
(c) the owner has the right to include stipulations and restrictions and to reserve privileges to itself in the tender documents;
(d) general custom in tendering, and particular local customs, can result in implied contractual rights.
Ben Bruinsma & Sons Ltd. v. Chatham (1984), 11 C.L.R. 37 (Ont. H.C.J.); Best Cleaners and Contractors Ltd. v. The Queen  2 C.F. 293 (F.C.C.A.); Chinook Aggregates Ltd. v. Abbotsford (1989), 35 C.L.R. 241 (B.C.C.A.); Murphy v. Alberton  P.E.I.J. No. 141 (P.E.I.T.D.); Vachon Construction Ltd. v. Cariboo  B.C.J. No. 1409 (B.C.C.A.).
24 Dr. Norbert Becker testified for the plaintiff. He holds a Ph.D. in Civil Engineering and has extensive experience in the construction industry in the City of Windsor and throughout south western Ontario. I had no hesitation in qualifying him as an expert to give opinion evidence on the public tendering process. He testified that, based on his experience, the City has always adhered to a policy of awarding contracts to the lowest qualified bidder. He expressed the opinion that, if the City did not intend to award the contract to a sole bidder, it should have returned the plaintiff's bid unopened and then it should have re-tendered the work. He was further of the opinion that, by opening the plaintiff's sole bid, the plaintiff was placed at a significant competitive disadvantage because its unit prices for certain items of work were disclosed to the public.
25 Based on the authorities quoted and the evidence of Dr. Becker, counsel for the plaintiff argued that:
(a) a contract A came into force when the plaintiff submitted its bid (which was open for acceptance for 30 days) within time, on the proper form and together with a bid bond for 10% of the tender price;
(b) as a consequence, the City had a duty to treat the plaintiff fairly;
(c) the policy of the City was to award contracts to the lowest qualified bidder;
(d) the plaintiff had been pre-qualified by the City;
(e) in the circumstances, the general custom of the City and its policy to award contracts to the lowest qualified bidder should over-ride the privilege clause that otherwise entitled the City to accept or reject any and all tenders; and
(f) by breaching its duty of fairness and by ignoring its policy of awarding tenders to the lowest qualified bidder, the City is liable in damages to the plaintiff.
26 Counsel for the defendant submitted that the key to resolving the issues in this case lies in the wording of the tender documents filed at tab 6 of Exhibit #2. He argued that the formation of a contract between the plaintiff and the City must be premised on the acceptance of the plaintiff's tender. In the Instructions to Bidders, article 1.01 provides that sealed tenders will be reviewed by the Director of purchasing on the specified date. That article goes on to provide:
A performance bond in the amount of fifty percent (50%) of the tender and a fifty percent (50%) material and labour payment bond shall be furnished by the contractor awarded this tender, upon signing of contract...
The right is reserved to accept or reject any and all tenders.
Article 1.07 provides:
It shall be understood by all bidders that the Tender shall be valid and subject to acceptance by the City...
Article 1.08 goes on to provide:
The successful tender will be required to execute the Stipulated Price Contract of the Canadian Standard Construction Subcontract CCA L-1.
27 Counsel for the City argued that the plaintiff was a contractor with extensive experience in bidding on jobs by way of tender. He submitted that the Instructions to Bidders made it patently clear that the City reserved the right to reject any or all tenders, that it was not under any obligation to accept a sole bid and that the plaintiff could only expect to receive a contract if the City accepted its tender. He argued that, since it is clear the City did not accept the plaintiff's tender, the action should be dismissed.
28 Going beyond that argument, counsel for the City submitted that the conduct of the parties after the plaintiff's bid was opened is significant. The plaintiff's bid was 40% higher than the budget the City had established for the work. In the days following the opening of the plaintiff's bid, the project manager twice invited the plaintiff to submit prices in areas of the proposed work where it was felt that cost savings might be achieved. The plaintiff responded with price quotations on both occasions. When doing so, it did not object in any way to the lack of fairness with which it was being treated. After the plaintiff delivered its second response to the City's efforts to reduce costs on September 19, 1990, the effective reduced price was still 20% over budget. Counsel for the City argued that the City was quite justified in the circumstances by deciding not to accept the plaintiff's tender.
29 The underlying purpose of the tendering system is to provide competition with the ultimate goal of reducing costs. Analysis of the issues in this case must begin with an understanding of the specific legal nature of a tender. A tender is simply an offer to carry out the work specified on and subject to the terms and conditions stated at the price quoted. As such, it is subject to all the rules which apply to offers in general. Once a tender has been accepted, there is a binding contract: Const. Rentals Ltd. v. Newfoundland (1984), 7 C.L.R. 120 (Nfld. T.D.); Megatech Contracting Ltd. v. Ottawa-Carleton (Regional Municipality) (1989), 68 O.R. (2d) 503 (H.C.J.). In Ron Engineering, Estey J. stated at p. 121:
I share the view expressed by the Court of Appeal that integrity of the bidding system must be protected where under the law of contracts it is possible so to do.
With that view in mind, Estey J. went on to set out the circumstances, referred to earlier, in which contract A and contract B come into being.
30 In Goldsmith on Canadian Building Contracts, 4th ed. (1988), the author makes the following observations regarding the application of the principles set out in Ron Engineering at pp. 1-22, 1-23:
... Some difficulties appear to have resulted from the introduction into the bidding process of the concept of two separate contracts. viz. contract A and contract B, where contract B is the construction contract, and contract A is a separate contract resulting from the invitation to bid - which is the offer - and the submission of the tender in response thereto - which is the acceptance. If the invitation to bid contains specific terms and conditions, e.g. not to revoke the tender for a specified period, such conditions will form part of contract A, and can be enforced in the same way as any other contractual obligations. Insofar as contract B is concerned, however, the tender is still only an offer which may or may not be accepted by the owner. Contract A is not an agreement to enter into contract B, and unless and until the tender is accepted by the owner, no contract B will ever come into existence. Whether, in any given situation, a contract A ever comes into existence necessarily depends on the particular facts of each individual case. If it does, it is difficult to see on what basis an express term of the contract, e.g. a provision in the invitation to bid that the owner is not obliged to accept the lowest or any tender, can be displaced by an implied term or by a custom of the trade to the contrary.
31 In my view, the law in Ontario is clear that any custom of the trade is subject to the explicit words of the tender documents. In Elgin Construction Co. v. Russell (Twp.) (1987), 24 C.L.R. 253 (Ont. H.C.), White J. held that no custom of the trade could qualify the explicit words of the advertisement and tender documents which formed the legal context in which the plaintiff's tender was submitted. In Acme Building & Construction Ltd. v. Newcastle (Town) (1992), 2 C.L.R. (2d) 308, it was argued on behalf of the contractor that, notwithstanding qualifying language in the tender documents, it was the accepted custom and usage in the industry that the lowest qualifying bid or tender was to be accepted. The Ontario Court of Appeal held that, even if there was acceptable evidence of custom and usage, it could not prevail over the express language of the tender documents.
32 I am of the view that the decision of the Ontario Court of Appeal in Acme Building is the law in Ontario. I am bound to follow that decision. I therefore find that the City was entitled to rely on the privilege clause in which it reserved the right to reject any and all tenders and that, even if Dr. Becker's evidence does constitute custom and usage of the trade in the particular facts of this case, such custom cannot prevail over the express language of the privilege clause which, in my view, is clear and unequivocal.
33 In this case, the plaintiff's tender was valid for a period of 30 days from the date of closing. That provision in effect made the plaintiff's bid irrevocable. The tender submitted by the plaintiff was on time, in proper form and accompanied by a bid bond for the stipulated amount. Following the analysis in Ron Engineering, contract A came into being. Dr. Becker testified that the City has always adhered to a policy of awarding contracts to the lowest qualified bidder. During cross-examination, he admitted that a single bid on a contract of the size bid on by the plaintiff was very rare. I do not believe that his testimony went so far as to suggest that there was a policy of the City or a custom in the construction industry in the area that a single bid must be accepted by the owner.
34 I find that, once the plaintiff's tender was opened, the City acted properly. The plaintiff's bid was substantially in excess of the City's budget for the work. The project manager attempted to effect cost savings in certain areas of the work and invited the plaintiff to quote on those areas. During his cross-examination, Dr. Becker agreed that the persons in charge of the project for the City had a responsibility to try to bring the plaintiff's bid closer to budget. At the conclusion of those negotiations, the plaintiff's price was still 20% above the City's budget. While the City owes a duty to bidders to conduct itself in a manner that maintains the integrity of the tender system, it has the additional duty to its rate payers to act in a financially responsible manner. In the circumstances, I believe that the City was entitled to decide that it was not going to accept the plaintiff's tender. The fact that the City did not formally reject the plaintiff's tender is of no consequence. The crucial fact is that the City did not accept the plaintiff's tender.
35 In my view, the fact that the City had a budget for the work on which it invited tenders does not equate to an undisclosed term that is inconsistent with the tendering process. Indeed, the City would have been acting in an irresponsible manner if it had not established a budget for the work before inviting tenders. I also find that, once it became apparent to the City that it could not negotiate a price for the work with the plaintiff that was within or reasonably close to its budget, it was proper for the City to divide the work into three packages and to re-tender the work on that basis. I therefore conclude that, in the circumstances of this case, the City was not obligated by an implied duty of fairness to accept the Plaintiff's bid, even though it was the only bid received.
36 I return again to my finding that, upon the plaintiff's bid being opened by the City, a contract A was formed. The Instructions to Bidders made it abundantly clear that tenders were to be submitted on the form provided which was CCDC-10. The City provided a blank copy of that form to each of the pre-qualified bidders. The plaintiff completed and submitted its bid on that form. CCDC is the abbreviated reference in the construction industry to the Canadian Construction Documents Committee. That Committee is constituted by representatives from a broad spectrum of the construction industry. The Committee has developed a series of construction contract documents that are used on a widespread basis in the Windsor area and across Canada. The work of the Committee has as its central aim the goal of creating a level playing field for members of the construction industry. In 1982, the CCDC published and circulated a Guide to Calling Bids and Awarding Contracts (Exhibit #2 - tab 25). The purpose of the Guide is to outline the various documents available and to indicate recommended procedures for calling bids and awarding contracts. Dr. Becker testified that the Guide was widely used in the construction industry in the Windsor area and that the City was familiar with it. That fact was not denied by the City.
37 The following comments appear in the Guide under the heading "Receiving Bids" at p. 23-8:
If only one Bid is received and the Owner, under these circumstances, is unable or unwilling to award a Contract, the Bid should be returned unopened to the bidder. If the Owner is not so constrained, a meeting with the bidder should be called by the Consultant. Any rules governing the opening of the Bid and subsequent negotiations prior to Contract award should be agreed at such meeting. At this stage, failing agreement, the bidder may choose to withdraw his Bid unopened and he should be allowed to do so.
On the closing date, the Director of Purchasing for the City was aware that the plaintiff's bid was the only bid received. The representatives of the plaintiff who attended on the closing were not made aware of that fact. I recognize that the receipt of only one bid on a job of the magnitude of the subject flooring contract was an unusual experience for the plaintiff and perhaps even for the City. The City, or its representative, drafted the Instructions to Bidders.
38 However, the City knew that, in addition to requesting a stipulated price for doing the work, it required bidders to disclose a number of unit prices associated with doing the work. The City also knew that the purpose of calling tenders is to invite competitive prices. I therefore find that the City should have realized that, by opening the plaintiff's bid without prior agreement, it placed the plaintiff in a potentially serious disadvantage with its competitors in the event a contract was not awarded to the plaintiff. In the circumstances, the City ought to have followed the procedure outlined in the CCDC Guide. The plaintiff ought to have been given the opportunity to negotiate the terms under which its sole bid would be opened. In the event no agreement was achieved, the plaintiff would have been entitled to request that its bid be returned to it unopened. The actions of the City precluded consideration of that option.
39 From the wording of its tender documents, the City knew that, if it received bids that were on time, in the specified form and accompanied by a bid bond in the required amount, a contract A would be formed with the lowest qualified bidder. Having received only one bid, and that bid having been submitted by a pre-qualified bidder, I find that the City should have been aware that a contract A very likely would be formed. As stated earlier, upon the formation of a contract A, there is an implied duty on the part of the City to treat the bidder fairly. In the unique circumstances of this case, where only one bid was received, I find that the duty to treat the bidder fairly existed before the bid was opened. I further find that the City breached that duty of fairness by:
(a) failing to advise the plaintiff that only one bid had been received;
(b) failing to try to negotiate an agreement with the plaintiff the rules under which its bid might be opened; and
(c) failing to offer to return the plaintiff's bid unopened.
40 Accordingly, the plaintiff is entitled to recover damages from the City that arise from that breach. When considering the appropriate measure of damages, it should be noted I have previously found that, following the opening of the plaintiff's bid, the City made a bona fide attempt to negotiate a price with the plaintiff that was within or reasonably close to budget. The plaintiff did not submit a tender on any of the three packages re-tendered by the City. The reason given for not doing so was that it was busy with other work at the time. I am also satisfied that the City did not use the plaintiff's bid to "shop prices".
41 For these reasons, I find that the plaintiff's damages should be restricted to the reasonable cost of preparing and submitting its bid, together with the additional costs related to quoting on the two subsequent requests by the City for prices related to suggested cost savings on the work. I therefore direct that a reference be held by a referee to be agreed to by the parties to assess the plaintiff's damages within the scope I have determined. In the event the parties are unable to agree on a referee, then either party may bring a motion to a judge of this court for an order appointing a referee for that purpose. The plaintiff shall have carriage of the reference. The referee shall rule on the costs of the reference.
42 The plaintiff having succeeded in this action, it should be entitled to its costs on a party and party basis. However, in the event counsel wish to address me further on the matter of costs, they may do so by conference call to be arranged through the trial co-ordinator in North Bay.