A Local Government’s Discretion to Cancel a Tender

What should a local government do when errors in a tendering process are made, or new information comes to light that should have been included in the tender documents?  A recent Ontario case, Glenview Iron & Metal Ltd. v. Smiths Falls (Town), 2012 ONSC 5378, discussed the circumstances in which a local government may cancel a tender and then issue a new one for substantially the same project.

In Glenview Iron, the Plaintiff submitted a bid to provide the Town of Smiths Falls with solid waste disposal services. The Plaintiff’s bid included some obviously incorrect numbers, as a result of the Plaintiff’s misinterpretation of the schedule of unit prices.  A Town employee wrongly telephoned the Plaintiff after tender closing to clarify the Plaintiff’s intentions.  As noted in the reasons for judgment, the case law is clear that errors in a bid cannot be corrected after tender closing.

The Town then passed a resolution to award the contract to another bidder that had offered a “green energy” option during negotiations with the Town, following the close of tenders.  The Plaintiff protested this award, and demanded that it be awarded the contract on the basis that it was the lowest bidder.

In response to the Plaintiff’s protests, the Town re-examined all the bids, and recognized that its negotiation of the green energy option with the successful bidder was not permitted under the terms of the tender.  The Town also realized that its employee had improperly contacted the Plaintiff to clarify numbers following the close of tenders.  As well, the Town had determined that its solid waste disposal practices needed to change to reflect provincial government policy with respect to making waste disposal more environmentally friendly, and that failure to do so could have funding implications.

As a result, the Town rescinded the resolution that awarded the contract, and cancelled the tender. Eventually the work was re-tendered. The new tender was similar to the cancelled tender, but contained new clauses that contemplated waste diversion and other initiatives that were in line with Provincial policies. The Plaintiff bid unsuccessfully, and then commenced a lawsuit alleging a breach of Contract A in respect of the initial tender.

The Plaintiff claimed that the Town acted in bad faith in its decision to re-tender.  The court did not agree.

The court noted that the original tender included the following privilege clause, which allowed the Town to refuse all bids:

“The lowest or any proposal will not necessarily be accepted.  The Corporation of the Town of Smiths Falls reserves the right to not accept any of the submitted proposals pending internal review of proposals submitted.”

The court found that the privilege clause allowed the Town to cancel the tender if the decision was made in good faith, or for “legitimate municipal purposes, and in a manner ensuring equal treatment to all parties who had submitted compliant bids.”

The court noted that, after awarding the contract, the Town found itself in an unfortunate position as a result of its missteps.  However, the court stated: “Missteps do not equate with bad faith”. The court found that cancellation of the tender was an “obviously prudent course” in light of the complex circumstances and the threat of litigation. Additionally, the Town’s decision to revise the tender documents to encourage bids that would reduce waste through recycling and other waste diversion methods was a policy decision that was not reviewable by the courts.