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January 23, 2013

Court upholds cancellation over single over-budget bid

Bid Protest Bulletin | Paul Emanuelli

In its March 2008 decision in Aloia Bros. Concrete Contractors Ltd. v. Richmond Hill (Town), the Ontario Superior Court of Justice upheld a municipality’s right to cancel a tendering process after receiving a single over-budget bid.

The case involved a tender call for the construction of new roads. The plaintiff was the sole bidder who submitted a $1.6 million bid which was subsequently rejected by the municipal council. The bidder sued for its lost profits, arguing that the municipality had relied on undisclosed budgetary considerations to cancel its tendering process. The Court rejected the plaintiff’s claims, finding that the municipality was not liable for cancelling its process due to undisclosed budgetary constraints and was not required to negotiate with the sole bidder to seek price improvements:

It is the plaintiff’s position that the duty to act fairly was breached by the defendant when it failed to disclose the amount of money it had budgeted for this contract. I find that there was no duty owed to bidders to reveal the amount budgeted by Town Council for the project.

Paul Emanuelli

Bid Protest Bulletin

Paul Emanuelli

Even if there was such a duty owed, in this case, after having done its estimates of costs to do the contract, the plaintiff’s costs exceeded the defendant’s budget amount. In such case, the plaintiff would not have tendered.

The plaintiff’s position is that there was a duty to negotiate on the part of Town Council. There is no legal basis for this position.

The defendant’s procurement by-law No. 221-04, provides that all procurement matters in excess of $500,000.00 fall within the jurisdiction of town council.

Part 5 of the by-law provides that the Manager of Supplies and Services may enter into negotiations in certain circumstances, as set out therein.

Part 5 must be read in conjunction with Part 4, i.e. the Manager of Supplies and Services may negotiate in respect of those contracts in which he is authorized under that part of the by-law. The by-law does not provide that Town Council has a duty to negotiate in respect of those matters solely within its jurisdiction.

In any event, in this case, it is highly unlikely that negotiations between the plaintiff and defendant would have resulted in the parties reaching an agreement.

The plaintiff’s bid exceeded the budget for this project by $321,190.00 or 21.6 per cent.

It is the plaintiff’s evidence that if he had received the contract based upon his estimate of costs and his bid, he would have realized a profit of approximately $166,000.00.

With a difference of $321,190.00 between the budget and the bid, it is highly unlikely that the defendant would have agreed to pay more than its budget and, as well, highly unlikely the plaintiff would reduce his price and put itself into a loss position.

As well, it is clear on the evidence that the plaintiff at no time asked to negotiate the price.

The plaintiff appeared before the Committee of the Whole and Council on separate occasions.

On those occasions, the plaintiff was of the view that since it was lowest bid, it was entitled to the award of the contract.

In finding that the municipality was within its rights to cancel its tendering process due to budgetary constraints, the Court also held that in such circumstances the low bidder would not be entitled to its lost profits and, at best, would only be entitled to its tendering costs.

As this case illustrates, the determination of whether a purchaser acted properly in rejecting a low bid remains a highly case-specific assessment, even in over-budget bid situations.

This article is extracted from his Government Procurement textbook published by LexisNexis Butterworths. Reach Paul at paul.emanuelli@procurementoffice.ca.

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