procurement and subcontractors
TRANSCRIPT
Pacific Business & Law InstituteApril 29, 2015
CONSIDERATIONS UNIQUE TO SUBCONTRACTORS
Presented by:
Seema Lal David Mckenzie
CONTRACT A - CONTRACT B
The fundamental principle of the law of tendering for construction in Canada is that that method of contract procurement involves two stages of contractual relationships:
a) Contract A, which arises between the tendering authority and each “materially compliant” bidder, the terms of which are generally as set out in the tendering documents; and
b) Contract B, which is the tendered contract entered into between the tendering authority and the successful bidder.
SUBCONTRACT TENDERS
Law of tender (Contract A/Contract B) can apply to subcontractors submitting bids to general contractors
General Contractor must stick with subcontract bid if it is expressly included in GC’s tender (Naylor Group v. Ellis-Don Construction, [2001] 2 SCR 943)
Conversely, Subcontractor is obligated to enter into a Contract B with GC if subcontract bid is included in GC’s tender and GC’s tender is accepted by the Owner (Civil Construction Co. v. Advanced Steel Structures, 2011 BCSC 1341)
SUBCONTRACT TENDERS (cont.)
Acceptance of subcontractor’s bid likely occurs when general contractor carries subcontractor’s bid or price in its own bid
If Subcontractor states a time for acceptance in its bid/quote, then that statement will be taken to mean the time in which the GC has to insert that bid/quote into its own bid to the Owner
• No need for GC to expressly advise subcontractor that has occurred
SUBCONTRACT TENDERS (cont.)
An Owner in a tendering process does not owe a duty of care to subcontractors (Martel Building v. Canada, 2000 SCC 60; Design Services v. Canada, 2008 SCC 22)
SUBCONTRACT TENDERS (cont.)
GC may be obligated to only seek resubmissions from subcontractors it originally carried, even if another subcontractor can offer a lower price (G&S Electric v. Devlan Construction, 2008 CANLII 24538 (OnSC))
GC is obligated to “carry” subcontractors through any bid resubmission process, unless there is an express clause in the bid documents that says otherwise
PRACTICE POINTS FOR GCs
If you expressly name a subcontractor in your bid documents, you are obligated to use that subcontractor if your bid is accepted by the Owner
Same may hold even if you use subcontractor’s bid amount but don’t expressly name subcontractor
You are not entitled to renegotiate a subcontractor’s bid if it has been included in your bid documents and your bid is accepted by the Owner
You have an overriding duty to treat all subcontractors fairly
PRACTICE POINTS FOR SUBCONTRACTORS Ensure your quotes to GCs are accurate as you will be
obligated to adhere to the quote if it is expressly incorporated into GC’s tender documents
You have no ability to make a claim against the Owner if the Owner accepts another bidder’s non-compliant bid or otherwise breaches its obligations to the GC
PROTECTING GCs (AND OWNERS) FROM INCREASED COSTS
■Subcontractor tender process is usually a much less formal process than general contractor tender process
■Potential issues for GCs (and, indirectly, owners) with less formal process:
• Where no formal tender documents are prepared, it may be that
the form of invitation is so lacking in terms and conditions as to
not amount to an offer capable of acceptance – so no Contract A
PROTECTING GCs FROM INCREASED COSTS
■Potential issues with less formal process:
• Bids may be more likely to contain exclusions and potentially be
materially non-compliant
» Creates potential risk of liability of general contractors to compliant
bidders
PROTECTING GCs FROM INCREASED COSTS
■Potential issues for GCs with less formal process:
– Rules of tender process may not be as clear:
• The terms of the owner’s tender may apply to the
subcontractor on the following basis
» through implication;
» through sub’s actions in reviewing the tender documents then
submitting a bid; or
» as a result of the wording of sub’s bid document.
PROTECTING GCs FROM INCREASED COSTS
■Potential issues for GCs with less formal process:
– Raises additional potential problems with negotiation after the fact:
• May be permissible where tender expressly allows GC to
negotiate with low bidder,
• Where tender does not expressly allow for negotiation, what
if negotiations begin and parties cannot then agree?
• Legal position likely to be less clear with less formal process
PROTECTING GCs FROM INCREASED COSTS
■Potential issues for GCs with less formal process:
– Form of Contract B is not always specified by general contractor during tender.
– This can lead to further disagreement when negotiating terms of subcontract later on – can lead to legal limbo
• Where parties cannot agree on form of contract, subcontractor likely
bound to do the work it bid on for the price it bid - Civil Construction
Co. v. Advanced Steel Structures, 2011 BCSC 1341 – but what exactly
does that mean?
PROTECTING GCs FROM INCREASED COSTS
■Potential issues for GCs:
– Incorporation by reference clause contained in specified Contract B, but no access to prime contract given during tendering?
– May lead to claims of negligent misrepresentation if prime contract not provided:
• Online Constructors Ltd. v. Speers Construction Inc., 2012
ABCA 132
PROTECTING GCs FROM INCREASED COSTS
■Potential issues for GCs:
– Post-bid negotiation a reality and a risk:
• GCs not permitted to uses the bids submitted to it as a
negotiating tool, whether expressly or in a more clandestine
way, before the construction contract has been awarded to it,
with a view to obtaining a better price or other contractual
advantage from that particular subcontractor or any of the
others
PROTECTING GCs FROM INCREASED COSTS
■Potential issues for GCs:
– Post-bid negotiation a reality and a risk:
• If negotiations do take place between a general contractor
and subcontractor, the courts will examine them with a view
to determining whether they constitute a termination of the
tender process through the making of a counter-offer by the
general contractor to the subcontractor, or a request for a
modification to the bid submitted by the subcontractor
PROTECTING GCs FROM INCREASED COSTS
■GCs can protect themselves by:
– Using a more formal bid process
– Specifying Contract B form up front
– Refusing to negotiate after bid closing/tender award (except in accordance with express tender terms)
– Use terms which insulate them from liability to bidders for any misconduct during the tender process
PROTECTING OWNERS FROM INCREASED COSTS
■Potential issues for Owners:
– Project disputes may arise where there is a gap in the tendering process
• one item is in GC’s scope of work, but has not been carried
through to any subcontractor’s scope
– Owner can require more formal process (through bid depository, for example) or mandate owner oversight in trade selection
• Potentially higher initial costs, but less likelihood of gaps
ISSUES FOR SUBCONTRACTORS
■Subcontractors must read tender documents carefully to understand rights, obligations and risks
■If pertinent information (such as the prime contract) is available, subcontractors should obtain it, as otherwise they may be stuck with a bargain they did not expect
ISSUES FOR SUBCONTRACTORS
■Where there are onerous clauses in Contract B, subcontractor must decide whether it will:
– refuse to bid,
– increase its price to account for same, or
– amend Contract B wording, which may mean its bid is now non-compliant
ISSUES FOR SUBCONTRACTORS
■Non-compliance may less of a concern depending on formality of tender process:
– Where GC carries non-compliant bid in its price to owner, likely some sort of contract akin to Contract A will be formed
– GC may be required to award Contract B, as amended by terms of bid, to subcontractor
