Good faith in exercising reservation clauses in call for tender documents

April 2012

Contacts

In January, the Quebec Court of Appeal1 confirmed that the city of Longueuil was well-founded in cancelling a first call for tenders in order to issue a second one. In so doing, it reiterated the conditions under which this could happen.


The city of Longueuil issued a call for tenders. Upon completion of the solicitation process, the selection committee recommended that the contract be awarded to the lowest compliant bidder. The next day, one of the bidders pointed out deficiencies in the call for tender specifications. The city obtained a legal opinion confirming that the deficiencies justified the cancellation of the first call for tenders. It subsequently cancelled the call for tenders and, acting on a recommendation contained in the legal opinion, issued a second call for tenders. When the second call for tenders resulted in a different lowest compliant bid, the lowest compliant bidder from the first call for tenders brought an action in damages against the city.

The Court of Appeal found that while a contract had been formed between the city and the lowest compliant bidder after the first call for tenders, the following reservation clause, contained in the first call for tenders, granted the city a discretionary power to not award the contract to the lowest compliant bidder:

[Translation]

The City is not bound to accept the lowest bid or any other bids that are submitted to it. Moreover, it reserves the right to reject all bids received and to make, if it deems fit, a new request for tenders, the whole without the City being liable to the bidders.

The Court of Appeal stated, however, that this discretionary power must be exercised in good faith. In other words, even if a call for tenders includes a reservation clause, it can only be cancelled if, beyond minor irregularities, there are sufficient grounds for doing so. Moreover, the principle of fair and equal treatment of bidders must be observed at all times, which means that for the second call for tenders, all bidders must possess the same information so that they are on an equal footing.

In this instance, the Court of Appeal and the Quebec Superior Court held that the city of Longueuil had been thorough and had acted in good faith throughout the process, even to the point of obtaining a legal opinion. In the circumstances, it had been well-founded in cancelling the first call for tenders and issuing a second call for tenders, and there had been no violation of the principle of equal and fair treatment of bidders.

Footnotes

1 9075-5719 Québec inc. c. Longueuil (Ville de), 2012 QCCA 246 and 2010 QCCS 2851.

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