US case goes one step further than Stanco – holds engineering firm negligent for recommending acceptance of dramatically low bid

By Christina Kim

As described below, in the Stanco case a professional consulting firm was held liable to an owner where the owner relied on its recommendation to award to Bidder A and was then successfully sued by Bidder B. Now we have a US case where an engineering firm was liable for negligence in recommending acceptance of a low bidder that subsequently defaulted under the contract.

The BC case – Stanco

In Stanco Projects Ltd. v. British Columbia (Ministry of Water, Land & Air Protection) an unsuccessful bidder sued the BC Ministry of the Environment, Lands and Parks for breach of fairness in a tendering process for the construction of water reservoirs. One of the issues was the extent to which Aplin & Martin, the professional consulting firm that was hired by the Ministry to oversee the bidding process, was liable to indemnify the Ministry for costs arising out of the unsuccessful bidder's lawsuit. The trial judge found that Aplin & Martin had failed to provide advice to the Ministry to the standard of care, skill and diligence reasonably expected, but held that the Ministry could not rely entirely on the engineering firm's advice given its own expertise in procurement matters. This was reversed at the BC Court of Appeal, which held that Aplin & Martin contributed materially to the breach of the duty of fairness by the Ministry, and that the Ministry's own tendering expertise should not shield Aplin & Martin from its share of the responsibility. So, based on this case, if you are advising on a bidding process and you recommend Bidder A, you could be liable to the owner if the owner relies on your recommendation and then is successfully sued by disgruntled Bidder B.

The US case – Sunland Construction

Recently the US Court of Appeals for District of South Carolina held, in Sunland Construction Company v. Wilbur Smith, Inc., that an engineering firm was liable for negligence when it recommended that the City of Myrtle Beach award a drilling contract to a contractor that bid the job at a dramatically lower cost than the other bidders. After the contractor, Sunland, failed to complete the project, the City terminated and re-tendered the contract. In the aftermath, the City sued its design engineer, Wilbur Smith, for negligence in recommending Sunland for the project. The trial judge found Wilbur Smith liable for the City's associated costs which totalled approximately $460,000. The court's decision was based on (1) Wilbur Smith's failure to investigate the vast bid disparities; and (2) Wilbur Smith's undertaking to evaluate the bids even though it lacked the expertise and competence to do so. The only member of the Wilbur Smith team that was qualified to evaluate the bids was a subcontractor that Wilbur Smith had terminated prior to the bid submission date (without consulting the City) in order to save costs. The Court of Appeals upheld the trial decision and found that it was "clear that Wilbur Smith's conduct was a 'substantial factor in the harm to [the City]'", even if Wilbur Smith did not foresee the extent or manner of the harm. The appeals court considered the following:

• Wilbur Smith was retained specifically for its engineering expertise and it was reasonably foreseeable that the City would enter into a contract based on its recommendation.
• Because Sunland's bid was dramatically lower and because Wilbur Smith did not investigate the bid, it was foreseeable that Sunland could or would not perform the contract at the promised fee.
• Even if Sunland's actions only contributed to the City's injuries, Wilbur Smith was liable for its initial negligence "which set into motion all of the events that ultimately, and foreseeably, [led] to the City's harm".

So, according to this case, if you are advising on a bidding process and you recommend low Bidder A, you could be liable to the owner if Bidder A drops the ball, and this was predictable because of the disparity in bids.

Could this be applied in Canada?

I am not aware of a similar result in Canada but the reasoning is not unique to US legal principles. The same argument could be made and possibly also succeed in Canada.