Does the Award Have to Go to the Lowest Bidder? City of Nanaimo v. Sound Contracting


Sound Contracting was soundly trounced by the British Columbia Court of Appeal in a recent decision that applies the “nuanced view of cost” referred to in last year’s ruling by the Supreme Court of Canada in MJB Enterprises.

City of Nanaimo had previously experienced problems with Sound Contracting, so they were less than enthusiastic when Sound Contracting was the lowest bidder on the Hammond Bay project. Nanaimo’s staff analysed the tenders and expressed concern that awarding the contract to Sound would not result in the best value for Nanaimo. The City Administrator concluded that awarding the contract to Sound “may in fact not be the lowest overall cost to the City.” In his report to the City he said:

It is staff’s conclusion that to award the tender to the low bidder, Sound Contracting, would result in a cost to the City in excess of the second low bid … Most significantly, if the contract were awarded to Sound it would be imperative based on the City’s past experiences with this particular contractor, that an independent, qualified inspector be hired to supervise the work on a daily basis. This would add to the project costs.

City Council concluded that the second low bid was the most favourable to the City, and the one which would result in the best overall value. Accordingly, the contract was awarded to the second low bidder.

The British Columbia Court of appeal referred to text quoted in MJB Enterprises:

The purpose of the [tender] system is to provide competition, and thereby to reduce costs, although it by no means follows that the lowest tender will necessarily result in the cheapest job. Many a “low” bidder has found that his prices have been too low and has ended up in financial difficulties, which have inevitably resulted in additional costs to the owner, whose right to recover them from the defaulting contractor is usually academic. Accordingly, the prudent owner will consider not only the amount of the bid, but also the experience and capability of the contractor, and whether the bid is realistic in the circumstances of the case.

The discretion to accept not necessarily the lowest bid, retained by the owner through the privilege clause, is a discretion to take a more nuanced view of “cost” than the prices quoted in the tenders …

As was noted by the Court of Appeal, the language in Nanaimo’s tendering documents built in a lot of flexibility (similar to the language that I suggested in the Seminars held in February and March of this year). If the flexibility had not been built into the documents, the outcome of the case likely would have been different.

The Court expressed some concern that this line of reasoning could lead to abuse, and warned that where the low bidder is passed over any additional factors taken into account “will have to be shown to be reasonable and relevant … by reference to the essential requirements of objective fairness and good faith“.

Sound Contracting is seeking leave to appeal to the Supreme Court of Canada.