Ron Engineering v. Ontario: Impact on Canadian Procurement Law and Tender Contracts
Introduction
Tender contracts have been a reliable and effective tool for facilitating mutually beneficial cooperation for many years. Tendering is attractive to businesses because it facilitates negotiations and transparency, which are crucial for government organizations. In most cases, the conclusion of tender contracts benefits both parties. However, difficulties and unforeseen situations sometimes arise in the tender process, leading to negative consequences.
Background
Such a difficult situation led to the court case between Ron Engineering and the Government of Ontario. Supreme Court of Canada Case – The Queen (Ont.) v. Ron Engineering, [1981] 1 SCR 111, 1981 CanLII 17 (SCC) is considered the ultimate Canadian case in procurement law (Onook, 2019). This case arose from a $2,748,000 builder’s tender and a $150,000 deposit (Supreme Court of Canada, 1981). Ron Engineering offered the lowest price, but the winning company’s employee discovered an error shortly after the tender was opened.
They reported an error in preparation for the tender, so another $750,058 was not included in the final calculation. The Contract was given to another company with a bid of $3,380,464.00 (Supreme Court of Canada, 1981). Ron Engineering was asked to return the security deposit, but the tender owner refused to do so. This marked the beginning of a long and influential multi-level litigation that has a long-term impact on procurement law.
Positions
Ron Engineering
Ron Engineering initiated the lawsuits after they went to the trial court, as the Government of Ontario refused to return a $150,000 bond following the failure of the contract signing. Their position was that the cause of the situation was not a deliberate refusal to fulfill the tender’s requirements but a mistake. The company was expected to prove that it was not guilty in this situation.
The first court decided to leave the bond to the Government of Ontario. Subsequently, Ron Engineering went to the Court of Appeal with the same demand – to return the $150,000 bail. They expected a deeper and more thorough investigation of the case. This time, the court was on its side and decided that Ontario should return the bond. The tender owner disagreed with such a court decision and decided to apply to the Supreme Court of Canada.
Ron Engineering’s position remained unchanged – they wanted to get the bail back. The company asserted that it had not canceled its tender. Still, the offer was not legally acceptable due to the notification about the mistake being sent to the Owner before the end of the tender period. The company is entitled to the $150,000 deposit (Supreme Court of Canada, 1981). This time, the judgment favored Ontario and decided to leave a deposit with the Owner of the tender, which was the case’s final verdict.
The Government of Ontario
During the trial court, Ontario refused to return the bond and demanded damages due to an error made by Ron Engineering. Their position was based on the fact that, according to the tender documents, the contractor could collect the deposit under certain conditions, none of which were met. The same position was defended in the Court of Appeal, while at the Supreme Court of Canada, they tried to prove that erroneous calculations are not a reason for the bail’s return. As a result of this court, they managed to achieve the annulment of the decision of the Court of Appeal, and the bail remained with them.
Ruling
Ron Engineering filed a claim to return the $150,000 security deposit, but the trial court dismissed the developer’s claim. After that, the developer filed an appeal with the Ontario Court of Appeal. For this time, the court granted the appeal and ruled in favor of the developer for $150,000 plus costs. The process did not end there since Her Majesty The Queen was in the right of Ontario, and the Water Resources Commission had filed an appeal with the Supreme Court of Canada. The Supreme Court of Canada granted the appeal, overturned the Ontario Court of Appeal decision, and reinstated the first court’s decision.
The Supreme Court annulled the Court of Appeal’s decision because the calculation error was not a strong enough argument for returning the security deposit. All other requirements and conditions were met, and since Ron Engineering did not withdraw the offer, a decision to return to the trial court judgment was made. During this final court case, the court proposed a two-contract model influencing procurement law.
Personal Reflection: Mistakes in Procurement
Public procurement demands the highest level of transparency and accountability. This process must consider the relationship between federal, state, and local laws and the most reasonable practices in accordance with comprehensive judicial standards (Flynn et al., 2020). The Supreme Court’s decision concerning the case between Ron Engineering and Ontario exemplifies the importance of considering judicial standards in tenders.
The case made a tangible contribution to Canada’s tendering process and led to several changes. One of the most significant achievements of this court was the proposal to use a model of two contracts (Berryman, 2019). It lies in concluding two contracts between the tender parties, Contracts A and B. Contract A arises from submitting the contractor’s application and confirming the intention for cooperation. It includes the condition that the bidder agrees to enter into a second Contract, B, after winning the tender.
When the Owner creates a tender call and a bidder responds with a compliant offer, Contract A is created between the Owner and each conforming bidder. Contract A often includes extensive terms such as bidder instructions, liability limitations, technical standards that bidders must follow, a scoring mechanism for assessing bids, and conditions requiring all bidders to keep their applications available and valid for a defined time. Since this last criterion renders bids irreversible, vendors that withdraw their bids violate Contract A.
Tenders play an important role in the Canadian public procurement system. Replacing negotiation with competition is a trademark of the Canadian procurement bidding process (Greenham & Society of Construction Law Australia, 2021). This shows the impact of this litigation, as the A and B contract model makes bidding safer and more reliable. Both parties confirm and accept their responsibility to each other, regardless of the outcome of the tender process.
However, Canada’s “Contract A” model also has disadvantages; there is only a claim for damages if the earlier demonstration of “Contract A” is made. There is no entitlement to damages and hence no “effective remedy” when there is no “Contract A.” (Lambert, 2020). For this reason, the model causes some controversy, but its effectiveness has been helping to make tender processes safer for all participants.
The Queen (Ont.) v. Ron Engineering is known for introducing the two-contract model and analyzing the law of unilateral mistakes. The bidding system serves to get the most favorable project price for the Owner due to competition. When participants’ bids are not publicly available in closed tendering, prices are presumably higher than in open ones. The reason is that some bidders may wait for competitors’ bids to be published and, with that information, offer a lower price to win. It is assumed that contractors will participate in the reverse auction in the open bidding, gradually lowering the price compared to the leading competitor.
As a result, a bidder whose bid was outbid by a waiting competitor’s lower price may claim to have made a mistake and try to lower their price slightly to regain the leading bid. To prevent this, bidders are not required to withdraw erroneous bids. This result could be achieved by allowing the withdrawal, but not the change, of a notice that resulted from a calculation error.
The courts have rejected the argument that if the lower bidder refuses to comply with his bid, in Breach of Contract A, the Owner has reduced his losses by accepting the next lowest bid despite the lowest bidder’s offer to accept the price somewhere between its original price and the second lowest price. Thus, it can be said that the outcome of the Ron Engineering case had a more substantial effect on preventing abuse by the bidders rather than the Owner.
The main impact of The Queen (Ont.) v. Ron Engineering on owners is that previously, an owner was not required to accept the lowest proposal, even if there was an express reserve of the right not to accept the lowest or any tender. Under Canadian law, there is now no question that an Owner has a duty not to award Contract B to a Bidder in a way that contradicts the express or implicit provisions of Contract A, as stated in the call for tenders.
Conclusion
The two-contract model that emerged from the Supreme Court case helped to understand that the parties were responsible for each other for the mistakes they might make. Both parties are responsible for the changes caused by their actions. The party that caused the change must pay damages to the other party to the tender. This model allowed tenders to be considered more responsible by each party. There are various forms and instructions for bidders, which give the courts wide discretion in resolving cases and reaching a fair decision.
Owners should ensure that any hint of a hidden agenda does not characterize their actions and that all potential criteria that can be used to decide on a preferred bidder are explicitly stated. Bidders should carefully study the relevant tender documents and all parties’ actions during the tender process, and familiarize themselves with case practice and applicable law to benefit both parties.
References
Berryman, J. (2019). Canadian perspectives on contract remedies. In Halson, R., & Campbell, D. (Eds.), Research Handbook on Remedies in Private Law (pp. 371–389), Edward Elgar Publishing.
Flynn, M., Buffington, K. W., & Pennington, R. (2020). Legal aspects of public procurement (3rd ed.). Routledge.
Greenham, P., Society of Construction Law Australia. (Eds.). (2021). The international compendium of construction contracts: A country-by-chapter review. Walter de Gruyter GmbH.
Lambert, N. (2020). Effective remediation in public procurement: Damages or judicial review? Ottawa Law Review, 51(2). Web.
Onook, S. (2019). Owner in-house counsel concerns in large construction contracts. International In-House Counsel Journal, 12(47), 1. Web.
Supreme Court of Canada. (1981). The Queen (Ont.) v. Ron Engineering, 1981 CanLII 17 (SCC), [1981] 1 SCR 111. CanLII. Web.