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Bid shopping pitfalls—MAY 2012 PRINT EDITION

Steering clear of the practice is tough due to conflicting definitions


June 12, 2012
by By Robert Worthington

When conducting a negotiation within a competitive bid solicitation, owners must always address the complicated issue of how to avoid bid shopping. It’s a thorny issue all purchasers must be aware of because our Canadian courts are becoming increasingly concerned about it.

In part, this is because we currently have at least two legal definitions of what bid shopping actually is (a narrow definition and a wide one) and it is virtually impossible to tell which a court might use. As well, it will depend—often a great deal—on what actually occurred (or at least on what can be proven in a courtroom). Bid shopping is very difficult to prove as so much depends upon the facts and the owner’s motives.

The Canadian courts have called bid shopping a “nefarious practice” and “destructive to the integrity of the tendering process”. Bid shopping was narrowly defined by the Supreme Court of Canada (SCC) in Naylor Group v. Ellis Don (2002) as “the practice of soliciting a bid from a contractor, with whom one has no intention of dealing, and then disclosing or using [the information obtained] in an attempt to drive prices down amongst contractors with whom one does intend to deal.”

In that case, the owner (Ellis Don) sought and received a bid from Naylor when the owner knew they could not use Naylor in the project due to previous union affiliation agreements. Then, after receiving the award based upon (in part) Naylor’s pricing and reputation, the owner sought to substitute another sub-trade in place of Naylor. Even though the substitution of sub-trades was not for monetary benefit to Ellis Don, the SCC held that it was bid shopping, it was unlawful for an owner to do and the owner was liable to Naylor for the lost profit from the contract Naylor should have received.

As noted, bid shopping has also been widely defined by Canadian courts. In Western Plumbing v. Industrial Boiler Tech (2000) NSSC, bid shopping was defined as “any post-closing price manipulations [by an owner] that could negatively impact the integrity of the bidding system” including “going back to a supplier and asking for a price revision” after the close of bidding.

In Stanco Projects v. B.C. (2004) BCSC, the Trial Court stated bid shopping should “encompass [any] conduct where a tendering authority 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 with a view to obtain a better price or other contractual advantage from that particular tenderer or any of the others…Negotiation (and bid shopping is, in its essence, the act of negotiation) has no place in the true tendering system, at least while the tendering authority is still evaluating bids and determining the successful tenderer.”

The B.C. Court of Appeal essentially agreed with this definition. It was also accepted subsequently by the NS Court of Appeal in the case of Borcherdt Concrete Products v. Port Hawkesbury (Town) 2006 NSSC and 2008 NSCA. In the case of Amber Contracting v. Halifax (Regional Municipality) 2009 NSCA, the Trial Court and, on appeal, one of the three appellate court justices held (in dissent) that an owner cancelling a competition for budget reasons where bid prices were publicly known without award—and then retendering the same scope again later—was owner bid shopping. The majority at the Court of Appeal was unimpressed by what the owner had done but held that the owner was acting within their disclosed powers and was not acting unlawfully.

In the case of Crown Paving Ltd. v. Newfoundland (2009) NLCA, both the Trial Court and one member of the Appeal Court held that an owner deciding to extend an existing contract while a competition for a contract was still alive (even if only for one additional day) was bid shopping and unlawful. Again, the majority at the Court of Appeal disagreed, primarily, it appears, because the contract was only extended for one additional year while the competition for a contract was for five years and the next year the owner did hold a full competition and did award a five-year contract.

While the courts may disagree on exact definitions, the intent is pretty clear. During the process of evaluation and award, owners must largely accept what they were offered by bidders as prices for the defined scope in the RFP. An owner can lawfully cancel a competitive bid process without award or they can award to a bidder pretty well at the pricing offered for that scope.

Beyond those two lawful options lie a host of other potential solutions (negotiation, short listing or even multiple rounds of bidding such as the best and final offers process). However, as we will discuss in the second part of this article, each of these “solutions” have potential legal problems.

Robert C. Worthington, LLB, specializes in teaching purchasers the laws of contract, competitive bidding and procurement. Visit him at www.purchasinglaw.com. This article is excerpted from his book, The Desktop Guide to Procurement Law, to be published in late 2012.