On August 13, 2024, the Court of Appeal of Québec issued an important decision in Municipalité de Mansfield-et-Pontefract v. Location Martin-Lalonde inc. concerning the analysis of bid compliance in the context of a public tender and, in particular, the principles applicable to what constitutes a major irregularity requiring that a bid be rejected.
The facts
The Municipality of Mansfield-et-Pontefract (the “Municipality”) issued a public invitation to tender for services related to the collection of household waste, recyclables and bulky items within its territory (the “Tender”).
Before the Superior Court of Québec, Location Martin-Lalonde inc. (“Lalonde”) claimed $108,360 in lost profits from the Municipality, alleging that the contract resulting from the Tender should have been awarded to Lalonde rather than to the winning bidder, Entreprise R. Charrette (“Charrette”), whose bid, according to Lalonde, was not compliant, unlike its own.
In the trial judgment, the Superior Court found that Charrette’s bid was “undeniably” non-compliant and that the contract should not have been awarded to Charrette for failure to comply with the essential terms of the Tender. However, in order to be entitled to damages, Lalonde must prove that its own bid was compliant. This was the main point of contention before the Court of Appeal of Québec.
Under the terms of the Tender, bidders were required to submit a bid bond in the amount of $5,000 and a letter of commitment from an insurance company to issue a performance bond in the amount of $5,000 to cover the performance guarantee and the guarantee for wages, materials and services.
Lalonde included a bid bond in the form of a certified cheque with its bid, but failed to provide a letter of commitment to issue a performance bond. Under these circumstances, the Municipality rejected Lalonde’s bid.
At trial, the Superior Court allowed Lalonde’s claim, holding that the omission of the letter of commitment was a minor irregularity and that the Municipality should therefore have awarded the contract to Lalonde.
On appeal, the Municipality essentially argued that the omission was a major irregularity and that it was therefore required to reject Lalonde’s bid.
The Court of Appeal’s decision
One of the fundamental principles of public procurement is that public and municipal bodies have an obligation to award a contract to a compliant bidder.1 This obligation implies that a public body cannot award a contract to a company whose bid contains a major irregularity.2
In the Tapitec decision, the Court of Appeal held that an irregularity relating to an essential requirement of a public tender must be classified as a major irregularity requiring that the bid be rejected. The Court established a three-part, non-cumulative test to determine whether an irregularity is major or minor:
- Is the requirement a matter of public policy?
- Do the tender documents expressly state that the requirement is an essential element?
- In light of usage, implied obligations and the intention of the parties, does the requirement constitute an essential or ancillary element of the tender?
If the answer to any of these questions is yes, then, according to this decision, an organization was required to reject the bid. However, in Municipalité de Mansfield-et-Pontefract v. Location Martin-Lalonde inc., the Court of Appeal specified an additional step in the bid compliance analysis.
Step One: Is the requirement essential?
The first step is to determine whether the tender requirement is essential or ancillary. To do this, the Court of Appeal suggests applying the same test as in Tapitec. Only an essential requirement can be classified as a major irregularity, but the failure to comply with an essential requirement is not in itself sufficient to conclude that there is a major irregularity requiring the rejection of the bid.
According to the Court of Appeal, the test established in Tapitec serves only to determine whether the requirement is essential or ancillary. This brings us to the second step.
Step Two: Is the irregularity major or minor?
The second step is to determine whether the essential irregularity is major or minor. To do this, the Court of Appeal sets out three considerations for classifying the irregularity as major or minor.
The first consideration is the seriousness of the error in relation to the requirement set forth in the tender documents. The seriousness of the error is determined by the distance between the requirement in the tender documents and the bid. For example, submitting a performance bond for 10% of the bid amount instead of a certified cheque for 10% is not a major irregularity.
The second consideration is the bidder’s ability to correct the error, such as a clerical error or a simple mathematical error that does not affect the actual bid price.
Finally, the third consideration is prejudice to other bidders. This criterion requires the contracting authority to treat all bidders fairly and to apply the same rigour to all when analyzing bid compliance.
The irregularity of Lalonde’s bid
Applying these considerations, the Court of Appeal concluded that the irregularity in Lalonde’s bid was minor. The Court emphasized that the bidder could have easily corrected the irregularity, which was not serious:
[TRANSLATION]
[51] In view of the fact that, at the time of the submission of the bid, only a letter of commitment regarding the performance bond is required, the failure to submit such a letter with a bid that already included a certified cheque for the same amount seems indeed minor. In principle, what is missing is a letter stating that the Municipality may keep the certified cheque as a performance bond if the contract is ultimately awarded to that bidder, but the Municipality already has this right under clause 7.3. The omission of a letter therefore appears to be minor.
[52] The submission of a certified cheque, first as a bid bond and later as a performance bond, does not compromise the integrity of the tendering process. The mere mention that the $5,000 certified cheque would later serve as a performance bond would have been sufficient to remedy this irregularity, so the judge did not err in finding it a minor irregularity. In fact, it was a substantially compliant bid whose irregularities concerned only a minor matter of form that was easily remedied.
The Court of Appeal also noted that the presence of a minor irregularity does not preclude a claim for damages if the bid is substantially compliant.
Conclusion
This recent decision of the Court of Appeal of Québec clarifies the analytical framework for determining whether a bid is affected by a major or minor irregularity.
It is not sufficient to simply conclude that an essential condition exists under the test established in Tapitec. The analysis must go further, taking into account the three considerations mentioned above.
It will be interesting to see how this decision is applied by the courts, in particular whether irregularities previously considered major will now be considered minor and vice versa. For example, in the trial decision in Mansfield, the judge overruled case law that had found a similar irregularity to be major, because the performance bonds issued in those cases were larger than $5,000.
1 M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 SCR 619.
2 R.P.M. Tech inc. c. Gaspé (Ville), 2004 CanLII 76642 (QC CA).