To Be or Not to Be… in Accordance

How should a “required quality” clause that identifies a specific brand of product be interpreted – as a performance specification or as a specific-product requirement?

Does a subcontractor have to make an equivalency request when its own brand of product is not the one specified?

Does a general contractor have to take into account information exchanged by subcontractors after it receives their bids?

These are all questions that are answered in the Court of Québec’s decision in Constructions Gagné & Fils v. Contrôles A.C. inc.¹ which deals with the obligations of the parties in the context of public calls for tenders.

Context

We recently acted as counsel to Les Contrôles A.C. (“LCAC”) a subcontractor in the electronic controls business, whose bid was accepted as the lowest compliant bid in connection with a project for the expansion of a municipal building. LCAC was unable to supply and install its products because the general contractor, in accordance with a decision of the municipality, had insisted that it perform the subcontract with KMC-brand products. The evidence showed that only the second-lowest compliant bidder was licensed to sell and install KMC products in that particular area.

The general contractor sued LCAC for the price increase that it was required to pay LCAC’s competitor for performing the work with KMC products.

The litigation centred on the interpretation of the following requirement in the plans and specifications:

“The required quality of the equipment and systems shall be determined by reference to the specifications of KMC products, no equivalent approved”.

The facts

The evidence showed that the existing controls were of the Reliable brand, which was the brand carried by LCAC and which were manufactured by KMC under licence at the time of the initial construction, but KMC no longer had that licence when the call for tenders was issued.

The subcontractors’ bids did not specify the brand of the products that they were going to use.

However, after the bids were opened, the second-lowest bidder notified the general contractor that it was the sole distributor of the KMC-brand products specified for use in the project.

LCAC immediately countered that it considered its Reliable-brand products 100% compatible with the existing products, as required by the plans and specifications.

After duly noting these exchanges, the general contractor submitted its bid using LCAC’s prices. It would later maintain that it did not have to determine whether or not the respective claims of the subcontractors were valid, as the bids made no mention of any particular brand and the subcontractors had undertaken to comply with the requirements of the plans and specifications.

After being awarded the contract and awarding in turn a subcontract to LCAC, the general contractor submitted its shop drawings to the relevant professionals, who rejected them on the grounds that no equivalency request had been submitted.

The general contractor then brought an action in damages against LCAC for refusing to supply and install the KMC-brand products.

The decision

The Court decided that it was not LCAC who failed to respect its obligations, but rather the general contractor, who refused to allow LCAC to perform the work in accordance with the contract.

On the basis of the Court of Appeal’s reasons in its decision in J.E. Verreault et Fils ltée v. Commission des écoles catholiques de Québec, the Court considered that the general contractor was wrong in maintaining that only KMC-brand products met the requirements of the call for tenders, as this was a case of a performance specification, despite the specific mention of the KMC brand, particularly given the use of the term “required quality”. To otherwise interpret the specifications would be incompatible with the requirement that the new products be compatible with the existing ones. In addition, such an interpretation would run counter to the principle of free competition that is inherent in the tender process.

What this decision stands for:

• The specific mention of a brand of product in the specifications doesn’t necessarily mean that this is not an instance of a performance specification;
• the use of a branded product other than the one named in the specifications doesn’t necessarily mean that an equivalency request is necessary, particularly where only one of the bidders would not have to make such a request, which would discriminate against the others;
• the interpretation of the specifications of a call for tenders, particularly when it is public, must be compatible with the principle of free competition;
• a general contractor cannot ignore items of information that it receives after the subcontractors’ bids are opened, particularly where its own bid has not yet been submitted.