Canada: Dancing With The Subcontractor You Brought: Undercutting Will Not Be Tolerated

In the case of A. Dynasty Roofing (Windsor) Ltd. v. Marathon Construction Services (1991) Inc. a decision of the Ontario Superior Court released March 11, 2002, the Court was asked to determine whether the bidding process resulted in a contract which obligated the contractor to offer the subcontract to the lowest bidder at the subcontractor’s bid price absent any other reasonable cause to reject the subcontractor.

The facts in the case are as follows:

1. The defendant, Marathon Construction Services ("Marathon"), a general contractor, bid on a contract for the construction of an industrial building in January 1999. The plaintiff, A. Dynasty Roofing (Windsor) Ltd. ("Dynasty"), a roofing subcontractor, in response to the defendant’s request prepared and submitted a bid for the roofing component of the industrial building.
2. Marathon’s bid was successful and it was awarded the contract. The approximate cost of the building contract was $16,000,000 and the lowest subcontractor bid for the roofing component was $198,500 by Dynasty. Smith Peat Roofing’s ("Smith Peat") bid for the same component was $208,840.
3. In its successful bid, Marathon named both Dynasty and Smith Peat as roofing contractors it would use if its bid was successful. Marathon allocated $195,000 in its bid for the roofing work. Marathon’s practice was to reduce the lowest subcontractor bid in order to attain a bidding advantage over the other general contractors.
4. After Marathon was awarded the contract, they contacted Dynasty and offered them the roofing contract at a price of $195,000. Dynasty refused to do the work for any amount less than their bid price of $198,500. Marathon then offered the roofing contract to Smith Peat at a cost of $195,000 and Smith Peat accepted.
5. Marathon argued that there was no contract with Dynasty as its solicitation to roofing contractors was a request for prices and not a bid competition.

The issue before the court was whether the bidding process resulted in a contract which obligated Marathon to offer the roofing contract to Dynasty at Dynasty’s bid price absent any other reasonable cause to reject Dynasty as a subcontractor.

The court determined that the facts did not support Marathon’s argument and found that the evidence pointed to the creation of a contract. Both roofing companies took steps to qualify themselves as subcontractors with the owner as required by the general contract. In addition, the owner had to approve subcontractors prior to tender and the subcontractors had to review the plans and specifications in order to submit a quote.

Further, the judge was unequivocal in his determination that Dynasty and Marathon were involved in a formal bidding process, not a request for prices by Marathon, and that a contract was entered into between Dynasty and Marathon in relation to the bidding process. Dynasty, "in submitting its bid undertook that its bid would be irrevocable for a reasonable period of time and that it would do the work for the price quoted. Marathon undertook that it would abide by the bidding process and offer the contract to the lowest bidder provided there was no reasonable cause to reject the lowest bidder."

The trial judge referred to Mr. Justice Estey’s statement in Ron Engineering & Construction (Eastern) Ltd. to bolster his conclusion about the existence of a contract: "the significance of bid law is that it once becomes irrevocable if filed in conformity with the terms and conditions under which the call for tenders was made and if such terms provide." Further he cited Madam Justice Charron in Scott Steel (Ottawa) Ltd. v. R.J. Nicol Construction (1975) Ltd., who ruled that the binding contract referred to by Justice Estey between the owner and general contractor also applied to general contractor and subcontractor.

Dynasty’s conduct supported the finding that the parties entered into a binding contract with implied terms that the bid would be irrevocable; Dynasty would perform the work at the bid price and the lowest bidder, would be offered the contract. The court criticized Marathon’s conduct stating that their actions "created a sham of the bidding process" and that Marathon had "no intention of maintaining the integrity of the bidding system".

As there was no reason presented to reject Dynasty as a subcontractor, the court found that Marathon was in breach of contract. On the question of damages, the court concluded that Dynasty’s damages included both the loss of profits and the overhead from the roofing contract.

On October 24, 2003, the Ontario Court of Appeal confirmed the decision of the trial judge when it concluded, "the bidding process resulted in a contract which obliged the defendent to award the roofing subcontract to the plaintiff, the lowest bidder".