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Subcontracts that come after close of tender – Legal Desk, April 2023

April 7, 2023 | By Dan Leduc

April 7, 2023 – Since at least 1980, the process of tendering in Canada has been premised in contract law. Typically, an owner’s invitation to tender is treated as an offer, and your compliant bid submission is considered acceptance. That offer and acceptance forms what the Supreme Court of Canada considers Contract A.

(Acceptance must match the offer. Qualifying your bid submission is not acceptance, but rather a counter-offer. Hence, no Contract A.)

In a typical situation, the owner chooses from the compliant bid submissions to award what amounts to Contract B—the actual construction contract with the prime or GC then, by derivation, with the subcontractors whose prices the prime or GC incorporated in its overall bid submission.

By all accounts, Contract A and Contract B must match (subject to any negotiated changes).

Where can this become an issue for the electrical contractor (or other subs)?

Let’s say you are handed a set of tender documents, typically through a GC or prime. You do a takeoff based on that set and submit a bid to one or more GCs or primes. You then receive a phone call, followed by a letter of intent or award, advising that you have been chosen as the successful bidder.

You begin purchasing material, planning labour and mobilizing. In effect, you start work.

After one or more progress draws, the prime/GC hands you a subcontract and tells you the next payment is conditional on you signing that subcontract.

When this happens, what is your legal position? Is this subcontract even valid?

Consider the situation using a linear approach—a timeline. The act of submitting your bid (acceptance) locks in the applicable terms and conditions of any subcontract (which are part of the offer). The obligations and allocation of risks in the tender documents against which you were asked to submit a price should be identical to those found in your subcontract. Again, Contract B should match Contract A.

From a legal perspective, you are not required to sign a subcontract that differs from your tender documents. Instead, you can advise the prime/GC that your submission was against the terms and conditions of the offer. (You may have commercial reasons for taking a different position, but this is your legal position.)

Conversely, if you received that subcontract during the tender process, it becomes part of the offer. If you proceed to submit a bid (acceptance), you will be bound to the subcontract’s terms and conditions, and there is little legal leverage available to you.

The next time you receive a subcontract after the close of tender, always check whether it was part of the tender documents, and respond accordingly.

Dan Leduc is a partner at Soloway Wright LLP, and specializes in construction law. He is always happy to take on new clients from anywhere in Canada, and can be reached at dleduc@solowaywright.com.

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