Canada: Walking The Tightrope: Distinguishing Substantial Compliance From Material Deficiency In Bid Documents

Last Updated: July 22 2019
Article by Elizabeth Mayer

Imagine you are a procurement manager. You have received three proposals in response to your RFP, from Bidders A, B and C. You review each of the proposals against the requirements of the RFP — none of them fully matches those requirements.

Bidder A did not include the proposal form that was contained in the RFP. It did however provide a signed letter with its proposal, which, together with the rest of the proposal, contained information equivalent to that required in the proposal form.

Bidder B provided only limited details of its proposed quality management system, including a copy of a system used on another unrelated project. The RFP had asked for details of how the Bidders intended to ensure quality control on the project.

Bidder C had fully responded to the content of the RFP, but had delivered its original proposal to the wrong address, while delivering a copy to the closing address in the RFP. Both the original and the copy were delivered before the closing time for the RFP.

Your job is to decide whether any or all of these proposals is capable of acceptance or must be rejected as containing a material defect. You know the basic principles: the difference between Contract A and Contract B1, the implied term in Contract A that only a compliant proposal is capable of acceptance2, and that the test for compliance is 'substantial compliance'3.

Bidder A

As always, the starting point should be to review the terms of the RFP. What did the RFP say in relation to the delivery of proposals? Was the use of the proposal form a mandatory requirement? If so, did the RFP specify what would happen if the form was not used?

If the RFP is clear that submission of the proposal form is a mandatory requirement and that any proposal that does not comply with the mandatory requirements will be disqualified, then the only safe course of action is to disqualify the proposal.

However, many procurement documents do not contain such black and white provisions; they allow the owner a discretion over whether or not to disqualify a proposal that does not comply with the terms of the RFP. Mandatory provisions that lead to automatic disqualification are usually limited to the time and date for delivery. Therefore, even if the proposal form has not been included with the proposal and even if the RFP stated that the form "must" or "shall" be included, the owner may have reserved the discretion to waive any discrepancy in the proposal.

In this case, it appears that there is a signed cover letter which, together with the remainder of the proposal, provides all the information that would have been contained in the proposal form. In these circumstances, the proposal was substantially compliant and is therefore capable of acceptance.4

However, care should be taken to ensure that everything in the proposal form has been captured elsewhere. A well drafted proposal form will often include representations from the bidder on matters such as conflicts of interest and collusion. A failure to include these representations in the proposal would likely be a material deficiency that would make the proposal incapable of acceptance.5

Bidder B

Of relevance here is the case of Graham Ind.Svcs.Ltd. v. G.V.W.D. et al.6This case was unusual, as it involved a bidder claiming that its bid was materially deficient and therefore incapable of acceptance by the owner. The bidder realized that it had significantly underpriced a tender and was looking to avoid a call on its bid bond. Although this case involved a low bid tender process, bidders were asked to provide a five page outline of their intended Environmental Protection Plan and a three page discussion addressing noise and other impacts. The bidder did not provide full responses to these requirements. The owner took the view that this failure was not significant and that the bidder had complied in all material respects with the procurement documents. However, the BC Court of Appeal upheld the decision of the trial judge that these failures were material and made the tender incapable of acceptance.

The Graham case clarified that the courts will take an objective view of the question of whether or not a deficiency in a bid is material. In the Graham case the owner took the view that the failures were not material, but the court disagreed. It held that "material non-compliance will result where there is a failure to address an important or essential requirement of the tender documents, and where there is a substantial likelihood that the omission would have been significant in the deliberations of the owner in deciding which bid to select." 

In deciding whether Bidder B's failure to provide detailed information on quality control amounts to a material deficiency, you therefore need to review the terms of the RFP and the proposal objectively. How are the provisions in the RFP on quality control drafted? For example, you may be able to assert that although Bidder B's response is brief, this can be addressed by way of the scoring system in the RFP. A limited response of this nature will receive at most one point, which reduces the chances of Bidder B being successful. 

Alternatively, the issue of quality control may clearly be central to the consideration of proposals. In this case, you may be required to disqualify Bidder B's proposal altogether on the grounds that its inadequate answer was not responsive at all to a key element of the RFP, resulting in a material defect.

Bidder C

For Bidder C, the matter seems clear to you. You had required original proposals to be delivered to a particular address and therefore the failure to do so was a breach of a mandatory condition, meaning that you are obliged to reject the proposal.

However, the recent Ontario Court of Appeal case of Reaction Distributing Inc. v. Algonquin Highlands (Township)7 casts some doubt on this conclusion. The Court of Appeal decision stated that there was a "contractual requirement" for tenders to be submitted in a sealed envelope, marked on the outside with the bidder's name and return address. The owner had disqualified a tender from a company that failed to provide its name and address on the outside of the tender package.

However, the Court of Appeal upheld the trial judge's decision that the tender package substantially complied with the tender requirements and therefore the owner was obliged to accept it. In your case, although the original proposal was sent to the wrong address, you did receive a copy at the closing location and the original was received elsewhere. Could this amount to substantial compliance?

Walking the tightrope

In summary, your job as a procurement manager continues to become more complicated. The key steps when considering any tender or proposal that does not strictly comply with your procurement documents are:

  • Review the procurement documents in detail — are there any specific provisions that assist? For example:
    • a statement that where a proposal contains a limited or missing response to a particular question, this will be addressed in the scoring, so avoiding a court viewing the response as a material deficiency; or
    • a clear statement that failure to comply with a particular provision will automatically lead to disqualification — this should be sufficient to override the cases on substantial compliance.
  • If there is nothing specific in the procurement documents, consider the deficiency in an objective manner. Is the discrepancy something that would go to pricing? Is it something of key importance to the bidding process or the underlying Contract B, so that the failure to comply would undermine the bidding process?
  • If the discrepancies are material, you must disqualify the bidder — you cannot accept a non-compliant bid.
  • However, against this you must balance the question of whether the proposals are "substantially compliant", so that in the absence of an express provision allowing you to disqualify, you must accept the proposal. 

In essence therefore, you must walk the tightrope between material non-compliance and substantial compliance, taking care to act objectively.


1 R. (Ont.) v. Ron Engineering, 1981 1 S.C.R. 111

M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., 1999 1 S.C.R. 619

Double N Earthmovers Ltd. v. Edmonton (City), 2007 1 S.C.R. 116

4 J. Oviatt Contracting Ltd. v. Kitimat General Hospital Society, 2002 BCCA 323

5 Steelmac Ltd. v. Nova Scotia (Attorney General), 2007 NSSC 156

2004 BCCA 5

2019 ONCA 433

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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