01-27 GENERALS WINTER25 FINAL EDIT (JAN 25) - Flipbook - Page 13
Understanding Contract A/
Contract B concepts is no
longer optional - it is essential
to effective risk management.
1 This article will primarily focus on the Contract A and Contract B
concepts as between the owner and bidding general contractors
and a successful general contractor and its subcontractors
Think of it this way: Contract A is about
the fairness of the bidding process and
the selection of the successful bidder, and
Contract B is about the actual construction
of the project.
2. Recent Developments in Ontario Case
Law: What GCs Should Know
A. NO CONTRACT A, NO BIDDING RIGHTS
Ontario courts have recently reaf昀椀rmed
that bidders who do not submit a
compliant bid, or were never invited
into the tender, have no rights under
tendering law. Without Contract A being
created, a bidder cannot insist on fairness,
transparency, or equal treatment with
other bidders during the tendering
process.
Attempts to argue that Contract A was
created through “implied acceptance” by
the owner or “ongoing dialogue” with
the owner post submission of the bid
have been 昀椀rmly rejected by the Courts.
Courts emphasize that Contract A requires
that a compliant bid be submitted to
a directed request for bids, submitted
within the prescribed timeframe, and
on the prescribed terms, all as set out in
Contract A.
For GCs, the takeaway is simple, rights
昀氀ow from strict compliance of the tender
documents, i.e. the terms and conditions
of Contract A. If you want the protection
of fairness in the evaluation of your bid
and the owner’s selection of the successful
bidder, your bid must create Contract A
with the owner.
B. NAMED SUBCONTRACTORS: DO YOU HAVE TO USE
THEM AFTER AWARD?
One of the most common sources of
tension after award of the bid is the
treatment of subcontractors named in the
successful bidder’s bid.
The governing legal principle remains
settled. If you list a subcontractor in
your bid and win the tender, with limited
exceptions, you are obligated to contract
with that subcontractor to perform work
under the Prime Contract.
This obligation arises through the
operation of Contract A. When the owner
selects your bid as the successful bidder,
with limited exceptions, unless the owner
expressly consents to the subcontractor
substitution, both the owner and named
subcontractors expect that the named
subcontractors will perform the listed
portions of the work.
However, Ontario law recognizes that
subcontractor substitution can occur,
without liability to a named subcontractor,
only in limited circumstances, such
as where the GC has a reasonable,
objective, post-bid objection. For example,
subcontractor bankruptcy.
It should be emphasized that the Courts
frown upon “bid shopping”. Once Contract
A is created a GC cannot unilaterally
substitute a subcontractor simply because
a different subcontractor becomes
available at a better price, or because of a
GC subcontractor preference that existed
before bid submission but was never
disclosed to other subcontractor bidders.
3. Owner Privilege Clauses and Local
Preference: How Much Discretion Do
Owners Really Have?
Most request for tenders include “owner
privilege clauses” such as:
“The lowest or any bid will not
necessarily be accepted.”
“The owner reserves the right to accept
any bid or reject any or all bids.”
“Local preference may be applied where
a local bid is within 10% of the lowest bid.”
Ontario courts continue to hold that
these clauses may be valid, but their
enforcement is subject to the courts’
discretion.
As the law of tender evolves, GCs are
cautioned not just to avoid bidding quickly,
but critically to become fully aware of their
legal rights, obligations, and risks prior
to submitting their bid and being locked
into Contract A. Understanding Contract
A/Contract B concepts is no longer
optional - it is essential to effective risk
management.
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