The Origin Story of Contract A and Contract B
Updated: Sep 23, 2022
Before you proceed reading, I want to note that the law referred to in this post is only applicable if you are doing business in Canada. Additionally, I am not a legal professional in Canada or other jurisdictions, please do not rely on this post as legal advice.
Canada uses a common law system. Case law decisions in courts set precedence for subsequent cases that may be heard before the courts. The seminal case for tendering law in Canada is R vs Ron Engineering and Construction (Eastern) Ltd. in 1981. The case began with a call for tenders by The Ontario Water Resources Commission (OWRC) for a construction project. Ron Engineering and Construction (Eastern) Ltd (REC) submitted a tender along with a required deposit of $150,000.00. REC later realized that it had made an error in the tender offer that would affect its profitability and requested OWRC to change its offer or return the $150,000 deposit. OWRC refused and awarded the job to the next low bidder but did not return the deposit. REC subsequently sued for the return of the deposit.
This case went all the way up to the Supreme Court of Canada (SCC) with a decision against REC and the $150,000 deposit was not required to be returned. The SCC determined that based on the terms and conditions of the tender call, a “unilateral acceptance” and therefore a contract was created when the contractor submits a tender. This resulted in the creation of Contract A meaning that each tenderer creates a binding contract with the obligation to deliver as stated in the offer when a tender offer is submitted to the Owner. Contract B (what we usually think of as the contract) is then created when the Owner accepts a bid and the work is performed. As a result, a two-stage process is created where potentially multiple Contract A may exist before award and a second stage where one Contract B is executed. For better or worse, this result essentially protects the Owner from tender revisions whether they are intended (in bad faith to win the bid on false information) or unintended (as in REC's case).