New Ontario Court of Appeal Decision on “Contract A”
Transit Commission v. Gottardo Construction Ltd.

On September 7, 2005, the Ontario Court of Appeal released its decision in Toronto Transit Commission v. Gottardo Construction Ltd.

When the TTC opened tenders it had received for a major project, Gottardo was the lowest bidder. Shortly after the tenders were made public, Gottardo advised the TTC that it had made a $557,000 error in the tender amount. Gottardo maintained that, because of the error it was not obligated to honour the tender price of $4,811,000. The TTC took the position that Gottardo was bound. When Gottardo refused to sign the contract, the TTC awarded the contract to the next lowest bidder and sued Gottardo claiming, among other alternative relief, damages of $434,000, being the difference between Gottardo’s tender price and the price at which the work was ultimately carried out. CGU Insurance Company of Canada (CGU) was also sued by TTC, as it was the company that had issued Gottardo’s bid bond.

The trial judge found that the TTC’s tender instructions were such that a first contract, referred to in the case law as “Contract A”, had not come into existence upon the opening of the sealed tenders, arguing that additional documents had to be provided by Gottardo before Contract A came into existence. These additional documents were required by the tender instructions. Once the documents were provided to the TTC, it was apparent that an error had been made in the tender amount. The trial judge found that Gottardo’s mistake was discernable on the face of the documents before the formation of Contract A, and therefore that the TTC could not compel Gottardo to honour the price and could not recover against CGU on the bid bond. Consequently, she dismissed TTC’s claim against Gottardo and CGU.

The Court of Appeal allowed the appeal, holding that Contract A had been formed and that Gottardo had breached this contract. The Court awarded damages in the amount of $434,000 against both defendants together with pre and post judgment interest.

The Court clarified that acceptance or rejection of the bid is not what leads to the creation of Contract A. Acceptance or rejection is the end point of the tender process. Once the tender is accepted, the parties enter into the construction contract referred to as Contract B. The fact that certain steps are taken and certain documents are to be produced by the tenderer after the submission and opening of tenders will not delay the formation of Contract A when the clear intent of the parties is to be bound as of the opening of the tenders. In this case, it was clear from the tender documents that the parties intended to initiate contractual relations the moment that the tenders were opened.