The tender process, memorandums of understanding, and letters of intent How an enforceable construction contract can (unexpectedly) arise
By Tyler Galbraith, Jenkins Marzban Logan LLP
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binding contract requires a meeting of the minds. Determining whether there has been a true meeting of the minds is not a question of merely identifying the subjective beliefs or expectations of the parties. The test for determining whether the parties formed the necessary consensus is an objective one, requiring a consideration of the outward expressions of the intent of the parties. In the construction context, the fact that the parties have agreed to work together on a building project is not, in and of itself, enough to create a 1/4 Page Vertical Adhowever, - 3.375” there x 4.625” legally enforceable contract; is ample authority for
When it comes to complex construction issues, it helps to have experience on your side. Jenkins Marzban Logan LLP, serving VICA members since 1994
Suite 900 Nelson Square 808 Nelson Street Vancouver, BC V6Z 2H2 604 681 6564
Tyler Galbraith 604 895 3159 tgalbraith@jml.ca
jml.ca
48 Vancouver Island Construction Association
the proposition once there is agreement as to the nature of the construction, the timeline for completion, and the price there is an enforceable agreement. Accordingly, where each of these requirements exist, a construction contract may be formed unbeknownst to the parties and irrespective of whether a formal agreement has been signed. A construction contract may be formed by operation of the tender process itself. Under the law of tender, a call for tenders constitutes an offer by the owner to consider the bids it receives and to enter into a construction contract to complete the work where a bid is accepted. A bidder accepts that offer by submitting a bid that complies with the requirements set out in the tender documents. However, a bid also constitutes an offer by a bidder to enter into Contract B (i.e. the construction contract) with the owner. Where a bid is accepted by an owner Contract B arises, the terms and conditions of which are contained the bid documents. In these circumstances, and subject to the terms and conditions of the bid documents, once the owner accepts a bid, Contract B is formed between the parties without the necessity of executing a formal agreement. After bids have been received and reviewed, it is not uncommon for a bidder to receive a letter of intent from an owner advising that the bidder was successful, and the owner intends to enter into a construction contract with the bidder. The letter of intent may also provide the agreed price, scope of work and schedule, contain directions for the successful bidder to proceed with planning, mobilization and procurement, and request certain documentation like insurance certificates and WorkSafe BC clearance letters. Depending on its wording, the letter of intent may constitute acceptance of a bid thereby forming Contract B under tender law or may form the basis of a construction contract itself where it contains agreement as to the nature of the construction, the timeline for completion, and the price. This is true even where the letter of intent provides for the subsequent issuance of a construction contract. Similarly, parties may enter into a memorandum of understanding setting out their understanding regarding the pursuit of
