pocketbook on the canadian public procurement regime

pocketbook on the canadian public procurement regime

THE CANADIAN PUBLIC PROCUREMENT REGIME by Gerry Stobo and Derek Leschinsky This article is reproduced from the chapter titled Canada in the forthcoming text: R.H. García, ed. International Public Procurement: A Guide to Best Practice (London: Globe Law and Business Publishing, 2009). The authors acknowledge Globe Business Publishing Ltd (http://www.globebusinesspublishing.com) for its support and the permission to reproduce this work.

Pocketbook on the Canadian public procurement regime Borden Ladner Gervais LLP Lawyers Patent and Trade-Mark Agents

TABLE OF CONTENT 1. Introduction...5 2. The Canadian Procurement Law Regime...6 2.1 The Two-Contract Framework...6 2.2 Only Compliant Tenders May Be Accepted...6 2.3 Bids Must Be Evaluated Fairly And Equally...7 2.4 Duties To Unsuccessful Bidders...8 2.5 The Rights Of Subcontractors...8 3. Canada s Federal Procurement System...9 3.1 Introduction...9 3.2 Administrative Structures...9 3.3 Overview Of Bid Solicitation Procedures... 10 3.4 Canadian Content Policies... 11 (a) Introduction... 11 (b) Canadian Content Policy... 11 (c) The Procurement Review Committee... 12 3.5 Applicable Trade Agreements... 13 (a) The North American Free Trade Agreement... 13 (b) World Trade Organization-Agreement On Government Procurement...14 (c) Agreement On Internal Trade... 14 (d) Canada-Chile Free Trade Agreement... 15 4. Provincial/Territorial And Municipal Procurement Systems... 16 4.1 Provincial/Territorial Procurement... 16 4.2 Municipal Procurement... 16 4.3 Remedies... 17 5. Challenges To Federal Government Procurement Practices... 19 5.1 Introduction... 19 5.2 Canada s Bid Challenge Agency:The Canadian International Trade Tribunal... 19

5.3 The Bid Protest Procedure... 21 (a) The Complaint... 21 (b) Filing A Complaint... 22 (c) Acceptance Of A Complaint For Investigation... 22 (d) What Do Potential Suppliers Complain About?... 23 (e) Canadian International Trade Tribunal s Determination... 24 (f) Implementing The Canadian International Trade Tribunal s Recommendations... 25 6. Judicial Review Of Canadian International Trade Tribunal Determinations... 26 7. The Procurement Ombudsman... 28 8. Best Practices... 28 8.1 When Submitting Bids... 28 (a) Read The Bid And Provide Exactly What Is Requested... 28 (b) Organise Responses And Provide Sufficient Detail To Be Responsive...30 (c) Consult Government Procurement Resources... 30 8.2 When Questioning The Award Of A Contract To Another Bidder.. 31 (a) Request A Debrief With The Contracting Authority... 32 (b) Quickly Raise Any Concerns About A Procurement Outcome... 32 9. Conclusion... 33 Schedule I... 34 Canadian International Trade Tribunal Procurement Complaint Checklist... 34 Identify The Parties... 34 Identify The General Type Of Procurement... 34 Provide Information Concerning Objection To Government Institution... 35 Set Out Legal Basis For The Complaint... 35 Identify The Relief Requested... 35 Provide Supporting Documents... 35 Request Confidential Treatment Of Confidential And Proprietary Information... 36 Provide Copies To Citt... 36

1. Introduction 1 Governments at all levels throughout Canada annually purchase over C$100 billion worth of goods and services. From aircraft to computers, from vaccines to food, from pens to missiles, governments at the federal, provincial and municipal levels conduct a dizzying array of procurement processes to acquire the things needed to keep Canadians safe and secure and to ensure the continued functioning of government itself. Public procurement law in Canada is fast developing as one of Canada s more visible areas of practice. The financial consequence to suppliers is frequently significant, with governments being the biggest purchasing group within the country. But, as will be discussed in this chapter, the framework of public procurement in Canada is anything but straightforward. Procurement law has developed considerably in Canada over the last 30 years from a traditional common law approach to a virtually unique dual contract conceptualisation of tendering. These very significant reforms have arisen out of a series of decisions from the Supreme Court of Canada articulating a new policy-based framework that attempts to make procurements more competitive and fair. Although many of these principles apply to procurements by all levels of government (federal, provincial/territorial and municipal) as well as private sector procurements, the regime for provincial/territorial and municipal procurement is somewhat distinct from the federal regime, most notably with respect to the applicability of the trade agreements and enforcement mechanisms. This chapter will first consider some of the overarching common law concepts relating to procurement law and then review how those concepts apply to the purchasing activities of governments in Canada. The chapter will also discuss Canada s federal bid challenge regime under the jurisdiction of the Canadian International Trade Tribunal (CITT). This quasi-judicial regime applies to some, but not all, of the purchasing undertaken by the federal government. 1 Gerry Stobo is a partner at Borden Ladner Gervais LLP ( BLG ). Gerry is head of BLG s federal government contracting and public procurement group. Derek Leschinsky is an associate at BLG practising in the firm s government contracting and public procurement group. The views expressed in this article are those of the authors and not BLG. 5

2. The Canadian Procurement Law Regime 2.1 The Two-Contract Framework Leaving aside, for the moment, the federal government s unique bid challenge regime, all procurements in Canada are founded on the principles articulated in the Supreme Court of Canada decision in The Queen (Ontario) v Ron Engineering, 2 a seminal case that fundamentally altered the competitive bidding framework in this country. A discussion of the federal government s bid challenge regime will follow. The court in Ron Engineering introduced the concepts of Contract A and Contract B into Canadian procurement law. Prior to Ron Engineering, it was understood that bid solicitation documents constituted an invitation to treat and that a contract was only formed once a winning bidder was selected. The court in Ron Engineering held that when a call for tenders is issued, this constitutes an offer, and when a bid is submitted by a potential supplier, this constitutes acceptance and a unilateral contract (Contract A) is created at that moment giving rise to binding obligations on both parties. As such, a supplier s bid becomes irrevocable and the bidder does not have the ability to negotiate or amend the terms of the bid solicitation documents. By submitting a bid, the potential supplier is accepting the terms of the bid solicitation documents. Contract B is formed between the purchaser and the successful supplier once the winning contractor is selected. Subsequent Supreme Court of Canada decisions have refined and built on the two-contract framework set out in Ron Engineering. 2.2 Only Compliant Tenders May Be Accepted In MJB Enterprises Ltd v Defence Construction (1951) Limited, 3 the Supreme Court clarified that although in a competitive bidding process, a contract does not need to be awarded to the lowest compliant bidder, it is an implied term of Contract A that the bid of the preferred proponent must be compliant with the requirements of the tender documents. Although the court upheld the validity of privilege clauses, 4 it restricted how these clauses may be applied. The court found that bids could not 2 [1981] 1 SCR 111. 3 [1999] 1 SCR 619. 4 A privilege clause seeks to reserve the owner s rights with respect to the awarding of a contract. In this case, the clause provided that the contract would not necessarily be awarded to the lowest bidder. 6

be selected based on undisclosed criteria. MJB is also notable in that the court indicated that the Contract A/Contract B approach would not arise from all types of bid solicitations. In Canada, there are a number of types of bidding documents that can be used in procurement. These include the invitation to tender where the requirements of the purchaser are laid out in detail and mandatory criteria are used to evaluate bids. Bids are irrevocable and bidders tend to compete primarily on price. Another form of procurement solicitation is the request for proposal (RFP). A request for proposal differs from an invitation to tender in that it is used when a purchaser is seeking to evaluate bidders on more than just the price required to perform a specific task. The requirements of a request for proposal are less detailed than in an invitation to tender. Requests for quotations (RFQs) are used to elicit the lowest price for a good or service, but may also be used when the procurement requirements are less defined, and some negotiation may be necessary to obtain best value. Governments frequently use requests for standing offers (RFSO) to obtain goods and services as needed. These standing offers contemplate that goods or services may be required on multiple occasions. Requests for expressions of interest (RFEIs) are often used in conjunction with a request for a proposal to pre-qualify or limit the bidders who respond to the request for proposal, particularly in situations where specialised expertise is required. 5 2.3 Bids Must Be Evaluated Fairly And Equally The Supreme Court further refined the two-contract approach in its decision in Martel Building Ltd v Canada. 6 Here, the court articulated a fairness principle in procurement law, finding an implied term in Contract A that purchasers be fair and consistent 7 when evaluating bids. The court found that a privilege clause in a bid solicitation document does not exonerate the buyer from the obligation to treat all bidders fairly. It also imposed an implied obligation to treat all bidders fairly and equally. 8 Although the court found that a duty of fairness exists, it found that there was no duty of care owed by the purchaser 5 See Gerry Stobo and David Sherriff-Scott, Tender Legal Care, Government Purchasing (May-June 2003, Vol. 35, No. 35). 6 [2000] 2 SCR 860. 7 Ibid, at para 88. 8 Ibid. 7

to potential suppliers either in the drafting of tender documents or in the conduct of negotiations. That is, while purchasers are generally free to select their preferred evaluation criteria, they must fairly follow the procurement criteria they select when evaluating bids. 2.4 Duties To Unsuccessful Bidders More recently, in Double N Earthmovers Ltd v Edmonton (City), 9 the Supreme Court reaffirmed the Ron Engineering principles and elaborated on the differing duties that pertain to Contract A and Contract B. The court found that Contract A ends once a purchaser undertakes a fair evaluation of bids and selects a preferred proponent. Unlike Contract A, a purchaser does not owe duties to unsuccessful proponents when it concludes the ultimate contract, Contract B, with a preferred proponent. The purchaser s obligations to unsuccessful bidders end with the completion of its obligations under Contract A. 10 This case is also significant in that the court found that a purchaser does not have an obligation to confirm bidders abilities to perform what they have promised in their submissions. Accordingly, purchasers are entitled to and will take bids at face value when making their selection. 2.5 The Rights Of Subcontractors The Supreme Court has also commented on the duties and obligations relating to subcontractors. In Naylor Group Inc. v Ellis-Don Construction Ltd, 11 the court found that where a tender is submitted that includes bids from specified subcontractors, the supplier is obligated to subcontract with these subcontractors if its bid is successful. The court found that bid shopping was not permitted at the expense of the subcontractor. Despite this finding, the scope of this decision may be somewhat ambiguous as some commentators have suggested that the application of this decision may be confined to cases where bids are made pursuant to a bid depository system. 12 The most recent statement from the Supreme Court came in the decision of Design Services Ltd v Canada. 13 The court again discussed duties that are owed to subcontractors. This time, the court found 9 [2007] 1 SCR 116. 10 Ibid, at para 71. 11 [2001] 2 SCR 943. 12 Paul Emanueli, Government Procurement, (Markham: LexisNexis Canada Inc, 2005), at 580. 13 [2008] 1 S.C.R. 737. 8

that purchasers do not owe any duty of care to subcontractors in the context of a tendering process. It will therefore be for the bidder, not a subcontractor, to seek redress for irregularities in the procurement process in Canada. 3. Canada s Federal Procurement System 3.1 Introduction Within Canada, federal government procurement is governed in part by the common law principles discussed above, and in part by the federal bid challenge regime that was created pursuant to Canada s obligations under three trade agreements the Agreement on Internal Trade (AIT), North American Free Trade Agreement (NAFTA), World Trade Organization-Agreement on Government Procurement (WTO-AGP) and the Canada-Chile Free Trade Agreement (CCFTA) along with an array of regulations and policies. 3.2 Administrative Structures The broad policy framework for expenditure of federal public funds is set out in the Financial Administration Act. 14 The act provides the legal framework for the collection and the expenditure of public funds. The Government Contracts Regulations, 15 which were enacted pursuant to the Financial Administration Act, also provide the conditions for entering into a contract and the general requirements for the acquisition of goods and services. Within the scope of this broad framework, the Treasury Board of Canada ( Treasury Board ) has been delegated overall responsibility for establishing general expenditure policies as they pertain to the federal procurement process. 16 In addition to setting general principles of contracting, the Treasury Board is also responsible for approving contracts entered into by federal contracting agencies when such contracts exceed certain dollar-value thresholds as established from time to time by the Treasury Board. 17 14 R.S.C. 1985, c. F-11. 15 SOR/87-402. 16 The policies of the Treasury Board of Canada are contained in the contracting policy available on its website: http://www.tbs-sct.gc.ca (date accessed: April 22 2009). 17 The requirement for Treasury Board approval arises from section 34 of the Financial Administration Act. Delegation to the board of the power to set these thresholds is permitted by section 53 of that act and the Treasury Board Delegation of Powers Orders, SOR/86-1123. 9

Public Works and Government Services Canada (PWGSC), formerly the Departments of Supply and Services and Public Works, 18 is the principal purchasing agent of the federal government of Canada and is responsible for providing procurement sources for the majority of federal departments. 19 The statutory basis and administrative framework of PWGSC is established by the Department of Public Works and Government Services Act. 20 PWGSC must act in accordance with the Financial Administration Act, the Government Contracts Regulations, the Defence Production Act, 21 and directives issues by the Treasury Board. PWGSC nevertheless retains considerable discretion to set policies and procedures respecting the procurement process which it has done through a series of very helpful guidance documents including the Supply Manual 22 and Standard Acquisition Clauses and Conditions (SACC) Manual. 23 3.3 Overview Of Bid Solicitation Procedures On April 2 1991, the federal government instituted a new open bidding policy applicable to most procurements having a value of $25,000 or more. At that time, government procurement was governed by only the General Agreement on Tariffs and Trade (GATT) and the Canada-US Free Trade Agreement (the FTA). The FTA was a bilateral agreement between Canada and the United States which has subsequently been replaced by NAFTA, which brought Mexico into the tripartite trade Agreement. Prior to 1991, PWGSC generally invited bids only from those firms which had registered with PWGSC and therefore appeared on official PWGSC source lists. Now, however, under the open bidding policy, all notices with respect to Government Procurement are placed on the Government Electronic Tendering Service (GETS). GETS is the generic name of the online business opportunity identification and bid documentation distribution service. This service, called MERX, 24 18 Public Works and Government Services Canada was created by the amalgamation of the Department of Supply and Services and of Public Works in June, 1993. 19 With few exceptions, PWGSC is responsible for the procurement of all goods on behalf of the federal government. 20 SC 1996, c 16. 21 RSC 1985, c D-1. 22 http://www.tpsgc-pwgsc.gc.ca/app-acq/ga-sm/index-eng.html (date accessed: April 22 2009). 23 http://sacc.pwgsc.gc.ca/sacc/index-e.jsp (date accessed: April 22 2009). 24 http://www.merx.com (date accessed: April 22 2009). 10

is currently delivered on behalf of PWGSC by a private firm. 25 The bid solicitation notices placed on MERX generally contain a description of the subject matter of the proposed procurement as well as the time limits for the submission of bids. Further, in the case of procurements covered by the AIT, NAFTA and the WTO-AGP, where PWGSC intends to contract on a sole source basis (i.e., without an open invitation for bids) it must issue an Advance Contract Award Notice (ACAN). The ACAN is designed both to set forth the justification for the government s decision to pursue the procurement on a sole source basis and to elicit interest from additional potential suppliers who may not be known to the government. Following an evaluation of the bids received and the selection of the awardee, PWGSC will publish a contract award notice identifying the winning supplier, the goods or services acquired, and the value of the contract. 3.4 Canadian Content Policies (a) Introduction The longstanding Canadian practice of using procurement to further domestic socio-economic objectives presently manifests itself through the application of two procurement policies namely the Canadian Content Policy and the Procurement Review Committee mechanism. These policies have the net effect of diminishing access to government procurement contracts by foreign suppliers. It should be noted at the outset, however, that the first of these policies does not apply to procurements covered by the NAFTA or WTO-AGP, while the application of the second policy is limited to screening rather than to revival. 26 (b) Canadian Content Policy The Canadian Content Policy is designed to encourage industrial development in Canada by limiting, in specific circumstances, competition for government procurement opportunities to suppliers of domestic goods and services. 27 The policy applies to most 25 Supply Manual, section 7B. 26 Public Works and Government Services Supply Manual ( Supply Manual ), sections 5.070 to 5.111; Contracting Policy, Appendix U, sections 28 and 29. 27 Ibid, section 5.070. 11

procurements valued at C$25,000 or more and is identified as being applicable in the notice of proposed procurement (NPP) issued by PWGSC. Under the policy, competition for some government procurements is limited to suppliers of Canadian goods and services. As a general rule, bids for services and/or goods will qualify for consideration under the policy if at least 80% of the bid price consists of Canadian services and/or goods. Rules of origin based on the harmonised system of tariff classification 28 are used to determine if goods are of Canadian origin. (c) The Procurement Review Committee The stated objective of the procurement review mechanism is to identify procurements that have the potential to achieve socioeconomic benefits. 29 Pursuant to this mechanism, which applies to procurement projects for goods and services valued in excess of C$2 million, a Procurement Review Committee is convened to conduct a review of the socio-economic aspects of a proposed procurement. The committee will develop recommendations which are then embodied in a record of decision which sets forth, inter alia, any specific deviations from approved procurement policy or practice and any relevant international considerations. To ensure fairness to bidders, a notice that socio-economic factors will be used to assess bids may be included in all relevant bid solicitation documents, as well as a list of the socio-economic factors themselves. It is worth noting that the AIT, Canada s inter-provincial trade agreement, specifically permits preferences for Canadian content in the form of weighting criteria in the bid solicitation that favour Canadian value-added, or by limiting the tender entirely to Canadian goods or suppliers. 30 That said, the room to favour Canadian suppliers is quite limited and is rarely invoked. The fact is that favouring Canadian suppliers could easily drive up the price of the goods being acquired or limit the innovative nature of solutions offered by a wider field of potential suppliers. Consequently, Canadian governments rarely resort to procurement procedures that favour domestic suppliers. 28 Ibid, section 5.072. 29 Ibid, section 5.090 to 5.092. 30 Article 504 AIT. 12

3.5 Applicable Trade Agreements (a) The North American Free Trade Agreement The NAFTA came into force in Canada on January 1 1994. 31 The NAFTA creates a free-trade area consisting of the United States, Mexico and Canada. Broadly speaking, the agreement s purpose is to eliminate tariffs and trade barriers, improve market access among the NAFTA countries, remove investment restrictions and protect intellectual property rights. One of the key chapters of this trade agreement relates to the purchasing activities of the three signatories. Chapter 10 of the NAFTA sets out protections for potential suppliers with respect to government procurement. These protections apply to most government contracts that exceed certain values. Notably, the NAFTA excludes most Department of Defence contracts, just as does the WTO-AGP. The NAFTA applies to government procurements with a value equal to or greater than certain monetary thresholds. The threshold changes periodically and, until 2010 the monetary thresholds applicable to procurements by government departments and agencies are C$76,500 for goods, services or any combination thereof and C$9.9 million for construction services contracts. The monetary thresholds applicable to procurements by government enterprises are C$382,000 for goods, services or any combination thereof and C$12.2 million for construction services contracts. As between Canada and the United States, the monetary threshold for the procurement of goods by departments and agencies is C$28,200. As noted above, these thresholds are revised periodically in accordance with the indexation and conversion provisions in the NAFTA. The obligations imposed on the federal government when conducting procurement processes are extensive. Consequently, procurements subject to the NAFTA must be open to NAFTA-based suppliers. Procurements must not be designed to exclude competition. The NAFTA guarantees national treatment and non-discrimination to goods originating in Canada, the United States and Mexico, as well as to the suppliers of such goods and services in Canada, the United States and Mexico. The NAFTA imposes procedural disciplines aimed at promoting transparency, predictability and competition in public sector procurements. 31 32 ILM 289. 13

If the provisions of the NAFTA apply to a federal procurement, a potential supplier may challenge a procurement process that it considers to have been conducted in a way that contravenes those provisions. The challenge, as we discuss later, is before the CITT. (b) World Trade Organization-Agreement On Government Procurement As a result of the Uruguay Round of Multilateral Trade Negotiations, Canada entered into the WTO-AGP. The WTO-AGP significantly expanded a previous multilateral agreement: the GATT Agreement on Government Procurement. The WTO-AGP came into force in Canada on January 1, 1996. The obligations under the WTO-AGP are owed to suppliers whose governments are signatories to the agreement. Currently, there are 28 members to this plurilateral agreement. 32 Like the NAFTA and AIT, procurement is subject to the WTO-AGP if it meets the monetary thresholds that currently stand at C$217,400 for goods and services being procured by government departments or agencies and C$8.3 million for construction services. The procedural requirements and obligations set out in the WTO-AGP largely mirror the obligations set out in NAFTA. (c) Agreement On Internal Trade The AIT aims to reduce trade barriers within Canada with respect to persons, goods, services and investments. 33 The purpose of the procurement chapter of the AIT is to ensure equal access to government procurement for Canadian suppliers in order to contribute to a reduction in purchasing costs and the development of a strong economy in a context of transparency and efficiency. 34 Although the scope of coverage is limited to Canadian suppliers, just who can qualify as a Canadian supplier is the subject of considerable debate. 35 All Canadian provinces have signed the AIT, but not all have enacted legislation so as to make it legally binding on the province. As such it is unlikely that the AIT has much legal weight with respect to provinces and municipalities. Nonetheless, its obligations do not add much to 32 See http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm10_e.htm#govt (date accessed: April 22 2009). 33 Agreement on Internal Trade, preamble. 34 See Agreement on Internal Trade, article 501. 35 See Canada (Attorney General) v Northrop Grumman Overseas Service Corp (2008), 293 DLR (4th) 335 (Fed CA), leave to the Supreme Court of Canada granted 2008 CarswellNat 4216. 14

what is already required by these two levels of government at common law. The AIT covers contracts tendered by most provincial and territorial government departments. 36 It applies to most provincial contracts which exceed C$25,000 for goods and C$100,000 for services and construction. 37 For procurement by covered municipalities, municipal organisations, school boards and publicly funded academic, health and social services bodies (MASH entities) the agreement applies for contracts which exceed C$100,000 for goods and services, and C$250,000 for construction. 38 Article 506 of the agreement outlines requirements for procurement, including tender call requirements, evaluation criteria and disclosure obligations. (d) Canada-Chile Free Trade Agreement The CCFTA was signed on December 5 1996 and implemented on July 5, 1997, establishing a comprehensive trade regime covering goods and services and the bilateral investment relationship. 39 On November 15 2006, the governments of Canada and the Republic of Chile concluded an agreement to amend the CCFTA to include provisions respecting government procurements. These provisions came into effect in Canada on September 5 2008 and are incorporated as Article Kbis of the CCFTA. Article Kbis establishes rules and procedures for federallevel procurements, including non-discrimination rules for prescribed goods, services and construction services by listed federal government entities. Article Kbis applies to procurements by government departments and agencies for goods and services in excess of C$76,500 and in excess of C$8,300,000 for construction services contracts. The application thresholds for Crown corporations are higher and apply to procurements for goods and services in excess of C$382,000 and to construction services contracts in excess of C$12,200,000. 36 Although the Northwest Territories and the Yukon have signed the AIT, Nunavut has not. 37 See Agreement on Internal Trade, article 502. 38 Agreement on Internal Trade, Summary of the Agreement, online, Industry Canada: http://www.ic.gc.ca/eic/site/ait-aci.nsf/eng/h_il00064.html#chap_5 (date accessed: April 22 2009). See also Agreement on Internal Trade, Annex 502.4. 39 Free Trade Agreement between the Government of Canada and the Government of the Republic of Chile, 1997 Can. T.S. No. 50. 15

4. Provincial/Territorial And Municipal Procurement Systems 4.1 Provincial/Territorial Procurement Provincial tendering processes in the common law provinces are governed by the case law discussed above, subject to some qualification by the provincial/territorial legislation and case law further particularising the duties under the two-contract framework. For example, in Ontario, the Ministry of Government Services Act 40 requires the provincial government to follow policies and directives established by Management Board of Cabinet when undertaking procurements relating to construction, renovation or repair of a public work. 41 In Ontario, the Ministry of Government Services is responsible for developing the procurement policy framework for the government of Ontario, including guidelines. 42 Procurement policies in Ontario include an electronic tendering system, no preference for local vendors and a conflict of interest policy. 43 The rules surrounding provincial tendering processes differ from those at the federal level due, in part, to the absence of recourse to the CITT, and, in part, to the fact that trade agreements including the NAFTA, WTO-AGP and the CCFTA do not apply to provincial procurements. 4.2 Municipal Procurement Municipal contracting processes are generally governed by the common law and codified in municipal purchasing bylaws, contracting policies and purchasing procedures. Some provincial legislation, such as the Ontario Municipal Act, 44 requires municipalities to maintain policies 40 RSO 1990 cm25 at s 16. 41 See, for example, the Ontario Electricity Act 1998, SO 1998, C15, Schedule A which deals with electricity procurement in Ontario, and includes a regulation, the Ontario Power Authority Procurement Process, O Reg 426/04 (hereinafter OPA Regulation ) under the legislation which outlines principles for procurement processes for the Ontario Power Authority. 42 Government of Ontario, How to do Business with the Ontario Government (2008) Toronto: Queen s Printer for Ontario, online: Ministry of Government Services, http://www.doingbusiness. mgs.gov.on.ca/mbs/psb/psb.nsf/attachments/how+to+do+business+-+brochure/$file/ Doing_Business_with_Ontario-Eng_Apr2008.pdf (date accessed: April 22 2009). 43 Ibid, at 3. For further information on Ontario procurement policies and procedures, please see Ministry of Government Services, http://www.doingbusiness.mgs.gov.on.ca/mbs/psb/psb.nsf/ English/forvendors (date accessed: April 22 2009). 44 SO 2001, c 25 at s 270. 16

related to procurement of goods and services. 45 Municipal procurement policies will however often reflect federal government procurement law and policy and mandate competitive procurement procedures open to all suppliers. Pursuant to article 102 of the AIT, the provinces are responsible for ensuring municipality compliance with the AIT. However, unlike in the case of federal Crown contracts where recourse to the CITT is available, provincial and municipal procurement processes lack the same enforcement mechanisms. 4.3 Remedies The available remedies relating to municipal and provincial public procurement are those available at common law. As mentioned above, the CITT dispute resolution process, which is available for federal contracts, is not available for provincial or municipal procurements. As such, bidders must seek remedies in the courts of the relevant province or territory. The litigation processes will tend to be less nimble and expeditious than CITT proceedings. In the case of an action for damages, it can often take several years for a matter to proceed through the various stages of a proceeding and will typically require all parties to undergo relatively extensive pre-trial discovery. The AIT does have an enforcement mechanism albeit an ineffective one imbedded within it for provincial or sub-provincial level procurements. 46 The MASH entities (typically used to describe municipalities, universities, health facilities), under Section M(2), Annex 502.4, are required to have a non-judicial complaint process. Pursuant to the AIT, after all other reasonable means of recourse have been exhausted (and in the case of MASH entities, once the non-judicial complaint process has been completed), the supplier can register a complaint with the province of the supplier which may trigger the creation of a review panel that will issue a report. Should the province of the purchaser not comply with the report s terms, then the supplier s province may suspend benefits of the AIT or impose retaliatory measures against the purchaser s province. As menacing a prospect as 45 The Ontario Municipal Act does not outline any particular substantive requirements to be included in municipal procurement policies. 46 See Agreement on Internal Trade, article 513 (for provincial bid protest procedures) and Annex 502.4 Section M (for MASH entities). 17

that complaint process may seem to be, the almost complete lack of recourse to it underlines its ineffectiveness. By far the most common remedy sought in provincial, territorial and municipal procurements is an action for damages. Such claims will typically proceed as breach of contract claims and seek damages for the profits a bidder would have earned if it had won the contract. It may also be possible for bidders to seek restitution under the rules of equity where a bidder would seek to be put in the place it would have been in had the legal wrong not been committed. For example, a bidder might maintain that a purchaser was unjustly enriched by retaining a bid deposit in connection with a procurement that was conducted in an unlawful manner or claim restitution for other wasted expenditures in connection with the bid preparation process. Bidders also occasionally seek additional common law remedies known as the prerogative remedies. These are extraordinary remedies, rooted in the discretionary powers exercisable by Canadian courts, and are designed to rectify misuses of public powers. While there are several prerogative remedies in the common law, 47 only two, certiorari and mandamus, are likely to have any application in public procurement disputes. Certiorari is used to quash, or invalidate, a governmental decision, such as a decision to award a contract to a non-compliant bidder. Conversely, mandamus is used to compel action and, in the procurement context, may be used to direct that a tender be awarded to a particular bidder. A third prerogative remedy, known as prohibition, might also be available in rare circumstances. Prohibition permits a court to stop a governmental decision maker from committing an error of jurisdiction, for example, by awarding a contract to a non-compliant bidder. These remedies may also be used to seek orders requiring purchasers to alter their conduct during a tendering process or to cancel an improperly awarded contract. The threshold for obtaining a prerogative remedy is relatively high. Not only must the petitioner establish that a tendering authority has made or is about to make a fundamental legal error, the petitioner must also establish that its case would be an appropriate one for the remedy to be exercised. Prerogative remedies are discretionary, not automatic, and may not be granted where other suitable remedies are available. 47 Perhaps the best known being habeas corpus. 18

The difficulty of obtaining a prerogative remedy is similar to the difficulties a claimant will have obtaining equitable remedies such as injunctions or specific performance in that damages for lost profit will typically fully compensate aggrieved parties for wrongs in procurement disputes. Thus, in most cases, parties will litigate on the basis that they would have been the successful proponent had a procurement been conducted lawfully in order to obtain damages for lost profits. Prerogative and injunctive remedies may however provide a more expeditious resolution to procurement disputes as parties can usually bring these matters much more quickly before the courts by way of application. 5. Challenges To Federal Government Procurement Practices 5.1 Introduction With the implementation of the FTA in 1989, a bid protest mechanism was created for suppliers to the Canadian government. Article 1305 of the FTA specified procedural obligations each party was to provide in order to achieve the goal of non-discrimination in government procurement practices. One of the most important obligations was the requirement that each party provide and maintain equitable, timely, transparent and effective bid challenge procedures for procurements. 48 To achieve this goal, the Procurement Review Board of Canada (PRB) was created to hear challenges to Canadian federal government procurement practices. The infrastructure of the PRB was modest as it only had one decision maker its chairman. Nevertheless, it introduced a much-needed level of independent scrutiny of government procurement practices. 5.2 Canada s Bid Challenge Agency: The Canadian International Trade Tribunal In 1994, with the enactment of NAFTA, a new adjudicative body was charged with the responsibility to deal with bid challenges. On January 1, 1994, the CITT was mandated to receive complaints 48 Article 1305.3 of the FTA. 19

pertaining to any aspect of the procurement process, to conduct inquiries and to make determinations in respect of designated contracts under the NAFTA, and shortly thereafter to contracts under the WTO-AGP and the AIT. The CITT was granted an extensive legislative and regulatory framework setting out its mandate and processes. Before receiving its bid protest jurisdiction, the tribunal had jurisdiction to deal with dumping, subsidy and safeguard investigations under the Special Import Measures Act 49 and appeals against tariff classification and value for duty decisions of the Canada Border Services Agency under the Customs Act. 50 The CITT is an independent quasi-judicial body acting in an autonomous and independent manner. 51 It has all the rights, powers and privileges of a superior court of record, 52 giving it the authority to do what is necessary and proper in order to exercise its jurisdiction. The tribunal has authority to examine witnesses, order the production of documents, inspect documents and the power to enforce its orders. 53 In keeping with the administrative nature of its proceedings, the CITT is to conduct its hearings as informally and expeditiously as the circumstances and considerations of fairness permit. 54 In order to achieve that legislative objective, the CITT has issued a user-friendly guide to inform parties about bid challenge procedures and to facilitate the timely disposition of cases. 55 The importance of having procedures that are both effective and expeditious is made apparent by the requirement in the Canadian International Trade Tribunal Procurement Inquiry Regulations 56 that directs the CITT to issue its findings and recommendations within 90 days from the date of the filing of a complaint. 57 While the 49 RSC 1985, c S-15. 50 RSC 1985, c 1 (2nd Supp). 51 See the CITT s website: http://www.citt.gc.ca (date accessed: April 22 2009). 52 Sections 17(1) to (2) of Canadian International Trade Tribunal Act, RSC 1985, c 47 (4th Supp.). 53 Section 17(2) of Canadian International Trade Tribunal Act. 54 Section 35 of Canadian International Trade Tribunal Act. 55 See for example Procurement Review Process: A Descriptive Guide (2009), http://www.citt.gc.ca/publicat/guide_e.asp (date accessed: April 22 2009). 56 SOR/93-602. 57 Section 12(a) of the Canadian International Trade Tribunal Procurement Inquiry Regulations, SOR/93-602. 20

CITT strives to deliver decisions within that 90-day framework, it is authorised, in circumstances where it is appropriate, to extend the time for delivering a decision to 135 days from the date of the filing of a complaint. 58 Being mindful of the complex nature of procurement challenges, and the fact that many complaints have not been represented by legal counsel, the CITT has issued policy documents to assist complainants submit a properly documented complaint, 59 as well as guidelines to assist complainants in the event their complaint is successful and they are awarded costs. 60 These guidelines aid complainants in the preparation and filing of their claims for bid preparation costs, complaint costs and, in those circumstances where the CITT has considered it appropriate, compensation for lost profits or lost opportunity. 5.3 The Bid Protest Procedure (a) The Complaint A potential supplier (a bidder or prospective bidder), may file a complaint with the CITT concerning any aspect of the procurement process that relates to a designated contract and request that the CITT conduct an inquiry into the complaint. 61 The CITT has interpreted its mandate very broadly by assuming jurisdiction to consider the procurement process from the time it begins, through to and including the evaluation of bids, and award of contract. 62 One interesting development has been recent jurisprudence from the CITT which extends its jurisdictional reach beyond the award of the contract. In Bell Mobility 63 for example, the CITT determined that 58 Section 12(c) of the Canadian International Trade Tribunal Procurement Inquiry Regulations. 59 See How to File a Complaint, http://www.citt.gc.ca/procure/complaint/index_e.asp (date accessed: April 22 2009). 60 See Procurement Compensation Guidelines Revised (June 2001), http://www.citt.gc.ca/ Publicat/prcomp_e.asp, Procurement Cost Guidelines (November 1999), http://www.citt.gc.ca/ Publicat/costgu_e.asp and Guideline for Fixing Costs in Procurement Complaint Proceedings (for complaints filed after January 31, 2004), http://www.citt.gc.ca/publicat/cost04_e.asp (date accessed: April 22 2009). 61 Section 30.1 of Canadian International Trade Tribunal Act. 62 Novell Canada (August 17 2002), PR-98-047R, see also: Canyon Contracting (September 19 2006), PR-2006-016. 63 Bell Mobility (July 14 2008), PR-2008-008/009. 21

it would adjudicate complaints even when the subject matter of the complaint took place during the time the contract was being performed. The CITT noted [it] is not a simple matter of contract administration if a mandatory term of a procurement is changed after bids are received or even after a contract is awarded.. 64 (b) Filing A Complaint The CITT will only decide to investigate a complaint once it is properly documented. In order for a complaint to be properly documented, the complainant must provide information relating to the nature of the contract in dispute, the relevant government institution involved, an explanation as to the grounds for the complaint, a detailed statement indicating what breach of a trade agreement has been committed and a statement of the relief being requested. 65 If the complaint does not include the required information, the CITT may direct it to correct these deficiencies. 66 A complainant must be quick to respond to the CITT s direction to provide the required information because the complaint may be dismissed for a failure to be timely. (c) Acceptance Of A Complaint For Investigation When deciding whether to accept a complaint for inquiry, the CITT must be satisfied that the following conditions have been met: 67 the complaint was filed within the prescribed time limits; the complainant is a potential supplier; the complaint is in respect of a designated contract; the information provided by the complainant discloses a reasonable indication that the procurement process contravenes the provisions in one of the relevant trade agreements. 64 Ibid, at para 41. 65 Sections 30.11(2)(a) to (h) of Canadian International Trade Tribunal Act; section 6(1) of the Canadian International Trade Tribunal Procurement Inquiry Regulations, rule 96 of the Canadian International Trade Tribunal Rules, SOR/91-499. 66 Section 30.12(2) of Canadian International Trade Tribunal Act, Rule 99 of the Canadian International Trade Tribunal Rules. 67 Rule 99 of the Canadian International Trade Tribunal Rules. 22

As noted above, once a complaint is properly documented, the CITT must decide within five days whether it discloses a reasonable indication of a breach. 68 Since the CITT only has limited information at the time it decides to initiate an investigation, the complainant is only required, in practice, to meet a modest evidentiary threshold. 69 (d) What Do Potential Suppliers Complain About? The range of issues forming the basis of complaints is wide and diverse. Historically, a number of complaints have dealt with sole source, or limited tendering procurements, conducted without a competitive tender process. 70 Sole sourcing a contract by government institutions is permitted; however, circumstances in which this is allowed are limited. 71 For example, a government institution is entitled to sole source a contract where previous competitive tendering processes have been unsuccessful, where purchases are made under exceptionally advantageous conditions, where the goods purchased are additional deliveries or replacement parts by an original supplier, and where the goods being procured are proprietary and thereby protected by patents, copyrights or other exclusive rights. Potential suppliers may complain that the technical specifications in the solicitation documents are written in a way that favours one supplier over another. 72 Complainants may also claim that bid documents do not clearly indicate how bids submitted will in fact be assessed. The requirements of Canada s procurement regime and the manner in which they have been interpreted by the CITT indicate that the weighting criteria used in the evaluation process must be broadly set out in the solicitation documents. 73 This is required in order for bidders to know what points will be given for the different components making up their bid package. 68 Sections 7(1)(c) of the Canadian International Trade Tribunal Procurement Inquiry Regulations. 69 K-Lor Contractors Services Ltd (November 23 2000), PR-2000-23; EH Industries Ltd v Canada (Minister of Public Works & Government Services) (2001), 267 NR 173 (Fed CA). 70 See Report of the Auditor General of Canada into Contracting for Professional Services: Selected Sole-Source Contracts, Chapter 26, December 1998. 71 Article 506 and Annex 502.1B AIT; Article 1016 NAFTA; Article XV WTO-AGP. 72 Article 1007 NAFTA, WTO-AGP VI, Article 504 AIT. 73 Article 1013 NAFTA, WTO-AGP XII; Brookfield Lepage Johnston Controls Facility Management Services (September 6 2000), PR-2000-008/021. 23

Often, complainants will allege that bids are not assessed in accordance with the evaluation criteria set out in the request for proposal. 74 Complainants will sometimes claim that weight was given to certain evaluation criteria in a manner inconsistent with the terms of the request for proposal. Or, complainants may allege that their bid was assessed unfairly by the evaluation team. 75 (e) Canadian International Trade Tribunal s Determination In deciding what remedy is appropriate under the circumstances, the CITT can take into consideration a variety of factors. 76 These include: the seriousness of the deficiency of the procurement process; the extent to which the breaches have prejudiced the parties; the impact these breaches had on the integrity of the procurement system; whether the parties acted in good faith; and the extent to which the contract was performed. Taking into account the range of remedies provided by the legislation, the CITT has made a variety of recommendations requiring that: the technical requirements in the solicitation documents be re-written; the contract be cancelled and awarded to the complainant; the government institution re-write the evaluation criteria and clearly state how those criteria will be evaluated; the government institution re-issue the solicitation and, in doing so, provide a complete list of mandatory and rated criteria; the government institution cancel a sole source or limited tendering contract and issue a competitive solicitation; the government institution cancel any further call-ups or taskings under a standing offer. 74 Brookfield Lepage, ibid. 75 Frontec Corp (May 6 1998), PR-1997-035. 76 Section 30.15(3) of Canadian International Trade Tribunal Act. 24

In conducting its inquiry, the CITT must determine whether the procedures and requirements of the relevant trade agreements were respected. 77 As previously mentioned, the CITT has indicated that, in view of the obligations imposed on government institutions to conduct procurements in accordance with those agreements, the government bears the responsibility of showing that their procurement practices respected those obligations. In cases where the CITT determines that the complaint is valid in whole or in part, it may recommend any remedy that it considers appropriate, including that: 78 a new solicitation for the designated contract be issued; the bids be re-evaluated; the contract with the awardee be terminated; the designated contract be awarded to the complainants; the complainant be compensated by an amount specified by the CITT. (f) Implementing The Canadian International Trade Tribunal s Recommendations The Canadian International Trade Tribunal Act provides that the government institution shall implement, to the greatest extent possible, the recommendations made by the CITT. 79 However, because the Canadian International Trade Tribunal Act only permits the CITT to issue recommendations and not binding awards, the government institution retains a discretion regarding whether or not to implement what the CITT has recommended. Whatever the government s intention, it must indicate to the CITT within 20 days of the determination whether it will implement the tribunal s recommendation. 80 Although the CITT Act only permits it to make recommendations, the Federal Court of Canada has, in effect, said that the government institutions shall implement the recommendations of the CITT because, 77 Section 30.14(20) of Canadian International Trade Tribunal Act. 78 Section 30.15(2) of Canadian International Trade Tribunal Act. 79 Section 30.18(1) of Canadian International Trade Tribunal Act. 80 Section 30.18(2) of Canadian International Trade Tribunal Act, section 13 of the Canadian International Trade Tribunal Procurement Inquiry Regulations. 25