ZENON ENVIRONMENTAL INC.
Determinations
ZENON ENVIRONMENTAL INC.
File No. PR-2002-015R
TABLE OF CONTENTS
Ottawa, Tuesday, June 10, 2003
File No. PR-2002-015R
IN THE MATTER OF a complaint filed by ZENON Environmental Inc. under subsection 30.11(1) of the Canadian International Trade Tribunal Act, R.S.C. 1985 (4th Supp.), c. 47;
AND FURTHER TO a decision of the Federal Court of Appeal, which set aside the recommendation of the Canadian International Trade Tribunal in File No. PR-2002-015 made on October 15, 2002, and remitted the matter to the Canadian International Trade Tribunal with the direction to redetermine the recommended remedy and to provide reasons for its recommendation.
DETERMINATION OF THE TRIBUNAL
Pursuant to subsections 30.15(2) and (3) of the Canadian International Trade Tribunal Act, the Canadian International Trade Tribunal recommends, as a remedy, that the Department of Public Works and Government Services re-tender the procurement that is the subject of this complaint, in accordance with the applicable trade agreements, as soon as is operationally possible and prior to the exercise of any extension rights under the current contract. The Canadian International Trade Tribunal also recommends that the current contract remain with Seprotech Systems Inc. until such time as the re-tendering is complete and a new contract is awarded.
In addition, the Canadian International Trade Tribunal recommends that ZENON Environmental Inc. be compensated for lost opportunity in the amount of one third of the profit that it would reasonably have made during the time that Seprotech System Inc. holds the current contract and until such time as the re-tendering is complete. The starting basis for the calculation of profit will be ZENON Environmental Inc.'s normal profit margin percentage multiplied by the actual value of the contract usage up to the time of the award of a new contract.
Patricia M. Close
Patricia M. Close
Presiding Member
Michel P. Granger
Michel P. Granger
Secretary
| Date of Determination and Reasons: |
June 10, 2003 |
| Tribunal Member: |
Patricia M. Close, Presiding Member |
| Senior Investigation Officer: |
Cathy Turner |
| Counsel for the Tribunal: |
Reagan Walker |
| Roger Nassrallah |
|
| Complainant: |
ZENON Environmental Inc. |
| Counsel for the Complainant: |
Ronald D. Lunau |
| Phuong T.V. Ngo |
|
| Interveners: |
Seprotech Systems Inc. |
| Peacock Inc. |
|
| Counsel for the Interveners: |
David Sherriff-Scott and Gerry Stobo, for Seprotech Systems Inc. |
| Eric Préfontaine, for Peacock Inc. |
|
| Government Institution: |
Department of Public Works and Government Services |
| Counsel for the Government Institution: |
Ian McLeod |
| Christianne M. Laizner |
|
| Susan D. Clarke |
STATEMENT OF REASONS
BACKGROUND
On July 15, 2002, ZENON Environmental Inc. (ZENON) filed a complaint with the Canadian International Trade Tribunal (the Tribunal) under subsection 30.11(1) of Canadian International Trade Tribunal Act 1 concerning the procurement (Solicitation No. W8482-01TF04/A) by the Department of Public Works and Government Services (PWGSC) for the repair and overhaul of shipboard reverse osmosis desalinator (SROD) units for the Department of National Defence (DND).
ZENON alleged that, contrary to Article 506(6) of the Agreement on Internal Trade,2 PWGSC awarded a contract to a bidder whose proposal did not meet all the mandatory requirements of the solicitation document. Specifically, it alleged that Seprotech Systems Inc. (Seprotech) failed to provide letters of intent from original equipment manufacturers (OEMs), as stipulated by Annex "A" to the Request for Proposal (RFP). ZENON further alleged that some representations made by Seprotech in its proposal with respect to its personnel resources were inaccurate.
ZENON requested, as a remedy, that the Tribunal recommend that the contract awarded to Seprotech be terminated and, instead, be awarded to it. It also requested that it be awarded its costs incurred in relation to preparing and proceeding with the complaint.
On October 15, 2002, the Tribunal determined that the complaint was valid and recommended that PWGSC terminate the contract awarded to Seprotech and, for the remaining two proposals, re-evaluate only the criterion to provide a firm indication, as far as components not readily available by commercial supply or not manufactured by the bidder itself were concerned, that such components were accessible to the bidder. The Tribunal also awarded ZENON its reasonable costs incurred in relation to preparing and proceeding with the complaint.3
On February 11, 2003, following the hearing of an application for judicial review brought by Seprotech and PWGSC, the Federal Court of Appeal (the Court) rejected the arguments that the Tribunal's reasoning in its decision was patently unreasonable. The Court also found that there were no grounds for procedural unfairness. However, the Court allowed the application for judicial review in part. It remitted the matter of the remedy to the Tribunal,4 on the grounds that, by not providing reasons for its choice of remedy, the Tribunal effectively denied ZENON its right to judicial review of the remedial aspect of the Tribunal's decision. The Court concluded that the Tribunal should exercise its remedial discretion and provide reasons for its recommendation.
On February 14, 2003, the Tribunal requested the parties to provide submissions regarding the issue of remedy. On March 3, 2003, the parties filed the requested submissions with the Tribunal. On March 10, 2003, PWGSC, ZENON and Seprotech filed their comments on these submissions with the Tribunal; Peacock Inc. (Peacock) declined to submit comments on the submissions. On March 12, 2003, Seprotech requested to provide additional submissions with respect to issues raised in ZENON's submissions and, on March 13, 2003, ZENON filed a submission in response to Seprotech's request. On March 14, 2003, the Tribunal denied Seprotech's request to provide additional submissions since, in the Tribunal's opinion, there was sufficient information on the record to render its decision.
POSITION OF PARTIES
PWGSC's Position
PWGSC submitted that, having regard to the circumstances enumerated by the Court and all other relevant circumstances, the termination of the contract awarded to Seprotech and re-evaluation of the remaining bids on the basis of the Tribunal's interpretation of "firm indication" of component availability is not an appropriate remedy for a number of reasons. Firstly, the termination of the contract without a replacement contract in place is not an appropriate remedy because DND must, at all times, maintain technical readiness to meet whatever contingency arises in the context of Canada's domestic and international obligations. Secondly, a re-evaluation of ZENON's and Peacock's proposals will inevitably result in the conclusion that neither proposal complies with the "firm indication" requirement, as interpreted by the Tribunal for components identified in the source control drawings. Thirdly, it would be unfair to exclude Seprotech's proposal from a re-evaluation, given the Court's finding that Seprotech's non-compliance was in the context of an ambiguous provision of the RFP and the uncertainty surrounding which components would be subject to the requirement for written assurance of availability.
PWGSC submitted that, in making a recommendation on remedy, the Tribunal should take into account that the purpose of the procurement chapter of the AIT is "to establish a framework that will ensure equal access to procurement for all 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."
PWGSC further submitted that, in recommending an appropriate remedy, it is incumbent upon the Tribunal to take the following facts into consideration in assessing the seriousness of the deficiency in the procurement process, the degree to which the bidders were prejudiced and the degree to which the integrity and efficiency of the procurement process was prejudiced:
· Seprotech went further than both other bidders in demonstrating its access to components, and submitted more letters of intent from approved vendors identified on the source control drawings than either ZENON or Peacock;
· Seprotech's technical proposal was evaluated as compliant with the requirement to demonstrate its capability to do the work; in this regard, the "firm indication" requirement was a factor but not the sole basis on which the evaluation was made;
· the work under the contract has been carried out by Seprotech successfully since contract award in June 2002;
· Seprotech has been able to secure access to all components required to do the work notwithstanding ZENON's position throughout the procurement process that it had secured exclusive arrangements with OEMs, such that no other supplier was able to access all components necessary to do the work;
· the Crown has the ability to purchase SROD components directly from OEMs; therefore, the "firm indication" requirement was not essential to an evaluation of whether the bidder has the capability to do the work under the contract;
· the provisions of the RFP were intended to determine the bidder's capability to do the work. The evaluators acted in good faith in determining that the proposals of all three bidders had demonstrated the bidder's capability to do the work and in evaluating all three proposals as technically compliant; and
· upon contract award, the contract price was communicated to all bidders, making it very difficult to ensure that a re-tendering of the complete requirement could now be conducted without prejudicing the lowest-priced bidder.
PWGSC submitted that an appropriate remedy is to maintain the contract with Seprotech and to award complaint costs to ZENON.
In the alternative, PWGSC submitted that the Tribunal should recommend that the contract with Seprotech be maintained pending the re-evaluation of the technical proposals of Seprotech, ZENON and Peacock and that, in conducting such technical re-evaluation, the evaluators should set aside the requirement for a "firm indication that all components required to perform the required work are accessible to the bidder". PWGSC further submitted that it is appropriate that this requirement be set aside, having regard to the Court's finding that this provision is ambiguous and the uncertainty surrounding precisely which components specified in the hundreds of technical pages accompanying the RFP would be subject to a written assurance of availability.
In the further alternative, PWGSC submitted that the Tribunal should recommend that the contract with Seprotech be maintained pending a limited re-tendering of the technical requirement for bidders to demonstrate their capability to do the work and that Seprotech, ZENON and Peacock should be invited to resubmit technical proposals in response to amended technical requirements. PWGSC submitted that a recommendation for a complete re-tendering is not appropriate because it would be prejudicial to the lowest-priced bidder, in light of the fact that the contract price is known to all bidders.
In its reply submission of March 10, 2003, PWGSC submitted that the manner in which it and DND evaluated the "firm indication" requirement was not the determining factor in the decision as to which bidder would be recommended for contract award. PWGSC submitted that all three proposals received the same evaluation and that, therefore, it cannot be said that a bidder was prejudiced or unfairly treated. PWGSC further submitted that it is in the public interest to ensure that the Crown receives best value, and that maintaining the contract with Seprotech, the lowest-priced bidder, provides best value.
Having regard to the Tribunal's interpretation of the "firm indication" requirement, PWGSC submitted that the evidence before the Tribunal, namely, the letters of intent submitted in ZENON's proposal, could easily be cross-referenced against the approved OEM vendors named in the source control drawings. PWGSC further submitted that it is evident, without a formal re-evaluation, that, when this cross-referencing is conducted, it can be demonstrated that ZENON did not submit letters of intent with respect to each of the approved vendors identified in the source control drawings.
PWGSC submitted that the procuring entity is charged with the responsibility of defining its requirements as set out in the RFP. It therefore submitted that, where the Tribunal determines that there is some ambiguity in the requirement as defined, the appropriate remedy is either to remove the offending requirement for the purpose of evaluation of proposals or, alternatively, to permit the procuring entity to properly define its requirements through a limited re-tendering process of the technical requirements.
PWGSC submitted that the ability of Seprotech, ZENON or Peacock to do the work required under the contract is not and has never been at issue in this complaint. It submitted that all three bidders were evaluated as having demonstrated the technical ability to do the work. However, it further submitted that termination of a contract cannot take place without a replacement contract and that any recommendation to re-evaluate or re-tender will require a certain period of time to complete, together with the administrative approval process for a new contract of this value.
PWGSC submitted that, if the Tribunal is of the view that either re-evaluation or re-tendering is required, the re-evaluation or re-tendering process must include Seprotech, ZENON and Peacock because all three bidders were equally affected by the manner in which the "firm indication" requirement was evaluated. PWGSC further submitted that, having regard to the continued ambiguity and uncertainty regarding the interpretation of the "firm indication" requirement and the fact that the Crown has the ability to purchase SROD components directly from OEMs, it is appropriate that the re-evaluation should exclude the "firm indication" criterion.
Peacock's Position
Peacock submitted that it is clear that all three bidders assumed a different interpretation of what comprised the definitive list of OEMs to which the "firm indication" requirement applied. It further submitted that the resulting confusion from the inadequate precision of the RFP is clearly an affront to the integrity of the procurement process and is a serious deficiency in that process. It also submitted that all parties involved in the case have been affected in a negative manner by the poorly drafted "firm indication" provision and that, as a result, the initial remedy proposed by the Tribunal would not, in fact, most appropriately remedy the situation at hand.
Peacock submitted that, had the initial RFP not been ambiguous, it would have been logical for PWGSC to terminate the contract awarded to the non-compliant supplier and to re-evaluate the bids of the remaining suppliers. However, it submitted that the case at hand is more complex, in that the RFP was not clear in the first instance and was not repaired so as to become any clearer in the second instance and that, as such, an accurate determination cannot possibly be made as to which bid is the more compliant.
Peacock submitted that, should the initial remedy proposed by the Tribunal stand, then, in the event that ZENON and/or Peacock were not compliant with the disputed aspect of the "firm indication" provision, the parties would once again find themselves in a position to contest the evaluation and application of the ambiguous provision. Peacock further submitted that such a situation would benefit neither the potential suppliers nor PWGSC and DND and that, in fact, it would continue to prejudice all the parties involved.
With respect to paragraph 30.15(3)(a) of the CITT Act, Peacock submitted that the deficiency in the procurement process was serious for two reasons: first, it adversely affected the integrity of the procurement process; and, second, due to the ambiguity, the responses to the RFP received by PWGSC were likely not the most accurate with respect to the evaluation and compliance criteria used by PWGSC and DND. In reference to paragraph 30.15(3)(b), Peacock submitted that the ambiguity of the "firm indication" provision has prejudiced the potential suppliers in denying them the opportunity to properly and completely respond to the RFP and, as such, has prejudiced them financially. Regarding paragraph 30.15(3)(c), Peacock submitted that the integrity of the procurement process has been affected in a substantial manner.
Peacock submitted that, with regard to the degree to which the contract has been performed up to this point, the nature of the work required by the RFP is such that, for companies already experienced in the manufacture, testing and service support of process equipment, no major infrastructure or engineering investments are required and that, in reality, the only set-up needed to carry out the work is to have the necessary parts in inventory and properly trained personnel available.
Finally, Peacock submitted that, in order to correct the situation at hand, and given the remedies available under the CITT Act, the only logical conclusion is that a new solicitation for the designated contract be issued. It submitted that such a remedy would repair the integrity of the procurement process and would, as well, re-establish a fair and equitable playing field for all the parties involved in the case.
Seprotech's Position
Regarding the seriousness of any deficiency in the procurement process, Seprotech submitted that PWGSC's and DND's determinations that its bid demonstrated a "firm indication" does not, in its view, represent a serious deficiency. It submitted that the key phrase in the RFP, "firm indication", as acknowledged by the Court, was an ambiguous one. It further submitted that the RFP lacked precision as to what parts required what form of assurances in order to be compliant and that, if the RFP had been clearer about what bidders had to do in order to demonstrate that the required parts were available, perhaps the deficiency would have been more serious, but such was clearly not the case in this instance.
Seprotech submitted that, in its view, the prejudice to the other bidders was minor. It further submitted that it was substantially compliant with the requirements of the RFP. It submitted that the Supreme Court of Canada has noted that, where a bid is substantially compliant and the defect or omission has no material impact on the fairness of the procurement process or the outcome of the evaluation, it should not be rejected on the basis of a minor defect that it contains.5 It further submitted that the prejudice to other parties might have been more significant if the RFP had clearly stated that bidders were required to file written letters of authorization from suppliers that were similarly clearly identified. Seprotech submitted that, as it was, the latent ambiguity in the RFP led all bidders to respond in a different manner.
Seprotech submitted that, since the complaint was filed, it has been involved in protracted and costly litigation involving a contract for which it clearly offered best value and demonstrated its ability to perform the required services. Seprotech further submitted that it is not an overstatement that the SROD contract is of fundamental importance to its economic well-being and that of its employees. Further, it submitted that the economic prejudice that it will suffer if the contract is terminated will be dramatic.
Seprotech submitted that, if the contract is terminated, it will lose market share and the ability to compete in the market, will suffer a significant reduction in profitability and will have to terminate the employment of technical staff. It also submitted that termination of the contract would severely prejudice DND's operational capacity. Further, it submitted that, if the remaining bids are re-evaluated as originally recommended, there is a likelihood that neither of those bids will be compliant and that DND will be left with no field service at all.
Regarding the degree to which the integrity and efficiency of the competitive procurement process was prejudiced, Seprotech submitted that, had the contract been awarded to a bidder whose bid was materially deficient or who did not have the qualifications or ability to perform the required work, there might have been prejudice. But that was not the case here. Neither the integrity nor the efficiency of the competitive procurement process were prejudiced by PWGSC and DND's conclusion that Seprotech's bid was compliant. It submitted that PWGSC and DND officials were acting in good faith.
Regarding the extent to which the contract has been performed, Seprotech submitted that it has been able to obtain the materials indicated in its bid documents and that there has been no part that it is unable to access. It submitted that, to date, it has received three SROD units and work is nearing completion. More units are scheduled for repair/overhaul work in the very near future.
Seprotech submitted that a recommendation from the Tribunal to re-tender the contract would be fraught with difficulty. It submitted, for example, that PWGSC would have to consider what the nature of any assurance from bidders would be or whether an assurance from particular suppliers would be needed at all; the bid documents would have to more clearly specify which parts required what form of assurance and where named parts could be sourced.
Seprotech submitted that, in view of the fact that the contract is well under way, the appropriate remedy would be to allow it to continue with the work, with compensation to ZENON for bid preparation and complaint costs. Seprotech submitted that any remedy other than this would be disproportionately severe in that it would punish Seprotech, causing irreparable harm.
In its reply submission of March 10, 2003, Seprotech submitted that ZENON claims, in its submission, that non-compliance with a mandatory requirement, no matter how great or small the act of non-compliance may be, automatically requires rejection of a bid or termination of a contract. Seprotech submitted that it is unreasonable to expect that each small (and immaterial) omission in a bid would result in automatic rejection. It submitted that this notion imposes a level of discipline on procurement that is simply impossible to achieve. In the event that the Tribunal considers that a re-tendering of the contract is appropriate, it urges the Tribunal to consider that all bidders know its bid price and that it would suffer severe prejudice because of that fact.
ZENON's Position
ZENON submitted that it has been conclusively established by the Tribunal and the Court that Seprotech's bid is non-compliant and that, consequently, the contract is currently being performed by a non-compliant bidder and, further, that PWGSC is in blatant violation of the terms of the RFP by continuing to award work to Seprotech. It submitted that PWGSC should terminate the contract for convenience and proceed to award the contract to the winning, compliant bidder.
ZENON submitted that the Court has found that PWGSC engaged in impermissible bid repair by relying on information from outside Seprotech's bid to evaluate that bid and that the contract was awarded to a non-compliant bidder. This, it submitted, was manifestly unfair to the other bidders and a fundamental failure to adhere to the requirements of the RFP.
ZENON submitted that, by definition, mandatory criteria are especially critical to the requirement and that there is no such thing as "minor non-compliance" with a mandatory criterion. It submitted, as an example, that, if a bid falls just one point below a prescribed mandatory threshold score, then the bid is still non-compliant. ZENON further submitted that a bid can only fall into one of two possible states: it is either compliant or it is not. If the bid is not compliant, then it is not eligible for further consideration.
ZENON submitted that it has suffered severe and continuing prejudice as a result of being deprived of this contracting opportunity. It submitted that it will be compelled to reduce the number of skilled persons who were being retained on staff in the expectation of it being awarded the contract. Further, it submitted that, if it is unfairly deprived of the opportunity to be awarded the contract, then the prejudice that it will suffer cannot be compensated for with an award of damages.
ZENON submitted that one of PWGSC's most fundamental legal obligations is to conduct the evaluation in accordance with the criteria that were announced in the RFP and, further, that this obligation is essential to maintaining integrity and public confidence in the procurement process. It submitted that any remedy apart from termination of the contract awarded to Seprotech fails to result in the "adherence to the requirements of the RFP" and fails to uphold the objective of maintaining integrity in the process. ZENON submitted that permitting Seprotech to retain a contract that it should not have been awarded condones the deviation from the mandatory requirements of the RFP and negates the duty of fairness that is owed to the other compliant bidders, in addition to undermining the certainty and transparency in the procurement process and failing to serve the public interest.
ZENON submitted that, by permitting the contract award to Seprotech to stand, the Tribunal would be validating PWGSC's award of a contract based on criteria other than the criteria published in the RFP and that the Tribunal would also be failing in its duty to uphold the obligations imposed on PWGSC by Article 506(6) of the AIT.
In its reply submission of March 10, 2003, ZENON submitted that it has already invested considerable time and effort preparing and submitting a bid and that it is entitled to have that bid properly evaluated before there is any re-tendering.
ZENON submitted that, in terms of economic prejudice, Seprotech's submission focuses primarily on the loss of revenues from the contract. It submitted that this does not qualify as prejudice in that Seprotech had no right to this revenue stream in the first place. It further submitted that Seprotech is always free to pursue other business and to bid on other projects regardless of the status of the SROD contract.
ZENON argued that the contract has not been performed to such an extent as to render termination impractical and that the work currently being performed by Seprotech can easily be transferred to another contractor. ZENON submitted that PWGSC implicitly recognizes that a transfer is possible when suggesting re-tendering as a possible remedy, since this could involve a change of supplier.
ZENON submitted that it does agree that re-tendering is not an appropriate option, but not for the reasons suggested by Seprotech. It submitted that re-tendering should only be considered if the existing procurement process, properly completed, fails to result in a contract award.
ZENON submitted that the Tribunal has no jurisdiction to "set aside" a mandatory requirement of the RFP and that, in many previous decisions, the Tribunal has declared that the government entity defines its own requirements. ZENON further submitted that the requirement is in the RFP and has been given meaning by the Tribunal, that the meaning has been upheld by the Court and that there is no basis for now suggesting that it be "set aside" or ignored in a re-evaluation.
Regarding the ambiguity issue, ZENON submitted that, during the procurement process, no bidder expressed concern that the requirement was too uncertain to permit it to bid. ZENON further submitted that the problem that was identified with the process was not that bidders did not understand the requirement; the problem was that, for its own reasons, Seprotech failed to include required documentation with its proposal. It submitted that this is an error on the part of Seprotech that has nothing to do with any alleged "ambiguity" in expressing the requirements.
Finally, ZENON submitted that a recommendation for re-tendering is not appropriate and that it wants, and is entitled to receive, a fair evaluation of that proposal before there is any consideration of re-tendering. In addition, ZENON asked for "special compensation" to recognize the degree of prejudice done to it and to the integrity of the process.
TRIBUNAL'S DECISION
The Court, having allowed in part the application for judicial review by Seprotech and PWGSC, remitted the matter to the Tribunal with a direction to once more exercise its discretion concerning the appropriate remedy in this case and to provide reasons for its recommendation.
The contract was awarded on an "as and when requested basis" and, therefore, the Tribunal, in making its original determination as to remedy, considered that it was quite possible that no work had as yet been commissioned and that termination would not be a difficult recommendation to implement. As well, the Tribunal did not envisage a significant delay between its recommended cancelling of the contract to Seprotech and re-evaluating the other two bids. Following the judicial review, new evidence is before the Tribunal. Seprotech has, in fact, commenced work on the contract. This, in and of itself, may well have made no difference to the Tribunal's remedy. Other factors, however, which have also come to light in the process of the judicial review, lead the Tribunal to change its recommended remedy.
A central purpose of the Tribunal's inquiry had been to determine whether PWGSC had awarded the contract to a bidder that failed to meet the mandatory requirements, contrary to Article 506(6) of the AIT. Of necessity, this meant interpreting the meaning of "firm indication" in Annex "A" to the RFP. The Tribunal interpreted "firm indication" as meaning that written confirmation from OEMs or their distributors or agents was required for components not readily available by commercial supply or not manufactured by a bidder itself. The Court found that "given both the wording and purpose of the badly drafted `firm indication' requirement, the Tribunal's interpretation of it was not patently unreasonable."
The universe of "components required to perform the required work" that would be subject to the "firm indication" requirement was never in doubt during the inquiry nor during the original evaluation. All parties tacitly accepted (and it was clear in the record) that DND evaluators possessed the technical expertise and knowledge of the procurement necessary to determine which components were critical enough to require a firm indication of availability of supply and which were not. Indeed, PWGSC in its original evaluation considered both ZENON and Peacock, as well as Seprotech, to be compliant in this respect.
The Tribunal did its best to describe the critical components generically in the body of its decision, which reads, in part, as follows:
Essentially, these components are those identified in the source control drawings where the names and addresses of the approved OEMs are specified. Components that are readily available by commercial supply, that is, off-the-shelf or catalogued items or components that are manufactured by the bidder itself, do not need more than a statement by the bidder that they are readily accessible in order to constitute a firm indication of accessibility.6
In its original determination, the Tribunal purposely did not link the mandatory requirement for a firm indication to source control drawings where the names and addresses of OEMs were mentioned. Rather, the Tribunal recommended that PWGSC terminate the contract awarded to Seprotech and re-evaluate "only the criterion to provide a firm indication, as far as components not readily available by commercial supply or not manufactured by the bidder itself are concerned".
The Tribunal never intended, nor was it suggested by the parties in the course of the procurement inquiry, that all components identified, in the source control drawings where the names and addresses of the approved OEMs were specified, be subject to the "firm indication" requirement. It was careful to stipulate, both in the above-quoted paragraph and in its determination per se, that the requirement did not apply to components that were available by commercial supply or manufactured by the bidder itself. It should have been obvious that this exception to the requirement applied even if the components were identified in the source control drawings and had the names and addresses of the approved OEMs specified therein. In other words, despite the ambiguity in Annex "A" to the RFP regarding the universe of components to which the "firm indication" was meant to apply, it was understood that this would only apply to those components that were identified by DND evaluators as being critical and for which security of supply was an issue. The Tribunal was prepared to defer to the consensus of the parties in this respect.
Nevertheless, the scope of application of the necessary critical components requirement became a significant issue on judicial review. Relying not on the language of the Tribunal's determination, but rather on a part of a description of the components in the Tribunal's reasoning that required a "firm indication", PWGSC argued that the complainant's and the interveners' bids would now have to be disqualified, not just that of Seprotech. This effectively shifted the centre of the dispute. The debate now focussed on which components were in the scope of the "firm indication" provision of the RFP, and which were out. The Court found that the provision was "badly drafted" and "ambiguous" and that there was a possibility that neither ZENON's nor Peacock's bid would be found compliant on re-evaluation because of "the uncertainty surrounding precisely which components specified in the hundreds of technical pages accompanying the RFP were subject to a written assurance of availability." As mentioned above, since the Tribunal had contemplated a very limited re-evaluation, not one which would involve DND's evaluators re-navigating the hundreds of technical pages attached to the RFP, and since that course of action is no longer possible given that there is no longer the consensus among the parties as to which components require a "firm indication", the Tribunal is of the view that the original remedy is no longer workable.
REMEDY
In recommending a remedy, the Tribunal is bound by subsection 30.15(3) of the CITT Act, which states:
(3) The Tribunal shall, in recommending an appropriate remedy under subsection (2), consider all the circumstances relevant to the procurement of the goods or services to which the designated contract relates, including
(a) the seriousness of any deficiency in the procurement process found by the Tribunal;
(b) the degree to which the complainant and all other interested parties were prejudiced;
(c) the degree to which the integrity and efficiency of the competitive procurement system was prejudiced;
(d) whether the parties acted in good faith; and
(e) the extent to which the contract was performed.
In its original determination, the Tribunal directed the termination of the contract and a re-evaluation of the remaining bids because of the seriousness of the deficiency in PWGSC's procurement process, i.e. awarding the contract to a bidder that did not meet all the mandatory requirements, specifically the "firm indication" requirement, contrary to Article 506(6) of the AIT. The Court did not disagree with the Tribunal's reasoning upon what a "firm indication" means. In light of the Court's decision on this point, it was not the "firm indication" provision per se that was ambiguous. However, the Court felt that there were other possible remedies given, amongst other factors, "the extent of Seprotech's non-compliance" with the provision in the RFP, which, given the uncertainty as to which components required this firm indication, was seen by the Court as ambiguous in its application.
As to the extent of Seprotech's non-compliance, the Tribunal agrees with ZENON's submission that, possibly apart from clerical errors and other similar de minimus matters, there is no such thing as a minor inconsequential breach of a mandatory requirement. By definition, mandatory requirements are exactly that, mandatory. As such, any breach disqualifies the bidder from being awarded the contract. For this reason, the Tribunal finds that the appropriate remedy continues to be termination of the contract awarded to Seprotech, subject to the conditions described below.
The Tribunal notes that Seprotech has argued that the Supreme Court of Canada stated, in Ron Engineering and related cases,7 that, where a bid is substantially compliant, it should not be rejected on the basis of a minor defect that it contains. However, those cases are readily distinguishable from the present procurement, in that they dealt with minor technical or clerical errors that did not, in any way, affect the procurement. They did not purport to apply to cases where a material fact was omitted from the tender or where the Crown had imposed a requirement for strict compliance by the wording of its conditions of tender. In the Tribunal's opinion, Seprotech's failure to provide a written assurance of availability of supply for the component parts, as required by the "firm indication" clause", was a material fact. Moreover, the wording of the RFP makes it clear that the clause was a mandatory requirement. It is contained in Annex "A" to the RFP, under the heading "TECHNICAL PROPOSAL". "Technical compliance" is described as a mandatory factor in the main body of the RFP,8 where it is also stated that "[i]ssues or deviations to mandatory requirements raised in the supplier's bid will not be considered or accepted, and will render the bid non responsive." In addition, Annex "A" also stipulates that "[f]ailure to submit sufficient information to allow for a full technical evaluation will result in the proposal being declared non-responsive." Thus, in the Tribunal's opinion, PWGSC did impose a requirement for strict compliance and the above cases do not apply to this procurement.
Rather than the limited re-evaluation of the original remedy, the Tribunal is now of the opinion that the procurement should be re-tendered. On judicial review, the Court found that there was "uncertainty surrounding precisely which components specified in the hundreds of technical pages accompanying the RFP were subject to a written assurance of availability." The Tribunal is of the opinion that this has become a serious deficiency in the ability of DND and PWGSC to re-evaluate the procurement as it stands.
PWGSC even stated, on judicial review, that it lacked the ability to evaluate its own mandatory requirement due to the ambiguity of the "firm indication" clause that it had drafted. It also admitted in its submission on remand that, even though the firm indication was a mandatory requirement, it "[was] not essential to an evaluation of whether the bidder has the capability to do the work under the contract".9 All the more reason to re-tender the procurement.
In its submission, Seprotech argues that it will suffer "dramatic" economic prejudice if the contract is terminated. Even allowing, for the sake of argument, that this may be the case, Seprotech still won the contract as a result of a flawed procurement process. A mandatory requirement was not met and, in the Tribunal's view, that mandatory requirement was overlooked in order to qualify Seprotech. Moreover, Seprotech has reaped the economic benefits of the procurement and will continue to do so until a new contract is in place. These factors significantly mitigate Seprotech's claim of prejudice. On the other hand, both ZENON and Peacock, due to the flawed procurement process, lost an opportunity to win the contract in the first instance and reap a profit as a result. This is also a form of prejudice.
Given that re-tendering is a more involved procedure than the re-evaluation that was originally recommended and also given that the Tribunal is cognizant of DND's requirement in this case to maintain a technical readiness to meet Canada's domestic and international obligations, the Tribunal is of the view that the current contract should remain with Seprotech until such time as a new contract is in place. The Tribunal finds that the government should have the discretion to re-tender the requirement when considered operationally possible and that it should employ its discretion in such a manner that minimizes delay and risk. The contract should not, however, be extended beyond its original time frame ending March 31, 2005.
Based on the parties' submissions, the Tribunal finds that the contract with Seprotech has not been performed to such an extent as to render termination impractical and is satisfied that a re-tendering of the contract will not create an unduly onerous burden on the government to switch suppliers if that becomes necessary. Therefore, the Tribunal finds that the contract should be terminated as soon as the re-tendering is completed.
Paragraph 30.15(2)(e) of the CITT Act provides that the Tribunal may recommend that a complainant be compensated in an amount specified by the Tribunal. The Tribunal finds that ZENON should be awarded compensation for lost opportunity in the amount of one third of the profit that it would have reasonably made during the time that Seprotech has held and continues to hold the contract at issue and until a new contract is awarded. The Tribunal has assessed that the compensation should be one third of the profit, given that, because of the flawed procurement process, it is unclear whether ZENON would have won the contract.
With respect to costs, no costs are awarded for the remand portion of these proceedings, since success is evenly divided between the parties, and the award in the Tribunal's determination of October 15, 2002, to ZENON of its reasonable costs incurred in relation to preparing and proceeding with its original complaint, filed with the Tribunal on July 15, 2002, remains unchanged.
DETERMINATION OF THE TRIBUNAL
For the reasons provided above, and pursuant to subsections 30.15(2) and (3) of the CITT Act, the Tribunal recommends, as a remedy, that PWGSC re-tender the procurement that is the subject of this complaint, in accordance with the applicable trade agreements, as soon as is operationally possible and prior to the exercise of any extension rights under the current contract. The Tribunal also recommends that the current contract remain with Seprotech until such time as the re-tendering is complete and a new contract is awarded.
In addition, the Tribunal recommends that ZENON be compensated for lost opportunity in the amount of one third of the profit that it would reasonably have made during the time that Seprotech holds the current contract and until such time as the re-tendering is complete. The starting basis for the calculation of profit will be ZENON's normal profit margin percentage multiplied by the actual value of the contract usage up to the time of the award of a new contract.
1 . R.S.C. 1985 (4th Supp.), c. 47 [CITT Act].
2 . 18 July 1994, C. Gaz. 1995.I.1323, online: Internal Trade Secretariat <http://www.intrasec.mb.ca/eng/it.htm> [AIT].
3 . Re Complaint Filed by ZENON Environmental Inc. (15 October 2002), PR-2002-015 (CITT).
4 . Seprotech Systems Inc. v. Peacock Inc., 2003 FCA 71 (F.C.A.).
5 . The Queen (Ont.) v. Ron Engineering, [1981] 1 S.C.R. 11 [Ron Engineering]; British Columbia v. SCI Shares & Constructors Inc. (1993), 22 B.C.A.C. 89 (C.A.).
6 . Supra note 3 at 7.
7 . Supra note 5.
8 . At 6.
9 . PWGSC's submission, 3 March 2003 at 6.