ENCORE COMPUTER LTD.
Determinations
Board File No: G92PRF6631-021-0001
IN THE MATTER OF:
A Complaint By Encore Computer Ltd. of 1410 Blair Place, Suite 310 Gloucester, Ontario
Board File No: G92PRF6631-021-0001
Complaint Upheld
AND IN THE MATTER OF:
The Free Trade Agreement Implementation Act, Part II, Sec. 15 S.C. 1988, Ch. 65.
February 28, 1992
DETERMINATION BY THE BOARD
Complaint
The complainant, Encore Computer Limited of Gloucester, Ontario (Encore) contends that the National Research Council (NRC), in anticipation of acquiring a real time based computer system, conducted a review of a limited number of firms (hereinafter referred to as "benchmarking"). This was conducted prior to the issuance, by the Department of Supply and Services (DSS) of a Request for Proposal (RFP) to a selected supplier. Encore expressed its dismay that despite being "a world-wide renowned company, with a sales and support office in Ottawa" and involved in supplying real time computer systems to the federal government, it "was not even contacted to run the benchmark".
Encore maintains that it is capable of supplying the required goods and should therefore be given an opportunity to compete for the contract. Consequently, the complainant requests that the sole source RFP be cancelled and reissued with benchmarking as an integral part of the RFP document.
On January 17, 1992 the Board accepted the complaint for investigation pursuant to subsection 28(1) of the Procurement Review Board Regulations (Regulations). On January 20, 1992 a Stop Award Order to postpone the award of any contract in relation to this procurement was issued by the Board pursant to paragraph 16(1)(b) of the Free Trade Agreement Implementation Act (the Act). The same day, DSS sought and the Board granted the use of the Express Option (subsection 40(4) of the Regulations).
The Investigation
The allegations contained in this complaint, the government's response to those allegations, and the complainant's comments on the government's response were investigated by means of interviews and the examination of documents.
A number of individuals were contacted by telephone and in person to confirm various statements made and/or contained in the documentation. These individuals are:
Ms. Lorraine Momy (Buyer), Ms. Phyllis Ramsay (Chief, Purchasing A3), both of DSS Capital Region; Dr. Lorne Elias (A/Laboratory Head), Dr. Ernest Hanff (Senior Research Officer), Mr. Armando Prini (Senior Electronic Technologist), all from the Applied Aerodynamics Laboratory (AAL), NRC; Mr. Fred Ellis, Instrumentation and Control, High Speed Aerodynamics, NRC; Mr. Christian Tremblay, Account Manager, Encore Computer Limited; and Mr. Dipak Roy, Interactive Circuits and Systems Ltd. of Gloucester.
A copy of the Preliminary Investigation Report was sent to DSS and the complainant for their comments. Both parties responded with written replies which were then exchanged between them. These comments have been added to the Preliminary Investigation Report and form part of the Investigation Report as submitted to the Board.
The report of this investigation contains a number of appendices relating to material and documents deemed relevant by the investigative staff as part of their report. Particular reference is not made to all of these supporting documents in this determination, but they have been made available to the parties, and, subject to the provisions of the Access to Information Act, are available to any other person.
Because the investigation produced sufficient information to enable the Board, in its opinion, to resolve the issues raised in this complaint, it was determined that a hearing was not required. The Board, in reaching its conclusions, has considered the report of its investigative staff and the comments made thereon by the parties, and has made its findings and determinations on the basis of the facts disclosed therein, the relevant portions of which are mentioned in this determination.
Background
In June 1991, the Applied Aerodynamics Laboratory (AAL) of NRC identified a need to replace aging equipment with new data acquisition equipment in order to conduct certain experiments on high angle-of-attack aerodynamics as provided for under an agreement between NRC, the Department of National Defense (DND), and the United States Department of the Air Force (USAF).
According to NRC, during July and August 1991, they conducted a search for possible configurations and suppliers through library reference materials, magazines, and industry and government contacts.
During the above-mentioned period or shortly thereafter, NRC determined the broad parameters of their requirement. These parameters were expressed in letters which NRC sent between the period September 12 to 20, 1991 to approximately 90 firms whose names were contained on lists compiled by NRC (see I.R. Appendix 5). The purpose of the letters was to seek product literature. The firm eventually identified by the government as the possible sole source supplier for this requirement, Concurrent Computer Canada Inc. (Concurrent), was on one of the lists. Encore was not on the lists nor contacted as, according to NRC, they had not heard of this firm before the complaint was lodged with the Board.
Companies responded to this invitation to provide information in various ways, some by submitting complete price quotes and others by providing packages of technical literature.
During the next month, NRC communicated with still other suppliers. Its efforts culminated in the formulation by NRC of what they called "Detailed specifications" in early November (see I.R. Appendix 8).
On or about November 15, 1991, NRC prepared a chart in which six companies, including Concurrent, were listed comparing one to the other with respect to the "MINIMUM REQUIRED FEATURES" (see I.R. Appendix 15). These identified "minimum required features" were not expressly communicated to these companies in order that they might submit relevant product/system literature. Contained in a NRC note to file, however, is an entry which indicates that, as early as October 17, 1991, Concurrent had undertaken to configure a data acquisition system. In fact, on November 6, 1991, a NRC note to file reads, in part:
Details to purchase Concurrent system are complete, req is being prepared as a complete system for [amount deleted]...Some things are left for future dealings.... I have a gentlemen's agreement with...to include this [FP09 postscript driver] for free!!...
Despite the apparent commitment to contract with Concurrent, the investigation showed that, as late as November 13, 1991, there is indication that another company considered itself capable of meeting the required needs of NRC (see I.R. Appendix 10). Nevertheless, on November 21, 1991, NRC decided to submit a requisition to DSS that referred to Concurrent's configuration and specified the latter's model numbers. It is noteworthy that, included in the requisition were a list of detailed specifications, a reference to 10 potential suppliers which were approached by NRC, and the following paragraph:
ON CAREFUL REVIEW OF THE PROSPECTIVE SUPPLIERS SPECIFICATIONS, [FIRM Z] AND CONCURRENT COMPUTING HAD THE ONLY SYSTEM THAT WOULD BE OF POSSIBLE ACCEPTANCE. CONCURRENT COMPUTING IS THE PREFERRED SUPPLIER SINCE THEIR SYSTEM IS HIGHLY INTEGRATED AS A DATA ACQUISITION PRODUCT AND HAS AN ESTABLISHED REPUTATION. [FIRM Z] DOES NOT HAVE THIS LEVEL OF INTEGRATION AND EXPERIENCE WITH HIGH SPEED DATA ACQUISITION SYSTEMS, RELYING EXTENSIVELY ON THIRD PARTY SUPPORT. BECAUSE OF THE CRITICAL NATURE OF THE APPLICATION USED FOR WIND TUNNEL TESTING WE FEEL THAT THE HIGHLY INTEGRATED SOLUTION WOULD REQUIRE MINIMAL DEVELOPMENT SUPPORT.
On November 22, 1991, a NRC note to file states, "...see if we can pre-view the manuals for our new Concurrent machine..."
On December 3, 1991, a Pre-Award Review was conducted by the buyer's supervisor at DSS (see I.R. Appendix 12). Therein, several questions are raised related to the nature and accuracy of the specifications, the end use of the equipment requested and the inclusion of a mandatory delivery date of March 21, 1992. Clarification was also sought on the exact meaning of three "mandatories".
According to a DSS note to file (see I.R. Appendix 13), the buyer called the end-user at NRC on or about December 5, 1991 in the interest of satisfying the concerns raised in the Pre-Award Review. The note reads, in part:
...explained to him re Detailed specification - said that is strict minimum he can use. They are not Concurrent specs. Since market already tested maybe would be better to negociate [sic] so I asked him to write justification as to why all Detailed specifications required & if anything unique - also put it on justification - will try and negociate [sic] will be published for 20 days instead of 40 days. He will fax justification.
On December 6, 1991, NRC replied to DSS stating, in part:
The system specifications stipulated in the purchase requisition represent our absolute minimum requirements. The specs. are needed to meet stringent data acquisition and processing requirements of a major NRC/USAF/DND joint research program on high angle-of-attack aerodynamics.
Two selection criteria of paramount importance were used, namely, required performance characteristics and level of system software integration to minimize development effort. The latter is imposed by the need to meet strict program deadlines.
Contained in a DSS note to file (see I.R. Appendix 16), is a reference to the buyer contacting Concurrent on December 12, 1991. According to DSS, this was done to clarify whether the U.S. and Canadian offices would compete. The result of this telephone conversation is a facsimile dated December 16, 1991 (see I.R. Appendix 17), received from Concurrent Computer Corporation, Tinton Falls, N.J., advising DSS that:
...Concurrent Computer Corporation having a subsidiary in Canada, namely, Concurrent Computer Canada, Inc. has by direction, a non-competitive reciprocal agreement with its subsidiary.
Furthermore, the data acquisition system that you have requested from Concurrent Computer Canada, Inc. must be sourced from Concurrent as this system is not available through other distribution channels within Canada given the proprietary nature of several key components of such systems.
On December 16, 1991, a "REQUEST FOR APPROVAL TO NEGOTIATE PROCUREMENT" was prepared by the buyer (see I.R. Appendix 18) with the following reason indicated as "REASON FOR NEGOTIATION":
H.SELECTION AS A RESULT OF PRIOR MARKET TESTING BY CUSTOMER -- MUST BE SUBSTANTIATED.
A memorandum to file titled "APPROVAL REQUEST FOR EXCLUSION AS INDICATED BELOW", also prepared by the buyer on December 16, 1991, identifies the reasons for single/sole sourcing as follows:
FOR LOGISTIC REASONS (I.E. WHERE ADDITIONAL DELIVERIES BY THE ORIGINAL SUPPLIER ARE INTENDED EITHER AS REPLACEMENT PARTS FOR EXISTING SUPPLIES OR INSTALLATIONS, OR AS THE EXTENSION OF EXISTING SUPPLIES OR INSTALLATIONS WHERE A CHANGE OF SUPPLIER WOULD COMPEL THE CUSTOMER DEPARTMENT TO PROCURE EQUIPMENT NOT MEETING REQUIREMENTS OF INTERCHANGEABILITY WITH ALREADY EXISTING EQUIPMENT). (REF: MEMO TO FILE) SINGLE/SOLE SOURCE APPLICABLE AS ATTACHED.
NO SUB: CUSTOMER BRENCHMARK [sic]. HP, SILICON GRAPHICS, SUN, RADSTON, PENTEK & CONCURRENT. ONLY CONCURRENT MET MINIMUM REQUIREMENT SUCH AS (1) REQUIRED PERFORMANCE CHARACTERISTICS, (2) LEVEL OF SYSTEM. SOFTWARE INTEGRATION (3) MOST IMPORTANT TO ACQUIRE DATA AT A MINIMUM OF 50 KHZ PER CHANNEL UP TO THIRTY TWO CHANNELS ETC. (REFER TO MEMO ATTACHED.) FOR THESE REASONS REQUEST TO NEG WITH CONCURRENT.
SOLE SOURCE - CONCURRENT USA DO NOT WISH TO COMPETE AGAINST CONCURRENT CDA.
On December 17, 1991, both the "REQUEST FOR APPROVAL" and the "APPROVAL REQUEST FOR EXCLUSION" mentioned above were approved by the supervisor and the Chief and Manager of Purchasing respectively.
A RFP dated December 18, 1991 with a closing date of "before" January 13, 1992 was transmitted by facsimile to Concurrent. Fifteen (15) elements, of which the first 14 were incorporated in the requisition under the heading "detailed specifications of high performance data acquisition system" were included in the RFP and were listed as "Mandatory Requirement", followed immediately by the description of the equipment.
An Advance Contract Award Notice (ACAN) was prepared and it appeared in the December 24, 1991 issue of the Government Business Opportunities in the GATT/FTA section of Proposed Procurements with the designation code F-3, meaning free trade procurement - single tendering. The reason indicated for going sole source is `B', that is "when, for works of art or for reasons connected with protection of exclusive rights, such as patents or copyrights, the products can be supplied only by a particular supplier and no reasonable alternative or substitute exists".
Determination
The government, in responding to the complaint expressed the view that the use of an ACAN was adequately justified and that Encore's complaint should be dismissed because:
...the complainant had more than ample opportunity to challenge the proposed sole source justification for this procurement. The complainant failed to do so in a timely fashion and regrettably is the author of its own misfortune.
The complainant, for its part, contends that the government acted unfairly by resorting to a sole source procurement as a result of a benchmarking exercise in which they were never asked to participate.
The DSS Supply Policy Manual (Volume 3, Directive 3004, Annex G) clearly sets out the purpose of the ACAN:
An Advance Contract Award Notice (ACAN) is a notice of intent to solicit a bid and negotiate with only one firm. The notice is published with a view to increasing openness and transparency in government procurement.
Furthermore, section 4 of this Annex states:
Single Tendering Conditions in subparagraph 59(b) or (d) of this directive must be fully met and substantiated to proceed with an ACAN.
The preamble to paragraph 59 states:
The provisions of paragraphs 20 to 58 above governing competitive bidding procedures need not apply in the following conditions, provided that single or sole source contracts are not used to avoid maximum possible competition or in a manner which would constitute a means of discrimination among foreign suppliers or protection to domestic producers. The provisions of the Code, therefore, need not apply under conditions listed below. There is, however, an obligation for the Department to report each contract awarded under the single tendering provision. Please refer to paragraphs 68c) and 69 of these instructions.
Subparagraphs 59(b) and (d), referenced above, read as follows:
(b)When, for works of art or for reasons connected with protection of exclusive rights, such as patents or copyrights, the products can be supplied only by a particular supplier and no reasonable alternative or substitute exists.
(d)For additional deliveries by the original supplier, which are intended either as replacement parts for existing supplies or installations or as the extension of existing supplies or installations, where a change of supplier would compel the customer to procure equipment not meeting the requirements of interchangeability with existing equipment. This includes software to the extent that the initial procurement of the software was covered by the Code.
These provisions correspond to Article V, subparagraphs 16(b) and (d) of the GATT Code. Consequently, since as is clearly stated above "Conditions in subparagraph 59(b) or (d) of this directive must be fully met and substantiated to proceed with an ACAN" (emphasis added), it is the Board's opinion that the government's policy respecting the use of an ACAN is consistent with the Free Trade Agreement. Indeed, the Board called for such a development in its determination of January 18, 1990 (LANsPLUS, D89PRF6608-021-0006).
Having determined for themselves that the proposed procurement should proceed on a sole source basis, NRC submitted a requisition to DSS on November 21, 1991. DSS officials, while raising a number of questions of substance at the outset, ultimately approved NRC's recommended action and set out their supportive reasoning in the memorandum entitled "APPROVAL REQUEST FOR EXCLUSION".
The first part of the DSS reasoning for single tendering ("WHERE ADDITIONAL DELIVERIES..."), is not applicable in this case and no evidence was submitted to the Board to substantiate its application. Indeed, this procurement does not contemplate "additional deliveries by the original supplier," let alone for the purported reasons set out in the relevant provision. Furthermore, the additional reasons cited in the said document (no substitute: customer benchmark...Concurrent USA not to compete with Concurrent CDA) are not conditions acceptable for single tendering under the GATT Code.
When publishing the ACAN, DSS indicated a different reason for going sole source, namely, reason `B':
(b)When, for works of art or for reasons connected with protection of exclusive rights, such as patents or copyrights, the products can be supplied only by a particular supplier and no reasonable alternative or substitute exists.
The explanation for this selection appears to be based on the DSS communication with the parent corporation in the U.S.A. stating that a) it will not compete with its Canadian subsidiary, and b) several key components of the Concurrent system are of a proprietary nature.
This reasoning presupposes one has to use Concurrent equipment, and because of marketing agreements the equipment must be supplied by the Canadian subsidiary.
The Board has not been presented with any evidence that would go the distance in proving no reasonable alternative or substitute exists. Indeed, the evidence indicates the contrary. What we have here is an attempt by the government to justify procuring on a sole source basis because a potential supplier, improperly selected in the first place, a point discussed below, is offering a system which contains several features of a proprietary nature. This is clearly a situation of the end justifying the means. This is not acceptable.
It is thus the Board's view that the government has not met the conditions required to use single tendering and, consequently, it was never in the position to proceed with an ACAN and should, therefore, not have done so.
As stated in government policy, GATT single tendering conditions " must be fully met and substantiated to proceed with an ACAN" (emphasis added). They are not to be used to "effectively test the hypothesis by the Crown that only one supplier could fulfill a requirement" (DSS comments on the Preliminary Investigation Report). The onus rests with the government to justify single tendering and that responsibility cannot be transferred to potential suppliers under the guise of testing a hypothesis.
ACANs are not to be used as a convenient administrative tool which replaces the need to properly support the reasons required for going sole source. Nor are ACANs to be treated as a flexible, more expeditious means of running or attempting to run a competitive procurement action.
In this regard, ACANs should not be used as a means of reducing the GATT or FTA notice time, as was done in this case from 40 days to 20 days (see I.R. Appendix 13).
Having dealt with the issue of the justification for single tendering and the use of ACANs, the Board will now comment on the actions taken by NRC in determining its requirements.
In a case dealing with similar actions, the Board stated in its Determination of October 16, 1991 (Waters E91PRF6601-021-0022):
This case discloses ample proof that what actually went on in this procurement was a pre-competition, held by Agriculture Canada in private, in the course of assessing what the market had to offer that might meet their needs. These were knowledgeable people with much more than a passing acquaintance with the technical details of the instruments they wanted to acquire. Knowing their needs intimately, they assessed the market with a critical eye and went straight to the conclusion that they had found the product that best met those needs....
Unfortunately for Agriculture Canada, the preliminary, or private, competition of the sort they actually conducted here is prohibited under the GATT Code and Free Trade Agreement, and is not allowed either, under the general rules of policy and procedure that DSS works to, even when the procurement is not under FTA. Competitions are required to be fair and open with all the terms and conditions transparent. They are not to be conducted in private, which is virtually what happened here, and the actual competition, when it occurs, is not to be a mere formality with the true expression of actual needs, and the justifications for mandatory requirements prepared later on, only after it becomes apparent that a complaint has been filed.
Other than the fact that NRC, through DSS, attempted to obtain the equipment by sole sourcing and not by open tendering, as was the situation in the above-referenced case, the circumstances in this complaint are not significantly different in respect to the kind of actions and decisions that took place. This is not to say that the government cannot conduct surveys in order to define its needs. In the Board Determination of September 20, 1991 (Trenton F91PRF6621-021-0024), when referring to the establishment of a particular fabric as a minimum need, the Board stated:
And, the means by which the government establishes a standard such as was done here is not unusual or necessarily unfair as long as when it chooses a specific product as a "standard", the essential evaluation criteria are documented and, where trade names are used, "or equivalent" is added to the description for competitive procurement purposes...
In other words, it is not prohibited for the government to survey the supplier community when attempting to define its needs. What must not be done, however, is to turn the need definition exercise into some kind of competitive action and then pick and choose among suppliers the one that best suits one's needs (or worse, one's wants) and, finally, proceed to acquire it in breach of the procedural requirements of the Free Trade Agreement and the GATT Code.
It is a fact that NRC conducted an extensive search for possible suppliers and no doubt invested significant time and effort in the exercise. However, no matter how wide their net was cast or how deep their analysis might have been, they failed to use or ask DSS to use the required open and transparent vehicles and means to communicate with the private sector. As such, these actions breached paragraph 2(a) of Article 1305 of the FTA in that,
...they did not provide all potential suppliers equal access to pre-solicitation information and with equal opportunity to compete in the pre-notification phase.
DETERMINATION
The Board has determined on the basis of its investigation that, because the requirement was inappropriately sole sourced, this procurement did not comply with the requirements of Section 17 of the Free Trade Agreement Implementation Act in that it did not provide all potential suppliers:
a)equal access to pre-solicitation information and with equal opportunity to compete in the pre-notification phase; and
b)equal opportunity to be responsive to the requirements of the procuring entity in the tendering and bidding phase.
The Board awards the complainant its reasonable costs of filing and pursuing its complaint.
The Board recommends that this procurement action be cancelled and that, if the requirement continues to exist, it be competed in accordance with the provisions of the Free Trade Agreement.
Gerald A. Berger
_________________________
Gerald A. Berger
Chairman
Procurement Review Board of Canada
Initial publication: August 28, 1997