ZEPOLI INC.
Determinations
Board File No: D93PRF66W-021-0019
IN THE MATTER OF:
A Complaint By Zepoli Inc. of P.O. Box 471 Dorval, Québec
Board File No: D93PRF66W-021-0019
Complaint upheld in part
AND IN THE MATTER OF:
The Free Trade Agreement Implementation Act, Part II, Sec. 15 S.C. 1988, Ch. 65.
July 21, 1993
DETERMINATION BY THE BOARD
The Procurement Review Board (PRB or the Board) received a complaint, on April 23, 1993, from Zepoli Inc. (Zepoli). The complaint concerns the procurement by the Department of Supply and Services (DSS) of 3,375 turnbuckle assemblies for the Department of National Defence (DND).
The complainant alleges that DSS, recognizing that the above competitive procurement action was won by Zepoli but awarded in error to another supplier, is now looking for an excuse to set aside Zepoli's claim for the loss of profit. In addition, Zepoli alleges that DSS omitted to state part of DND's technical requirement (galvanized finish) in the tender documentation. Also, the complainant claims that even if the government required galvanized turnbuckle assemblies, the additional cost associated therewith should merely reduce its claim, should it affect it at all.
The remedy requested by Zepoli is that the Board award them their loss of profit and ensure that they are not penalized for upholding their rights.
On April 28, 1993, the administrative and regulatory requirements all having been satisfied, the Board accepted the complaint for investigation.
DSS filed a Governmental Institution Report (GIR) with the Board on May 21, 1993. A copy of the relevant portions of the GIR was sent to the complainant who, in turn, filed comments with the Board on June 3, 1993. The complainant's comments were forwarded to DSS. These elicited further comments from both parties and these, too, were appropriately communicated.
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 sent to the respective parties. These comments have been added to the Preliminary Investigation Report and form part of the Investigation Report (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 Board's investigative staff as part of their Report. Specific reference is not made to these appendices 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 an oral hearing was not required, nor was one requested by either party. The Board, in reaching its conclusions, has considered the complaint, the GIR, the complainant's response to the GIR, the Report of its investigative staff and comments made thereon by the parties, and has made its findings and determinations on the basis of the facts disclosed, the relevant portions of which are mentioned in this determination.
The Investigation
The allegations of this complaint, were investigated by the Board's staff by means of interviews and the examination of documents.
The following people were interviewed in person and/or by telephone to confirm various statements made and/or contained in the documentation:
Ms. M. Anderson, Contract Management Officer (contracting officer), and Ms. L. Leclerc-Cowell, Group Manager, both of DSS Headquarters; Cdr.O.M. Carlson, Section Head, Directorate Procurement and Supply Common User (DSPCU) 3, Mr. P.W. Lacelle, Sub-Section Head, DPSCU 3-3, and Mr. J. McKee, Life Cycle Materiel Manager, all of DND; Mr. R. Reynolds, Dibblee Tools Ltd. (Dibblee), Pointe-Claire; Ms. A. Lopez Haller, Zepoli Inc., Dorval.
The Procurement
On July 7, 1992, a requisition was received by DSS from DND. The requisition listed two items for stock replenishment, item 1 being the turnbuckle assembly that is the subject of this complaint. This item, listed as NATO (North Atlantic Treaty Organization) stock number N4030-99-414-9836, was described as follows:
TURN BUCKLE ASSEMBLY, STEEL; 0.500 INCH UNC MALE AND FEMALE THD; 4.500 INCH LG HOOK
REF NO. NSCM
AP1916 U1278
DEF STAN 40-5 K0851
003500822-01 U1278
0Z63-1916 U1278
40-5 U1278
(INTERIM DEFENCE STANDARD)
According to DND, the above specification, including the reference list, was copied from the listing for this item in Canadian Forces Publication 137 (the catalogue for NATO stock supplies). The references listed are British Armed Forces references. DND states that the primary reference, although not identified as such in the Request for Proposal (RFP), is the third one on the list and represents the drawing number for the item required. According to DND, the first two references, "Admiralty Pattern 1916" and "Defence Standard 40-5", are older references. The fourth reference "0Z63-1916" which should have read "0263-1916" is a repetition of the first reference. The fifth reference is a repetition of the second one. According to DND, there is no valid reason for this repetition.
DSS prepared a RFP dated October 27, 1992 with a closing date of 1400 EST December 10, 1992.
The RFP contains the same specification and reference numbers as stipulated in the requisition (shown above) and includes, inter alia, the following clauses:
BASIS OF SELECTION:
5.1 It is understood by the parties submitting proposals that, to be considered RESPONSIVE, a proposal must meet all the mandatory requirements. PROPOSALS NOT MEETING ALL OF THE MANDATORY REQUIREMENTS WILL BE CONSIDERED NON RESPONSIVE.
...Competitive contracts are usually awarded to the lowest total cost at point of destination.
The following factors will be taken into consideration in the evaluation of your proposal:
- Technical Requirements - MANDATORY
. . .
5.2
Upon request from SSC, it is mandatory that suporting [sic] technical literature be provided within five (5) calendar days of such request, unless otherwise specified. Failure to provide this information may render the bid non-responsive as Her Majesty may not be in a position to evaluate the equivalency of the product(s) offered. The Crown is under no obligation to seek clarification of the bid or the supporting technical documentation provided.
...MATERIEL: Material [sic] offered shall be new and unused and conform to the specified issue of the applicable drawing and/or specification, or be the current part number in effect on the closing date of this Request for Proposal.
...Stores Certification
The item offered conforms strictly in accordance with the specification.
YES NO . The deviations are as follows: .
When bid documents were requested by a supplier, the RFP was sent to the supplier by Information Systems Management Corporation, the bid service contractor, and a notice containing the supplier's mailing address was sent to DND through DSS. DND then provided each such supplier with a Design Data List (DDL) and related technical documentation. The DDL contains the following general instructions:
This Design Data List (DDL) specifies technical data approved by the LCMM [Life Cycle Materiel Manager] to govern manufacture, packaging and inspection of the NATO Stock Numbers (NSNs) listed below for the CD [Contract Demand] 8463-2-JA0D.
The data pertinent to the turnbuckle assembly include:
NSN 4030-99-414-9836
ITEM 0001
Drawings
Contractors Dwg.
PO. PLM.04291
Service Dwg. No.
003500822/01
Issue 2 Oct 73
Specifications [DESCRIPTION]
D-LM-008-036/ [DEPARTMENT OF NATIONAL DEFENCE.
SF-000 90-06-11 MINIMUM REQUIREMENTS FOR
MANUFACTURER'S STANDARD PACK]
D-02-006-008/ [NATIONAL DEFENCE STANDARD. THE
SG-001 85-05-16 DESIGN CHANGE, DEVIATION AND WAIVER
PROCEDURE]
AQAP-9 Mar 76 [NATO BASIC INSPECTION
REQUIREMENTS FOR INDUSTRY]
STANAG 4107 (For U.K. & [NATO - MUTUAL ACCEPTANCE OF
European GOVERNMENT QUALITY ASSURANCE]
Contractors)
17-08-89
*FAR 52.246-2 PRICED [FEDERAL ACQUISITION REGULATIONS]
*B.S. 970 PT.1 PRICED [BRITISH STANDARD FOR STEEL]
The two drawing numbers listed (PO.PLM.04291 and 003500822/01) represent the same drawing. This drawing is of the turnbuckle assembly itself. The other specifications relate to general requirements and procedures.
The reference drawing, 003500822/01 (Issue 2, Oct. 73), contains a table which reads as follows:
PROOF WEIGHT NATO NAVY DOMESTIC
LOAD GALVANIZED STOCK REFERENCE NUMBER
TONS LBS OZS NUMBER
3/4 2 4 5305-99-414-9836 0263/414-9836
The reference to the "Weight Galvanized" is the only mention of galvanization on the drawing. A box entitled "Protective Finish" is crossed out. In Defence Standard 40-5 (referenced in the RFP) there is a statement on page 12 under the section entitled Finish that states: "Items are to be supplied ungalvanized or galvanized as stated on the contract." There is also, on page 8 of Defence Standard 40-5, a table, similar to the one above, specifically applicable to NATO stock number 5305-99-414-9836, that specifies an "approximate weight galvanized."
At bid closing, DSS had received 14 bids. On December 21, 1992, a tabulation of the bids received was performed by a purchase support clerk. On February 11, 1993, the tabulation was verified by the contracting officer.
In addition to its original bid, Zepoli had submitted a lower price prior to bid closing. Although the tabulation reflects the downward revision, the price of the second lowest bidder, Dibblee, is circled and marked as the lowest bid.
A number of suppliers had indicated in their bids that their quote was based on a later issue of the standard drawing mentioned in the DDL which includes a brass safety chain and associated hardware (the date and issue number of the drawing specified in the RFP is not spelled out). Neither Zepoli's nor Dibblee's bids contains such a reference. A note to file, dated February 1993, indicates that the contracting officer contacted DND and was informed by the LCMM that the changes between the versions of the drawing were "of no consequence" and therefore there was "no need to retender." On the same note to file, there is an indication that Dibblee was contacted and they advised that their "quote was in accordance with the latest revisions." Dibblee also sent a facsimile, dated February 11, 1993, in which they state that the article offered by them is "IN ACCORDANCE WITH THE LATEST MATERIALS AND TESTING."
On February 12, 1993, the contract was awarded by facsimile to Dibblee based on DSS's assessment that they were the lowest priced responsive bidder.
On February 23, 1993, a letter was sent from DSS to Zepoli indicating the results of the procurement action and the award to Dibblee. A note to file, dated the same day, indicates that DSS was contacted by Zepoli who believed they had bid a lower price and was therefore inquiring about the award to Dibblee.
Again on the same day, a facsimile was sent to the contract awardee to direct a suspension of work. A copy of the order was sent to DND along with a request for them to assess the offer made by Zepoli. This facsimile included the photocopies of the drawing submitted with Zepoli's bid and the following information relating to the bid:
THE FIRM OFFERS TYPE AP1916 3/4 TON PROOF LOAD IN ACCORDANCE WITH THE ATTACHED DRAWING. THEY INDICATE YES TO THE STORES CERTIFICATION.
On February 24, 1993, Zepoli sent a facsimile to DSS requesting that the subject contract be awarded to them and also indicating that they previously supplied the same or similar turnbuckle assemblies to DSS.
On February 25, 1993, DND responded to the assessment request above with a facsimile that states: "Offer by Zepoli is acceptable." On the same day, DSS sent a facsimile to Zepoli asking them to confirm whether their offer "IS STRICTLY IN ACCORDANCE WITH THE SPECIFICATIONS AS DETAILED IN THE REQUEST FOR PROPOSAL DATED OCT 27/92, OR IF YOU ARE QUOTING IN ACCORDANCE WITH THE LATEST SPECIFICATIONS, WHICH I UNDERSTAND INCLUDES [sic] A BRASS HOOK."
On February 26, 1993, Zepoli responded with a facsimile that confirmed they were offering an item "IN ACCORDANCE WITH THE LATEST REVISION OF THE DRAWING FOR AP1916 -IE: [Zepoli type] A BRASS SAFETY CHAIN WITH "S" HOOK AND PIN COTTER SPLIT IS INCLUDED, COPY ENCLOSED."
After discussions between DSS, DND and Zepoli, and because Dibblee had advised DSS that the cost of cancellation for the contract would be the full amount of the said contract, DSS contacted Zepoli.
In a note to file dated March 19, 1993, it is stated:
DSS is ready to negotiate a monetary compensation for the loss of the contract. This monetary compensation can be equal to Zepoli loss of profit.
To this instance, DSS will require a complete cost breakdown of their quotation and copies of their quotations from their suppliers.
Zepoli responded to the above request for a cost breakdown with a facsimile, also dated March 19, 1993, in which they requested payment of a net profit of [amount deleted] on the value of [amount deleted] of the anticipated contract.
On March 26, 1993, representatives from DSS and DND had a meeting to discuss, among other things, the cost proposal submitted by Zepoli. Minutes from this meeting indicate that it was felt that more information relating to Zepoli's manufacturing process was needed to confirm cost and profit estimates.
On April 2, 1993, a facsimile was sent by DSS to Dibblee officially lifting the suspension of the work order. According to DSS, this was done since negotiations for loss of profit were under way with Zepoli and there did not appear to be any reason to further delay the performance of the contract. On the same day, DSS also sent a facsimile to Zepoli requesting "A DETAILED ACCOUNT OF THE MANUFACTURING PROCESS APPLICABLE TO THIS REQUIREMENT BY APRIL 6, 1993."
On April 5, 1993, Zepoli provided DSS with a facsimile that included a revised cost breakdown indicating a profit of [amount deleted] and describing the manufacturing process that would have been employed.
On April 13, 1993, DSS sent a facsimile to DND requesting an assessment of the processes offered by Zepoli and advice on the technical acceptability of the item as detailed in the account of the manufacturing process.
On April 16, 1993, DND replied by facsimile to two inquiries by DSS. In response to the DSS assessment request, DND states, in part:
LCMM advises that Normalized condition is not equivalent to Galvanized and not acceptable as a corrosion prevention procedure.
On April 20, 1993, DSS sent a facsimile to Zepoli with which they end negotiations for loss of profit by stating: "Your proposal has been determined to be technically non-compliant, and no further consideration will be given to your bid." On the same day, Zepoli responded to DSS by returning the DSS facsimile on which they added their own comments.
On April 23, 1993, Zepoli filed a complaint with the PRB.
Discussion
In essence, Zepoli alleges that it was not treated fairly and, as a consequence, it was deprived of being awarded the subject contract and the profits associated therewith. The government acknowledges that Dibblee, the second lowest bidder (contract awardee), was inadvertently considered to be the lowest. The Board must decide whether the government's conduct and its subsequent actions with respect thereto were in accordance with legislative and procedural requirements.
In the matter before the Board, the government relied mainly on the endorsement of the Stores Certification by the suppliers, including Dibblee and Zepoli, to determine their technical compliance. Then, after taking their bid prices into consideration, the government proceeded to compare prices and thereafter mistakenly awarded the contract to Dibblee.
The Board acknowledges that, subject to the FTA, the government has the right to establish the rules governing the evaluation of offers. In this instance, the government decided to depend on the suppliers' Stores Certification to assess their products' technical compliance. Once the technical evaluation was completed, the government was left only to determine the lowest bidder as this was to be the deciding factor for awarding the contract. However, in making this determination, the government failed to tabulate or read the tabulation of the bid prices correctly and, as a result, Dibblee was awarded the contract.
Paragraph 15(f) of the General Agreement on Tariffs and Trade, the Agreement on Government Procurement (the Code) states that an entity (government):
...shall make the award to the tenderer...whose tender...in terms of the specific evaluation criteria set forth in the notices or tender documentation is determined to be the most advantageous.
In this case, the RFP specifically stated, "lowest total cost at point of destination" as the decision rule.
It is, therefore, the Board's view that, but for the tabulation related error (procedural breach), the contract would have been awarded to Zepoli. The government conceded this point when they decided to enter into compensation discussions with Zepoli.
What is the effect of this mistake? Can Zepoli's claim rightfully rely on the government's acceptance of their proposal, which acceptance was based on Zepoli's Stores Certification? What compensation, if any, should be given to Zepoli?
The government contends that settlement discussions disclosed that the complainant's proposal was non-compliant as the complainant offered a non-galvanized turnbuckle assembly. The complainant, on the other hand, maintains that its proposal was responsive as the RFP did not call for a galvanized product. In order for the Board to decide this complaint, it must first establish what product was called for in the RFP.
Paragraph 13(9) of the Code states that tender documentation provided to suppliers shall contain "a complete description of the products required...including technical specifications...[and]...necessary drawings..." in order that they may submit responsive tenders. Furthermore, as expressed in paragraph 15.c) of the DSS Supply Policy Manual (SPM) Directive 3002, "...mandatory requirements [the government states that galvanization was such a requirement]...should be clearly defined."
As well, clause df 55 of the RFP reads:
Material offered shall...conform to the specified issue of the applicable drawing and/or specification or be the current part number in effect on the closing date of this Request for Proposal.
The RFP refers, in part, to two documents of particular importance, drawing # 003500833-01 and DEF STAN 40-5. Another document that potential suppliers received, and that the Board considers relevant, is DDL 8463-2-JA0D.
DDL 8463-2-JA0D reads, in part:
This design Data List (DDL) specifies technical data approved by the LCMM to govern manufacture...of the NATO Stock Numbers (NSNs) listed below for CD 8463-2-JA0D."
Included under "DRAWINGS" is "Service Dwg No. 003500822/01 Issue 2. Oct' 73". It will be recalled that the RFP refers to drawing 003500822/01 without specifying the issue number and date.
What does this drawing provide? It states, in part, that the "weight galvanized" is 2 lbs 4 ozs. What should a potential supplier to make of this information?
Perhaps, on the face of it, it is not absolutely clear. In fact, this drawing also reads, in part, "...WHEREVER ITEMS OF THE TYPE SHOWN HEREON ARE SPECIFIED, THE LATEST ISSUE OF THIS STANDARD DRAWING MUST BE USED WITHOUT ALTERATION". Yet, in reviewing the most recent drawing, May 1989 (erroneously identified as 1986 in certain documents considered by the Board), reference is not made therein to "finish" nor to the other description features (tolerance and surface roughness). Does this mean that the finish, tolerance, and surface roughness were of no particular importance to the government? No party has advanced this argument. Quite the contrary. Would it not, therefore, have been prudent for a potential supplier acquainted with the practice of the trade to have recognized the need to look to relevant references to give an appropriate meaning to the description?
The complainant contends that the RFP is clear and in support of its interpretation cites clauses 7a. and 7b. of DEF STAN 40.5:
a. Items are to be supplied ungalvanized or galvanized as stated on the contract.
b. When galvanizing is required it is to be by the hot dip process. The galvanized coating must be capable of passing the appropriate test specification in BS 729: Part 1, Table 1.
It may be argued that, when these clauses are read in isolation, it would not have been unreasonable for Zepoli to have concluded that the product requested need not be galvanized. However, these provisions must be read in the context of Defence Standard 40-5 as a whole, for this document applies to a number of different drawings (products) to which these provisions relate. These provisions are of broad application and must be considered in light of the specific drawings incorporated in DEF STAN 40-5. In this regard, drawing 013500822/01 (Table 1(B)ii) describes the product called up in the RFP. In the description contained therein is a heading entitled, "Approximate Weight Galvanized", under which the weight is provided (2 lbs 4 ozs). In the Board's view, Zepoli should have given contextual meaning to this feature.
That same drawing also provides a heading, "Service Drawing Number Ministry of Defence (Navy)". The government stated that it is generally understood in the industry that products of naval application require galvanization. The Board does not share this view and considers that reference to the Navy is, by itself, inconclusive evidence that it is universally understood that this requirement must always be galvanized.
Zepoli claims to have previously supplied the same and other types of turnbuckle assemblies to the government. However, Zepoli did not provide the Board with supporting evidence relating thereto that would, in fact, substantiate their contention that this procurement required a non-galvanized product.
Furthermore, it is noteworthy that the investigation disclosed that not one supplier raised the question as to whether or not the requested turnbuckle assembly had to be galvanized. When DSS made inquiries about this matter (after the complaint was filed with the Board), those suppliers asked indicated that they offered a galvanized product.
Taking all of the afore-mentioned into account, the Board finds that the government could have acted more carefully in preparing the RFP and the provision of material relating thereto. Nevertheless, there is sufficiently clear reference to galvanization in the solicitation documentation for it to be understood by a potential supplier acquainted with the practice of the trade that the government required the turnbuckle assembly to be galvanized. It therefore follows that DSS was correct in determining, upon reviewing the manufacturing process submitted by Zepoli, that their proposal was non-responsive. Given this conclusion, it is the Board's view that Zepoli should not benefit from a proposal based on a non-compliant Stores Certification.
In summary, Zepoli prevails on the issue of not being treated fairly at the time that the government evaluated the proposals and determined that Dibblee had submitted the lowest bid price. However, when Zepoli brought this matter to the government's attention, the government quickly and diligently set out to rectify this mistake with the ensuing result that it determined that the government had no obligation to compensate Zepoli.
The Board concludes that Zepoli's claim for loss of profit should be denied. Further, given the government's quick response towards resolving that part of Zepoli's complaint for which they prevail, the Board will not award costs to the complainant.
DETERMINATION
The Board has determined that this procurement action by the Department of Supply and Services failed to comply with Article 1305 of the Free Trade Agreement. Specifically, DSS mistakenly bypassed the lowest apparently responsive bidder.
The Board has concluded, however, that Zepoli was, in fact, never responsive and is, therefore, not entitled to compensation.
J. Craig Oliver
_________________________
J. Craig Oliver
Chairman
Procurement Review Board of Canada
Initial publication: August 29, 1997