ITS ELECTRONICS INC.
Determinations
File No.: PR-98-037
Ottawa, Thursday, April 8, 1999
File No.: PR-98-037
IN THE MATTER OF a complaint filed by ITS Electronics Inc. under subsection 30.11(1) of the Canadian International Trade Tribunal Act, R.S.C. 1985, c. 47 (4th Supp.), as amended;
AND IN THE MATTER OF a decision to conduct an inquiry into the complaint under subsection 30.13(1) of the Canadian International Trade Tribunal Act.
DETERMINATION OF THE TRIBUNAL
Pursuant to section 30.14 of the Canadian International Trade Tribunal Act, the Canadian International Trade Tribunal determines that the complaint is not valid.
Patricia M. Close
_________________________
Patricia M. Close
Member
Michel P. Granger
_________________________
Michel P. Granger
Secretary
Date of Determination: April 8, 1999
Tribunal Member: Patricia M. Close
Investigation Manager: Randolph W. Heggart
Counsel for the Tribunal: Philippe Cellard
Tamra Alexander
Complainant: ITS Electronics Inc.
Government Institution: Department of Public Works and Government
Services
STATEMENT OF REASONS
COMPLAINT
On January 4, 1999, ITS Electronics Inc. (ITS) filed a complaint with the Canadian International Trade Tribunal (the Tribunal) under subsection 30.11(1) of the Canadian International Trade Tribunal Act [1] (the CITT Act) concerning the procurement (Solicitation No. W8485-7-DH08/A) by the Department of Public Works and Government Services (the Department) of a coherent jamming system, hereinafter also referred to as the Canadian Advanced Radar Deception System (CARDS), and a system for spares for “fitment” in the CE144B Interim Electronic Support & Trainer (IEST) Challenger aircraft for the Department of National Defence (DND).
ITS alleged that the Department failed to ensure that the directed sole source contract to MacDonald, Dettwiler and Associates Ltd. (MDA) was implemented in accordance with:
(a) MDA’s proposal for the work; and
(b) the terms of the Advance Contract Award Notice (ACAN). [2]
ITS further alleged that:
(c) the Department, by including sub-article 8.2.c of the General Conditions DSS-MAS 9601 in the prime contract, permitted MDA to deviate from its original proposal and to obtain a substitute radio frequency (RF) subsystem for CARDS that is not of Canadian design or origin;
(d) its rights to bid competitively on this procurement have been violated;
(e) DND permitted MDA to breach its CARDS licence; and
(f) DND encouraged ITS to divulge proprietary data while, at the same time, supporting MDA’s efforts in competing the work to a foreign supplier.
ITS suggested four alternate remedies, one of them being that the Government reinstate ITS as MDA’s sole source subcontractor for the RF subsystem.
On January 11, 1999, the Tribunal informed the parties that the complaint had been accepted for inquiry on the basis of items (c) and (d). Items (e) and (f) were accepted only insofar as the actions described therein related to items (c) and (d). Items (a) and (b), referring to occurrences after contract award, are not, in the Tribunal’s opinion, part of the procurement process as defined in Article 514(2)(a) [3] of the Agreement on Internal Trade [4] (the AIT) and, therefore, were not accepted for inquiry. On February 10, 1999, the Department filed a Government Institution Report (GIR) with the Tribunal in accordance with rule 103 of the Canadian International Trade Tribunal Rules. [5] On February 26, 1999, ITS filed its comments on the GIR with the Tribunal.
Given that there was sufficient information on the record to determine the validity of the complaint, the Tribunal decided that a hearing was not required and disposed of the complaint on the basis of the information on the record.
PROCUREMENT PROCESS
By way of background, in January 1990, MDA was awarded the initial CARDS development contract as a result of a competitive Request for Proposal. On October 4, 1996, MDA was granted a licence to develop and market the CARDS technology and, on February 1, 1998, ITS was granted a non-exclusive licence to develop and market the RF subsystem for CARDS.
On August 8, 1997, a requisition was received by the Department from DND for the provision of a semi pre-production model of CARDS to be installed on a Challenger aircraft. The procurement was to be conducted in two phases: Phase I for an operator interface human engineering study and Phase II for the final development of the semi pre-production model of the CARDS jammer system, including testing, integration and installation into a CE144B Challenger aircraft.
An ACAN for the two-phased solicitation was issued on August 26, 1997, on the Open Bidding Service (OBS) with a closing date of September 4, 1997. The ACAN reads, in part, as follows:
Solicitation Type: OB/AIT
Non-Competitive Procurement Strategy: Exclusive rights
Vendor Name and Address:
MACDONALD, DETTWILER AND ASSOCIATES LTD.
Nature of Requirements:
Coherent Jamming System
Line 1, Coherent Jammer System
DND have a requirement to procure one (1) Digital Memory Radio Frequency (DMRF) Coherent Jamming System (also referred to as the “CARDS Jammer”) and one (1) system for spares for fitment in the CE144B Interim Electronic Support & Trainer (IEST) Challenger aircraft. The work is to redesign, produce, test and, document a laboratory designed model into a semi pre-production model suitable for prototype fitment into a Challenger aircraft. The work is to be carried out in two phases. Phase I addresses the requirement to complete human factors engineering, rapid prototype design, development of a control display specification, and test and evaluation of a computer interface for the IEST CCJS system. Phase II is for the actual development, delivery and installation, testing and integrated logistic support requirements. It is intended to issue a contract with MacDonald Dettwiler and Associates (MDA), Richmond, B.C. This is a no substitute requirement.
No objection to the sole source procurement was received by the Department in response to the ACAN.
A contract for Phase I was issued to MDA on September 18, 1997, and the work for Phase I was completed on July 31, 1998.
On April 17, 1998, a proposal was received by the Department from MDA for Phase II of the requirement. In its proposal, MDA indicated its intent to use ITS as the subcontractor for the RF subsystem. In a letter dated July 6, 1998, addressed to the Department, MDA indicated that it still intended to use ITS as the subcontractor for the provision of the RF subsystem, subject to ITS meeting the risk, performance and schedule commitments of MDA under its contract with the Crown. On July 27, 1998, a contract for Phase II was issued to MDA.
According to MDA, shortly after the award of the contract, because of minor subsystem specification changes, it requested ITS to re-bid the RF subsystem requirement. ITS responded to this request on or about August 18, 1998. MDA asserted that ITS’s proposal of August 19, 1998, offered little substantiation of technical or schedule compliance and this, MDA submitted, presented an unacceptable level of subcontract risk. In a letter dated August 21, 1998, MDA advised the Department that it planned to proceed with a competitive procurement procedure for the RF subsystem rather than enter into a subcontract directly with ITS. On August 25, 1998, MDA invited ITS to participate in a competitive tender for the RF subsystem. ITS did not bid in response to MDA’s invitation. On January 14, 1999, MDA advised the Department of its decision to pursue a contract with Filtronics Components, Ltd. (Filtronics), of the United Kingdom, for the supply of the RF subsystem.
VALIDITY OF THE COMPLAINT
Department’s Position
The Department submitted that the issues raised in the complaint are not properly the subject of procurement review pursuant to the provisions of the CITT Act and the Canadian International Trade Tribunal Procurement Inquiry Regulations [6] (the Regulations) and, therefore, are outside the jurisdiction of the Tribunal. It further submitted that the remedies sought by ITS are founded on the enforcement of rights and obligations in contract law and do not arise through the application of the trade law procurement disciplines in the context of the government procurement process.
The Department submitted that the primary focus of the complaint, i.e. the acquisition by MDA of a RF subsystem for CARDS through a competitive process rather than through an immediate subcontract to ITS, albeit in the context of the fulfillment by MDA of its contractual obligations with the Crown, is not government procurement. The procurement of an RF subsystem for CARDS by MDA is procurement by a private company and is not subject to the procurement disciplines of the AIT.
Furthermore, the Department submitted that the AIT would apply only to the sole source procurement process pursuant to which the Crown contracted for a semi pre-production model of the CARDS to be installed on the Challenger aircraft. However, the time for review of this government procurement process has long expired.
On the question of the inclusion of sub-article 8.2.c of the General Conditions DSS-MAS 9601 in MDA’s contract with the Crown, the Department submitted that the sub-article at issue is a standard clause with respect to subcontracting which has been included in government contracts since 1994. The Department further submitted that, regardless of whether or not these provisions enable MDA to deviate from its original proposal, ITS has no basis in law to object to the terms of a contract between the Crown and a private third party, absent being a party to the contract or absent any guarantee provided by a party to the contract to ITS. The Department further submitted that issues relating to the enforcement of possible rights and obligations for the inclusion or exclusion of particular provisions in a Crown contract and the interpretation of those contractual provisions are not properly the subject of procurement review. Such issues, the Department submitted, are not part of the procurement process which culminated with expiry of the ACAN and the final decision to award the sole source prime contract to MDA.
Concerning the question as to whether ITS’s rights to bid competitively on this procurement, including the question as to whether the alleged Canadian content and historical design requirements have been violated, the Department submitted that ITS had notice of the Department’s intention to enter into a sole source contract with MDA for a semi pre-production model of CARDS upon the publishing of the ACAN on August 26, 1997. The ACAN indicated that the procurement was a “no substitute” requirement for CARDS, meaning that only the CARDS jammer which had been developed for DND would be procured. The Department further submitted that, at the time that the ACAN was published, ITS decided not to challenge the sole source procurement strategy notified in the ACAN. It may be that this decision by ITS was based on MDA’s representation in its proposal to the Department that ITS was its intended subcontractor for the RF subsystem or on its understanding of the terms of its licence agreement with the Crown or of its alleged teaming agreement with MDA. However, the Department submitted that, if ITS acted to its detriment in not pursuing a challenge and by relying on alleged representations made by MDA or any other party, then its proper remedy lies not in procurement review but in the pursuit of a cause of action based in contract law before the courts. In any event, the Department concluded that the time period for filing a complaint on this issue, pursuant to section 6 of the Regulations, has expired.
Concerning ITS’s allegation that DND permitted MDA to breach its CARDS licence, the Department submitted that ITS lacks standing to seek interpretation of the terms of MDA’s licence agreement with the Crown as it is not a party to it. More importantly, the Department submitted that any interpretation of the provisions of the licence agreement and any attempt by ITS to enforce alleged breaches of the licence agreement are outside the procurement review jurisdiction of the Tribunal.
Concerning ITS’s allegation that DND encouraged it to divulge proprietary data as part of sole source fact finding while, at the same time, supporting MDA’s award of the work to a foreign supplier, the Department denied this allegation and submitted that there is no evidence, in the complaint, to support it.
ITS’s Position
ITS submitted that the Crown cannot walk away from its responsibilities towards the RF subsystem subcontract. If that were the case, MDA would be able to do anything that it sees fit to provide a jammer that met the CARDS technical specifications without regard to the CARDS prior historical development process or Canadian content. In this manner, MDA would be allowed to ignore the influencing factors which formed the basis for its selection as the exclusive supplier in the first place. ITS further submitted that either CARDS is a unique Canadian product that can justify sole source procurement or it is simply a set of technical requirements that can be satisfied in a variety of ways from the worldwide marketplace.
On the question of the inclusion of sub-article 8.2.c of the General Conditions DSS-MAS 9601, ITS submitted that it is this inclusion by the Department which permitted MDA to violate the “no substitute requirement” of the ACAN without contravening its prime contract with the Crown. The ACAN, ITS submitted, can only represent a sole source procurement when the historical integrity of the CARDS development is maintained, including the Defence Research Establishment Ottawa (DREO) RF subsystem. Therefore, ITS submitted, while MDA is acting properly within the terms of its contract with the Crown, the ACAN has been violated, along with its competitive rights and those of other North American bidders.
ITS further submitted that the “no substitute” requirement of the ACAN, while acceptable and reasonable if based on the Crown’s intent to procure the CARDS jammer developed for DND, cannot be justified anymore, as the “no substitute” requirement is not being met. Indeed, the Canadian RF subsystem is now being replaced by an alternate Filtronics design that is neither Canadian nor a further development of the DREO design. ITS submitted that, unless MDA is held to its original proposal and to the “no substitute” requirement of the ACAN, its right to bid has been violated. It is in this respect, ITS submitted, that elements a, b and c of its complaint, as set out in its letter of December 30, 1998, fall properly within the Tribunal’s jurisdiction.
Concerning the Department’s observation that ITS, of its own will, decided not to challenge the ACAN, ITS submitted that it had no reason to do so until the terms of the ACAN were broken. ITS contended that, by allowing a foreign design for the RF subsystem, the Department effectively changed the ground rules for this procurement. In this regard, ITS submitted that the time limits should not apply in this instance, as the procurement rules were changed after the period prescribed in which to file a complaint had expired.
Finally, ITS submitted that, without DND’s well intentioned encouragement, it would not have shared its state-of-the-art solution for one aspect of the RF subsystem with MDA. It did so with the understanding that this sharing of information was pivotal in MDA’s acceptance of its proposal.
TRIBUNAL’S DECISION
Section 30.14 of the CITT Act requires that, in conducting an inquiry, the Tribunal limit its considerations to the subject matter of the complaint. Furthermore, at the conclusion of the inquiry, the Tribunal must determine whether the complaint is valid on the basis of whether the procedures and other requirements prescribed in respect of the designated contract have been observed. Section 11 of the Regulations further provides, in part, that the Tribunal is required to determine whether the procurement was conducted in accordance with the requirements of the AIT.
The Tribunal will consider, first, whether the inclusion by the Department of sub-article 8.2.c of the General Conditions DSS-MAS 9601 in MDA’s contract with the Crown rendered the actual procurement different from that for which notice was given in the ACAN, particularly in respect of the RF subsystem.
Having carefully examined the ACAN published on the OBS on August 26, 1997, the Tribunal finds no evidence of any reference having been made to ITS as the subcontractor in the document or any conditions relating specifically to the RF subsystem. In the Tribunal’s opinion, the ACAN is clear. MDA is to be the sole source supplier for the coherent jamming system, and no substitute will be accepted for the CARDS jammer as described in the ACAN. There exists no evidence on the record to demonstrate that the CARDS jammer contracted for by the Department constitutes, in fact, a substitute system to the CARDS jammer referred to in the ACAN. [7] The ACAN only refers to the CARDS jammer as “a laboratory designed model,” and the work under the ACAN was to consist in redesigning, producing, testing and documenting it into a semi pre-production model suitable for prototype fitment into a Challenger aircraft. As indicated earlier, there is no reference to specific RF subsystem requirements. For the above reasons, the Tribunal concludes that the contract awarded to MDA on July 27, 1998, is consistent with the ACAN.
Concerning the question of ITS’s right to compete for this requirement, the Tribunal is of the view that ITS should reasonably have known on or about August 26, 1997, that the Department was intent on sole-sourcing its coherent jamming system requirement to MDA on a “no substitute” basis. The Tribunal determined earlier that the ACAN was clear on these points. Accordingly, in the Tribunal’s opinion, ITS had available to it, at that time, all the necessary information to challenge the ACAN, thereby protecting its rights to compete as a prime contractor for the requirement. ITS decided not to do so, and the time limits prescribed in section 6 of the Regulations to file a complaint have expired.
Concerning ITS’s allegation that DND has permitted MDA to breach its CARDS licence, the Tribunal finds that the licence agreement between DND and MDA was concluded outside the procurement process of the solicitation at issue. Therefore, it is not part of the procurement process at issue. Consequently, the Tribunal determines that it does not have jurisdiction in this matter.
Concerning ITS’s allegation that DND encouraged it to divulge proprietary data, the Tribunal finds that, since the alleged improper conduct of DND officials relates to a subcontract and not to the procurement at issue, this ground for complaint does not relate to an aspect of the procurement process of the solicitation at issue and, on this basis, the Tribunal determines that it does not have jurisdiction to consider this ground for complaint on its merits.
The Department has requested, in the GIR, the opportunity to make further submissions with respect to the award of costs in this matter. The Tribunal has decided that the circumstances of this case, insofar as they are known to the Tribunal, do not warrant costs against ITS. While ITS’s complaint is not valid, it was not without merit. [8] Therefore, the Tribunal has decided that submissions on this matter are not necessary and that no costs will be awarded.
DETERMINATION OF THE TRIBUNAL
In light of the foregoing, the Tribunal determines, in consideration of the subject matter of the complaint, that the procurement was conducted in accordance with the requirements set out in the AIT and that, therefore, the complaint is not valid.
1. R.S.C. 1985, c. 47 (4th Supp.).
2. A notice of intent to solicit a bid and negotiate with only one firm. This is not a competitive bid solicitation notice. Suppliers, however, on or before the closing date indicated, may identify their interest and demonstrate their capability to perform the contract.
3. “[A]llow suppliers to submit bid protests concerning any aspect of the procurement process, which for the purposes of this Article begins after an entity has decided on its procurement requirement and continues through to the awarding of the contract.”
4. As signed at Ottawa, Ontario, on July 8, 1994.
5. SOR/91-499, August 14, 1991, Canada Gazette Part II, Vol. 125, No. 18 at 2912, as amended.
6. SOR/93-602, December 15, 1993, Canada Gazette Part II, Vol. 127, No. 26 at 4547, as amended.
7. The Tribunal notes that no reference was made to the RF subsystem in a sole source justification letter dated July 28, 1997 (Exhibit 3 of the GIR).
8. Canadian International Trade Tribunal, Flolite Industries, File No. PR-97-045, Addendum, August 7, 1998.
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Initial publication: April 8, 1999