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TABLE OF CONTENTS

• ORDER AND RECOMMENDATION
• STATEMENT OF REASONS
• • INTRODUCTION
  • COMPENSATION FOR LOST PROFIT
  • • Lost Profit Relating to the Additional Leasehold Improvements
    • Lost Profit Relating to Lease-derived Revenues
    • Unearned Interest Revenue
    • Total Amount of Compensation for Lost Profit
  • EXEMPLARY DAMAGES
  • COSTS OF THE PROCEEDINGS RELATING TO THE COMPLAINT
  • CONCLUSION

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IN THE MATTER OF a complaint filed by Immeubles Yvan Dumais Inc. pursuant to 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 Canadian International Trade Tribunal, pursuant to subsections 30.15(2) and (3) of the Canadian International Trade Tribunal Act, recommending that Immeubles Yvan Dumais Inc. be compensated for the profit that it lost in not being awarded the contract in question;

AND FURTHER TO the Canadian International Trade Tribunal’s preliminary indication of the level of complexity for the complaint case and its preliminary indication of the amount of the cost award.

BETWEEN
IMMEUBLES YVAN DUMAIS INC.	Complainant
AND
THE DEPARTMENT OF PUBLIC WORKS AND GOVERNMENT SERVICES	Government Institution

The Canadian International Trade Tribunal hereby recommends that the Department of Public Works and Government Services compensate Immeubles Yvan Dumais Inc. in the amount of $172,204.07 for the profit that it lost in not being awarded the contract in question.

In addition, the Canadian International Trade Tribunal hereby confirms its preliminary indication of the amount of its cost award, dated June 16, 2009, by awarding Immeubles Yvan Dumais Inc. costs in the amount of $10,000 for all proceedings relating to the complaint and directs the Department of Public Works and Government Services to take appropriate action to ensure prompt payment.

Dominique Laporte
Dominique Laporte
Secretary

INTRODUCTION

1. In a decision made on June 10, 2008, the Canadian International Trade Tribunal (the Tribunal), pursuant to subsection 30.14(2) of the Canadian International Trade Tribunal Act,¹ determined that the complaint filed by Immeubles Yvan Dumais Inc. (Dumais) was valid.² Pursuant to subsections 30.15(2) and (3), the Tribunal recommended, as a remedy, that the Department of Public Works and Government Services (PWGSC) compensate Dumais for the profit that it lost in not being awarded the contract in question—a contract for the leasing of office space, which was instead awarded to La Corporation Headway Ltée (Headway). Based on that recommendation, the Tribunal asked Dumais and PWGSC to negotiate the amount of that compensation. On September 18, 2008, Dumais informed the Tribunal that the parties were unable to agree on the amount of compensation.

2. In its decision made on June 10, 2008, the Tribunal also awarded Dumais, pursuant to section 30.16 of the CITT Act, its reasonable costs incurred in preparing and proceeding with the complaint, which costs were to be paid by PWGSC. The Tribunal’s preliminary indication of the level of complexity for this complaint case was level 1, and its preliminary indication of the amount of the cost award was $1,000. In its decision, the Tribunal indicated that, if either party disagreed with the preliminary indication of the level of complexity or the preliminary indication of the amount of compensation, it could make submissions to the Tribunal. The Tribunal retained jurisdiction to establish the final amount of the award.

3. On September 17, 2008, PWGSC filed a notice of motion for an order requiring Dumais to allow an inspection of its building located in Baie-Comeau (Quebec). On September 30, 2008, Dumais filed its submissions regarding the motion and, on October 3, 2008, PWGSC filed its reply. On October 9, 2008, Dumais, with the Tribunal’s permission, filed its comments on PWGSC’s reply. On October 14, 2008, the Tribunal found that the requested order was necessary to allow PWGSC to make representations regarding the issue of compensation and, therefore, ordered Dumais to allow PWGSC to inspect its building as necessary to be able to determine the scope of the work that would be required to make the building conform with the lease requirements and standards and to determine the cost of that work.

4. On December 11, 2008, Dumais filed a notice of motion requesting that PWGSC produce certain information or documents pertaining to the costs associated with the leasehold improvements assumed by Headway on the one hand, and those assumed by PWGSC on the other. On December 18, 2008, PWGSC filed its comments on the motion and, on December 23, 2008, Dumais filed its reply, in which it added one item to its original motion. On January 8, 2009, PWGSC filed its comments regarding the additional item and, on January 9, 2009, Dumais filed its reply. On January 16, 2009, the Tribunal ordered PWGSC to provide the requested information or documents.

5. On March 9, 2009, Dumais filed a submission with the Tribunal on the issue of compensation. On April 6, 2009, PWGSC filed a reply submission and, on April 24 and 25, 2009, Dumais filed its comments in response to PWGSC’s reply submission.

6. On June 16, 2009, the Tribunal informed the parties that it had made a decision on three issues: (1) the compensation to which Dumais was entitled would be based on a five-year period; (2) the profit margin that Dumais would have derived from the additional leasehold improvements made at PWGSC’s request and that are additional to those already provided for in the lease would be 10 percent; and (3) the Tribunal would not award exemplary damages under the circumstances. The Tribunal also informed the parties that the preliminary indication of the amount of the cost award pertaining to the reasonable costs (i.e. counsel fees, consultant fees and other direct costs) that Dumais had incurred for all proceedings before the Tribunal, including preparing and proceeding with the complaint, was $10,000. The Tribunal indicated that it was of the view that the level of complexity of the case required it to exceed the thresholds set out in its Guideline for Fixing Costs in Procurement Complaint Proceedings (the Guideline) and that, if either party disagreed with its new preliminary indications, it could make submissions to the Tribunal.

7. On August 17, 2009, Dumais and PWGSC filed submissions on the issue of compensation as per the Tribunal’s decision of June 16, 2009. On September 8, 2009, Dumais and PWGSC filed replies further to those submissions. On September 15, 2009, Dumais submitted an additional reply, followed by PWGSC on September 16, 2009. On September 18, 2009, Dumais submitted a final reply.

COMPENSATION FOR LOST PROFIT

8. The CITT Act and the Canadian International Trade Tribunal Procurement Inquiry Regulations ³ do not set out instructions regarding compensation matters. However, the Tribunal’s Procurement Compensation Guidelines (the Guidelines), revised in June 2001, read as follows:

2.2 Compensation awards will not be based on speculation or conjecture. The Tribunal recognizes that inherent in certain compensation recommendations will be the requirement to project into the future. However, in all circumstances, claims for compensation must be accompanied by credible economic, financial or other evidence.

. . .

3.1.2 In determining the amount of compensation to recommend, the Tribunal will attempt, insofar as is appropriate in the circumstances and bearing in mind any other relief that it recommended, to place the complainant in the position in which it would have been, but for the government’s breach or breaches.

3.1.3 Lost profit refers to the amount of profit that the complainant would have received pursuant to the designated contract, had it been awarded that contract. Compensation can be awarded for lost profit in situations where it is clear that the complainant would have won the contract, but for the government’s breach or breaches.

. . .

4.1 The complainant bears the onus of proof in establishing a compensation claim.⁴

9. Thus, the goal of the compensation exercise is to attempt to place Dumais in the situation in which it would have been if it had been awarded the contract. That exercise is first and foremost an art, not an exact science. This case is a perfect example, since the Tribunal’s findings are largely based on projections, and it is often necessary to come up with assumptions in trying to determine the situation in which Dumais would have been if it had been awarded the contract.

10. That being said, the fact remains that the Tribunal based its decision, including certain reasonable projections and assumptions, mainly on the basis of the concrete evidence available to it.

11. The compensation for lost profit is based on the following: lost profit relating to the additional leasehold improvements; lost profit relating to lease revenue; and unearned interest revenue.

Lost Profit Relating to the Additional Leasehold Improvements

12. In the contract awarded to Headway, PWGSC requested that additional leasehold improvements, i.e. not included in the specifications, in the amount of $279,219, be done. As the manager for the implementation of those leasehold improvements, Headway received $55,781 (i.e. 20 percent⁵ ) for administration and profit.⁶

13. PWGSC agreed that additional leasehold improvements of the same extent would have been asked of Dumais if it had been awarded the lease. However, PWGSC feels that only half of the 20 percent constitutes profit, namely, $27,895, because the lessor must cover important costs to administer this contract, namely, hiring and paying professionals for overseeing the site (architect, engineers, etc.), managing the contracts and ensuring payment for them, including its site conditions (temporary offices, obtaining permits, liability insurance), including its construction bonding, seeking bids from suppliers, making integrated furniture purchases from accredited suppliers (for which the owner receives a lump sum of less than 5 percent), analyzing the various bids that it receives, making a summary of these for PWGSC and submitting a recommendation.

14. In response,⁷ Dumais noted that it would have had to send an architect and an engineer to design the work and that it would have had to pay the fees pertaining to the work for which it was responsible. Dumais submitted that it would have managed the site itself and that management time is not a cost to be deducted from the $55,781 profit. As evidence, Dumais submitted excerpts from the Canada Revenue Agency’s form T4036, which it says confirms that the work of a self-employed contractor is not an eligible expense.

15. The Tribunal accepts PWGSC’s position that the owner incurs major expenses in carrying out the additional leasehold improvements. Although it is impossible to accurately determine the extent of the profit margin, the Tribunal is of the view that this margin would be closer to 10 percent than to 20 percent. As such, the Tribunal determines that the profit margin that Dumais would have derived from the additional leasehold improvements made at PWGSC’s request and that are supplementary to those already set out in the lease is 10 percent.

16. In accordance with the Tribunal’s decision of June 16, 2009, Dumais submitted that it would have been entitled to unearned profit equal to 10 percent of the cost of the additional leasehold improvements made at PWGSC’s request and that are supplementary to those set out in the lease, which amounts to $25,232.⁸

17. PWGSC submitted that the unearned profit totals $27,922. This amount is based on the value of the leasehold improvements made at PWGSC’s request by Headway,⁹ the successful bidder that was awarded the contract in question.

18. The Tribunal accepts PWGSC’s estimate ($27,922). This amount represents 10 percent of the value of the additional work that was done by Headway. The Tribunal is of the view that PWGSC has specific knowledge of that amount and that, for this reason, the amount put forth by PWGSC should prevail.

Lost Profit Relating to Lease-derived Revenues

19. For calculating lost profit relating to lease-derived revenues, the Tribunal must rule on the following aspects: (a) the appropriate compensation period; (b) the rental income that Dumais would have derived if it had received the contract; (c) the operating costs arising from the contract; (d) the work that would have had to be done to make the building comply with the specifications; (e) the depreciation to be attributed following that work; (f) the interest expenses arising from that work; and (g) the maintenance costs that Dumais must absorb even though it did not obtain the contract.

a) Appropriate compensation period

20. In its first submission,¹⁰ Dumais claimed a 10-year compensation period, which corresponds to the length of the lease.

21. In response,¹¹ PWGSC, citing the opinion of Baie-Comeau real estate agents, contended that Dumais will be able to find a new tenant for its building within 24 to 36 months at most, the average being 24 months, and that the compensation should be limited to the likely vacancy period. Moreover, according to PWGSC, Dumais is not mitigating its damages adequately by placing only a one-line advertisement in the Journal Haute Côte-Nord and by not retaining the services of a professional broker to find a tenant for its building.

22. In reply,¹² Dumais contended that PWGSC’s position left out several factors: (a) an average is derived from previous years and is therefore not a guarantee of the future; (b) it is an assumption, not a certainty; (c) Dumais’s building has been available for lease for a long time (over nine years); the chances of finding a tenant as important as PWGSC are minimal; and (e) the current economic climate is not the same as the one used for the 24-month estimate. Dumais also provided a report from a real estate broker that confirms that the average vacancy rate for Dumais’s building is 120 months. Dumais added that the Baie-Comeau economic marketplace cannot be considered a promising market. Dumais contended that it did not entrust its building to a broker because that is not a very common practice in Baie-Comeau and because broker fees are 8 percent of the rental for each year of the lease, with that amount being payable upon signing the lease.¹³ Dumais finds that its advertising approach for renting its building is reasonable, given the current economic climate.

23. In summary, the real estate experts hired by PWGSC are of the view that the vacancy period of the building will be 24 months, whereas Dumais’s expert estimates instead a period of 10 years. It seems reasonable to the Tribunal that the vacancy period is instead somewhere between these two extremes. In Baie-Comeau’s economic environment, it seems unlikely that Dumais could rent a building of this size within 24 months. However, it also seems inconceivable for Dumais to end up with a building that is unoccupied for 10 years; if that were to prove true, the Tribunal is of the view that it would be because Dumais did not do everything possible to ensure that it was rented. As it is not possible to determine with certainty the likely duration of the vacancy period of the building, the Tribunal believes that it should be five years.

24. Therefore, the reference period for calculating the amount of compensation is February 4, 2009,¹⁴ to February 3, 2014.

b) Rental income

25. The parties agreed that the annual rental income would have been $91,364.

c) Operating costs

26. Dumais estimated its annual operating costs (electricity, cleaning and maintenance, lighting, mechanical systems maintenance, snow removal, taxes, licences and permits, waste, insurance and salaries) at $44,322, which is $78.87 per square metre.¹⁵

27. PWGSC allocated annual operating expenses of $51,120, which is $90.96 per square metre, an amount based on Dumais’s bid at the time of the solicitation.¹⁶

28. The estimated operating costs submitted by Dumais ($44,322) are accepted. It involves a comprehensive breakdown of expenditure items prepared by Dumais’s accountant and represents a reasonable profit margin of about 13 percent.¹⁷ The Tribunal notes that PWGSC, apart from the estimate for the cleaning and maintenance costs, did not challenge any other expenditure items. Regarding the cleaning and maintenance costs, other than pointing out that Dumais would not be compliant with the specifications if it went with the estimate submitted to the Tribunal, PWGSC provided no other compelling explanation and no estimate of what those costs would have had to be.

d) Work that would have been necessary to make the building comply with the specifications

29. Dumais tasked an architect with preparing an analysis of the building to determine the extent of the work required to be done to comply with the specifications. A bid was received for the air conditioning work. After an initial cost estimate submitted on March 6, 2008, Dumais increased its estimate of April 24, 2009,¹⁸ to take into account the comments provided by PWGSC on April 6, 2009. All the work to be done was estimated at $312,256,¹⁹ with $163,915 of it being subject to depreciation.

Estimated Costs	$
Costs depreciable over 10 years Paint, carpets, flexible floor covering, concrete stairway and levelling, electrical distribution, floor patching	54,441
Costs depreciable over 20 years Doorsill for entryway and vestibule, suspended ceiling, vertical blinds, telephone jacks, air conditioning, heating and ventilation	109,474
Costs attributable to the structure (not subject to depreciation) Unloading dock, concrete access ramp, doors and windows, modification to the bathroom for people with reduced mobility, automatic doors, electrical room, exterior finishing and roof, water fountain and lighting system	148,341
TOTAL	312,256

30. Dumais justified allocating $148,341 to the structure, which is therefore not subject to depreciation, because this work provides a long-term benefit, it increases the rental value of the building, and it is an addition to the building, not a renovation. This approach is supported by Dumais’s accountant.²⁰ Dumais submitted that, according to the Canada Revenue Agency, these permanent improvements are not expenses or lost money but rather an investment just as the construction of a new building would be. According to Dumais, once the lease ends and PWGSC leaves, those investments would remain and would increase the rental value of the building and resale value. Dumais submitted that it is not relevant to know whether it would or would not have done this work if it had been awarded a lease by PWGSC; what is relevant is the permanent nature and the impact of those investments on the value of the building.

31. PWGSC believes that Dumais should invest $472,988 to make its building comply with the specifications. That amount is based on a report prepared by a team of architects, architectural, mechanical and electrical technicians, and estimators in order to determine the basic work required on Dumais’s building further to it being inspected and to quantify the value of that work. Of that amount, only $198,019 would be subject to depreciation, with it being spread out over a 10-year period. The remainder, namely, $274,969, would constitute running expenses and would therefore not be subject to depreciation.

32. In response to Dumais’s original submission on the work that would have been needed for the building to comply with the specifications,²¹ PWGSC maintained that Dumais acknowledges that its building needed major work to meet the requirements of the lease, including:

33. Moreover, according to PWGSC, Dumais’s building did not meet the mechanical requirements because the air conditioning system did not have the required capacity of +/- 15 tonnes.

– Mechanical and electrical requirements

34. PWGSC maintained that, in its original bid, Dumais allocated some of the amounts relating to the mechanical and electrical requirements based on cost sharing (60/40) between PWGSC and Headway. According to PWGSC, that sharing is due to the fact that all of Headway’s mechanical/electrical systems, as well as the suspended ceiling, would have met the requirements of the specifications, but for the addition of closed rooms resulting in extra costs for the owner. PWGSC therefore agreed to absorb a portion of those costs. PWGSC maintained that Dumais cannot reduce the amounts needed for meeting the standards pertaining to the basic building as it did, because those basic costs accrue solely to the owner. PWGSC estimated $134,530 to be the cost of the basic mechanical and electrical work that should be done to Dumais’s building for it to comply with the specifications. According to PWGSC, the estimates in the report²² are based on the original open-plan layout requirement that is basic, of which 100 percent of the cost accrues to Dumais.

35. Regarding the air conditioning system, Dumais maintained that it always agreed that the air conditioning system had to be changed in order to comply with the mechanical requirements. Dumais submitted that PWGSC estimated double the cost for installing the air conditioning system. Dumais recalled that requirements for closed rooms described in the documentation package results in additional costs for the distribution of the electrical and mechanical systems and for the suspended ceiling given the owner’s responsibility, which was to provide this equipment for an open area. In its submission of March 6, 2009, Dumais had asked its architect to divide the forecast costs between those for which Dumais was responsible ($53,900), for installing a new air conditioning system, and those for which the tenant was responsible ($44,500), given the leasehold improvements discussed above for a total of $98,400.²³

36. Dumais maintained that the agreement for dividing the responsibility for the costs resulting from the leasehold improvements between TPSGC and Headway would have been very similar between PWGSC and Dumais, since the division of responsibilities was the same and applied to the same improvements.

37. As for the electrical systems, Dumais maintained that, but for the leasehold improvements, it would not have had to change the 400-amp service for its building, which limited the costs to supplying light fixtures and electrical distribution.

– Construction and accessibility

38. PWGSC maintained that, even if Dumais provided a relatively complete list of the construction work needed, some additional required items had not been considered, such as the exterior finish and patching of the peripheral walls.

39. PWGSC maintained that Dumais did not take into account several related activities. For example, no amount was indicated for demolishing the gypsum partition. Only $12,460 was mentioned for demolishing the loading dock, which, according to PWGSC, would not increase the value of the building and could even limit the rental appeal of that space. PWGSC maintained that there is nothing that justifies the fact that Dumais allocated 50 percent of the work involved in modifying a bathroom for people with reduced mobility to PWGSC because accessibility is part of the basic building and is the owner’s responsibility.

40. PWGSC submitted that Dumais claims that the $90,482 in costs that it must spend to meet the minimum standards are not attributable to the project because they represent work needed to comply with safety standards or will increase the value of the building, given that it is work of a permanent nature. PWGSC submitted that there is no evidence that Dumais would have done that work if PWGSC were not awarding a lease.

41. PWGSC maintained that Dumais could recover a maximum of 75 percent in investment for the additional windows and agrees with Dumais that the economic life of those windows is around 20 years and would be depreciated by 50 percent at the end of the lease. However, PWGSC submitted that no more than 37.5 percent of the investment of the $66,236 amount ($66,236 x 37.5 percent = $24,838.50) would be depreciable.

42. As for the ceiling, Dumais maintained that its estimate describes the cost for removing and installing a new ceiling. The percentages of the work allocated to Dumais reflect the entire share of its responsibilities for the work that should have been allocated to it and were then, for calculation purposes, incorporated into the leasehold improvements.

43. As for demolition of the loading dock, Dumais maintained that it did not have to demolish the entire dock, just the exterior wall.

44. Dumais maintained that no amount should have been allocated for the demolition of the gypsum partitions and the ventilation, given that those costs were to be borne by Dumais’s previous tenants.

45. Regarding the modification of the bathroom for people with reduced mobility, Dumais maintained that, according to Part 3 of the lease documentation package at Annex C, it was required to modify only one bathroom for accessibility. According to Dumais, PWGSC was free to accept the second bathroom without asking for it to be modified or to pay for it to be modified. Dumais maintained that, in both cases, the cost was reduced by half.

46. Dumais maintained that PWGSC’s allegations that only 75 percent of the additional windows are a recoverable investment is unfounded because there are no references to that effect. According to Dumais, the rental rate for windowless premises for warehouse use, like those located on the south side of the building, are substantially lower than for premises with windows used for offices. Dumais submitted that there is no mention, in its submission, regarding the useful life of the windows, or of the pipes, electric wires, steel beams, bricks, etc. Wear of these materials is offset by the increase in value of the buildings over time.

47. Dumais agreed to add the cold water fountain to the leasehold improvements at a cost of $2,500.

48. The Tribunal accepts the estimated amount of investment needed to perform the contract as submitted by Dumais.

49. That estimate seems to be in good faith, was prepared using bids from construction contractors whose competency was not challenged by PWGSC and was revised in light of PWGSC’s comments. For its part, PWGSC did not provide any comments further to the revisions made by Dumais, other than challenging the breakdown between depreciable and non-depreciable expenses. On the basis of a reasonable preponderance of the evidence, Dumais’s estimate must be accepted.

50. Consequently, the Tribunal accepts that investments in the amount of $312,256 would have been required for Dumais’s building to comply with the specifications.

e) Chargeable depreciation

51. Dumais submitted that investments of $54,441 should be depreciated over a 10-year period, whereas investments of $109,474 should be depreciated over a 20-year period. Dumais also maintained that the work on the structure (i.e. $148,341) cannot be charged to the project since it is permanent and increases the market value of the building.

52. Dumais charged annual depreciation expenses of $10,918, divided as follows: $5,444 for costs depreciable over 10 years and $5,474 for costs depreciable over 20 years.

53. PWGSC submitted that all investments subject to depreciation should only be depreciated over a 10-year period.

54. Even though PWGSC submitted that all the depreciable expenses pertaining to the contract should be depreciated over a 10-year period, the Tribunal notes that it provided no argument to explain why the 20-year period chosen by Dumais for depreciating certain expenses was unreasonable. The Tribunal accepts the depreciation periods as submitted by Dumais.

55. However, the Tribunal does not accept the assumption that $148,340 in expenditures would have been made regardless of whether or not the contract was awarded to Dumais and that this amount must be considered as an investment which should not be taken into account in assessing the compensation. The Tribunal is of the view that this assumption is unreasonable in two respects. First, Dumais provided no evidence indicating that this work had been planned irrespective of contract award; second, given the difficulty of renting the building,²⁴ it is unreasonable to think that Dumais would have incurred such hefty expenses before finding a tenant for its building. The Tribunal is of the view that this investment would have been directly related to the contract and therefore subject to depreciation if it had been made. The Tribunal accepts that this depreciation period ranges over 20 years, resulting in the allocation of an annual depreciation expense of $7,417.

56. The Tribunal also notes that the purpose of the compensation, as discussed above, is to place Dumais in the position in which it would have been had there been no breach of the trade agreements. According to that principle, Dumais would have had no other choice than to invest those amounts in order to profit from the contract. Those expenses provide a long-term benefit and involve aspects (such as the roof and the windows) that will depreciate over the years, and it is therefore reasonable to depreciate them over a set period.

57. Therefore, annual depreciation expenses of $18,335 are allocated.

f) Interest expenses

58. Dumais submitted that a loan in the amount of $110,000 over five years with an interest rate of 7.5 percent would have been contracted, the remainder of the required amounts coming from owners’ equity. In its estimates, Dumais did not allocate any financing expenses for the costs that are, in its view, not subject to depreciation.

59. PWGSC submitted that all investments, whether subject to depreciation or not, give rise to financing expenses. PWGSC submits, with regard to non-depreciable costs, that the annual amount of repayment of principal and interest used to finance the costs must be entered as a project expense; with regard to depreciable costs, only the interest on the loan taken to finance them must be considered a project expense. PWGSC suggests 7.5 percent financing for loans spread over 10 years.

60. In calculating the financing expenses, the Tribunal used the following assumptions:

61. The financing expenses allocated to the lease by the Tribunal are as follows:

Financing Expenses
	Year 1 $	Year 2 $	Year 3 $	Year 4 $	Year 5 $
Interest on costs depreciable over 10 years26	3,954.20	3,659.15	3,341.21	2,998.58	2,629.35
Interest on costs depreciable over 20 years27	8,127.27	7,936.63	7,731.19	7,509.80	7,271.22
Opportunity cost on other costs depreciable over 20 years28	5,933.60	5,933.60	5,933.60	5,933.60	5,933.60
TOTAL	18 015.07	17 529.38	17 006.00	16 441.98	15 834.17

g) Maintenance costs for the vacant premises

62. Dumais raised the fact that it costs a significant amount to maintain premises that are not rented and to ensure that no damage occurs to the building during the five-year interval. Dumais submitted that those direct damages would not occur if the building had been rented to PWGSC. Dumais calculated that an amount of $91,007 must therefore be paid for the five-year period.²⁹ The accounting report submitted by Dumais mentions that the fixed expenses (taxes, insurance and snow removal) that were included in the operating costs and a portion of the electricity expenses (a fixed expense since the vacant premises cannot be left unheated) must be added to the total compensation amount.

63. According to Dumais, the Tribunal must attempt to place it in a situation as similar as possible to what would have occurred after five years into the contract with PWGSC. Thus, the Tribunal must calculate the lost profit by comparing the situation where Dumais would have been awarded the contract to the one where Dumais is deprived of the contract, with its premises remaining vacant. Dumais added that the fixed expenses of $91,007 that are involved were included in the operating costs set out in the contract and that, for this reason, the calculation of lost profit was increased by that amount.

64. PWGSC submitted that, if Dumais finds a new tenant by 2013, which it believes is likely, the costs pertaining to the vacant premises will be collected in the form of rent. According to PWGSC, the Tribunal’s decision of June 8, 2008, limited the compensation to “lost profit” only. As such, Dumais cannot claim amounts for heads of damage under which it was never compensated.

65. Although the fixed expenses of $91,007 were initially included in the operating costs and that Dumais then sought to add those expenses to the total compensation amount, according to the Tribunal, the question to be asked is essentially whether those fixed expenses should have been included in the operating costs in the first place for the purpose of calculating lost profit. Therefore, contrary to PWGSC’s contention, it is not a new head of damage, but a question of which expenses are to be considered in calculating lost profit. Moreover, the Tribunal notes that it had already determined that Dumais would be unable to rent its building for a period of five years and that the lost profit calculation was to be done on that basis. Therefore, the Tribunal cannot give any weight to PWGSC’s argument that Dumais will likely find a new tenant before the end of that five-year period.

66. In its decision of June 10, 2008, the Tribunal recommended, as a remedy, that PWGSC “. . . compensate Dumais for the profit that it lost in not being awarded the contract in question”.

67. As mentioned above, subsection 3.1.2 of the Guidelines provides that, in determining the amount of compensation to recommend, the Tribunal attempts to “. . . place the complainant in the position in which it would have been, but for the government’s breach or breaches.” Moreover, subsection 3.1.3 provides that “[l]ost profit refers to the amount of profit that the complainant would have received pursuant to the designated contract, had it been awarded that contract.”

68. According to the Tribunal, these provisions make it clear that the purpose of the compensation is to put the complainant in the same position in which it would have been had it not been for the government’s breach and that lost profit is awarded for that purpose.

69. According to Harvin D. Pitch and Ronald M. Snyder,³⁰ the courts have usually ruled that fixed expenses are not to be deducted for calculating lost profit:

Our courts have generally held that fixed costs are not deducted from net profits; rather, only variable costs are to be deducted. Thus, such overhead costs as rent, heat, office administration salaries and business taxes are not to be deducted. Variable costs such as the cost of the goods and direct labour costs involved in the manufacturing process are to be deducted.

In the United States, the courts have generally held that fixed overhead costs are not deducted in calculating net profits on the grounds that those costs would have been incurred by the Plaintiff in any event (whether the contract existed or not).

70. The Tribunal has taken this approach in the past. Specifically, in its order in Ready John Inc.,³¹ the Tribunal indicated that it was appropriate to consider certain additional costs in calculating lost profit (e.g. vehicle and equipment depreciation costs), but that other costs, such as general and administrative costs, were costs that the complainant “. . . would have incurred regardless of whether it had been awarded the standing offer” [emphasis added].

71. Moreover, in its order in Averna Technologies Inc.,³² the Tribunal was of the view that, in setting the amount of compensation, it was not appropriate to subtract from gross revenues an amount pertaining to general and administrative costs that were not involved in performing the designated contract subject to the complaint. The Tribunal added that, in cases where obtaining a given contract would indeed have resulted in an increase in general and administrative costs, it is appropriate to subtract from revenues the amount of that increase when calculating lost profit.

72. In the Tribunal’s view, it seems well established that the objective of “. . . plac[ing] the complainant in the position in which it would have been, but for the government’s breach or breaches” is usually achieved by deducting from revenues only the costs and additional expenses that would have been incurred if the contract had been awarded. In other words, fixed expenses should not be deducted from revenues for the purpose of calculating lost profit.

73. Therefore, the Tribunal accepts Dumais’s claim. Regardless of whether the lease had been in effect, Dumais would have incurred those maintenance costs. The Tribunal points out that PWGSC did not disagree with the assessment of those costs; PWGSC simply maintained that they should not be awarded by the Tribunal. The Tribunal notes that those costs represent a reasonable share of the operating costs on an annual basis. Therefore, a sum of $91,107 is awarded to Dumais as compensation for maintenance costs to be incurred.³³

h) Total amount of lost profit relating to lease-derived revenues

74. The table below tracks the lost profit relating to lease-derived revenues. The lost profit is discounted³⁴ at a rate of 4 percent for the last eight months of year 2 and for years 3, 4 and 5 of the contract. There is no discounting for year 1.

Lost Profit Relating to Lease-derived Revenues
	Year 1 $	Year 2 $	Year 3 $	Year 4 $	Year 5 $
Revenues	91,364.00	91,364.00	91,364.00	91,364.00	91,364.00
Operating costs	44,322.00	44,322.00	44,322.00	44,322.00	44,322.00
Depreciation	18,335.00	18,335.00	18,335.00	18,335.00	18,335.00
Financing	18,015.07	17,529.38	17,006.00	16,441.98	15,834.17
Sub-total	10,691.93	11,177.62	11,701.00	12,265.02	12,872.83
Maintenance costs	17,507.00	17,857.00	18,214.00	18,579.00	18,950.00
Lost profit before discounting	28,198.93	29,034.62	29,915,00	30,844.02	31,822.83
Present value of lost profit	28,198.93	28,747.45	28,507.71	28,242.40	27,997.88

75. Thus, the total amount of lost profit relating to lease-derived revenues is $141,694.37.

Unearned Interest Revenue

76. If the lease had been awarded to Dumais, it would have received, as of March 2009, rent payments in addition to the amount of $27,922 as profit on the leasehold improvements. Dumais would therefore have been able to invest the profit derived from the rent payments, as well as the profit on the leasehold improvements, and draw interest revenue from those investments. For this exercise, the Tribunal used an interest rate of 4 percent.³⁵ The estimated unearned interest revenue between February 4, 2009, and June 3, 2010, is as follows:

Unearned Interest Revenue	February 4, 2009, to February 3, 2010 $	February 4 to June 3, 2010 $	TOTAL $
On profit not made on leasehold improvements	1,116.8836	387.1937	1,504.07
On profit not made from rent—Year 1	618.4938	384.2339	1,002.72
On profit not made from rent—Year 2		80.9140	80.91
TOTAL	1,735.37	852.33	2,587.70

77. Thus, the total amount of unearned interest revenue is $2,587.70.

Total Amount of Compensation for Lost Profit

78. Taking into consideration the amounts calculated above, i.e. an amount of $27,922 for lost profit in connection with the additional leasehold improvements, an amount of $141,694.37 for lost profit relating to lease-derived revenues and an amount of $2,587.70 for unearned interest revenue, the Tribunal is of the view that Dumais is entitled to compensation for lost profit of $172,204.07.

EXEMPLARY DAMAGES

79. Dumais claimed⁴¹ that the documents on file contradicted PWGSC’s claims, which put forth urgency and the public interest to justify awarding the contract to Headway. Dumais submitted that, after the complaint was filed, the Tribunal had summoned PWGSC to suspend the solicitation, but that PWGSC had alleged grounds of urgency on February 12, 2008, in asking the Tribunal to cancel the postponement of award order of February 5, 2008, which the Tribunal did. However, according to Dumais, PWGSC and Headway never acted as if there were any urgency in the matter, and the work was not completed before February 4, 2009. Dumais submitted that it had no other choice than to conclude that PWGSC was acting in bad faith and wanted to impose its views, thereby breaching the principles of equity and justice. Therefore, Dumais asked for $50,000 in exemplary damages to encourage PWGSC, in the future, to allege urgency and the public interest only if the facts justify it.

80. PWGSC’s position⁴² is that there is nothing to justify awarding exemplary damages. PWGSC submitted that it alleged urgency and the public interest because its client’s lease (Service Canada) was to expire on November 30, 2008, and that it was necessary to award a new lease, make the required renovations and inspections and obtain the approvals within a very short period of time. Moreover, if awarding the lease had been delayed, PWGSC was of the view that the services provided to the population of Baie-Comeau would likely have been disrupted, which would have been contrary to the public interest.

81. The Tribunal notes that Dumais had asked for compensation for exemplary damages at the complaint stage but that, in its decision of June 10, 2008, the Tribunal did not recommend that PWGSC pay Dumais such compensation. Therefore, the Tribunal is of the view that it is bound by the rule of functus officio regarding this issue.

82. Therefore, the Tribunal finds that it is not appropriate to award exemplary damages, or even rule on the merits of this issue.

COSTS OF THE PROCEEDINGS RELATING TO THE COMPLAINT

83. Dumais submitted that it incurred at least $50,821 in fees and direct costs in proceeding with its case before the Tribunal and is asking to be reimbursed for that amount. The following table summarizes that request.

Type of Costs	$	Notes
Counsel fees	40,904	At May 31, 2009
Consultants	9,917	At August 17, 2009
Total	50,821

84. Dumais submitted that these fees are a direct cost that reduce its profit margin and that it is therefore entitled to full compensation. In the alternative, if the Tribunal decides not to compensate Dumais for all the costs that it is claiming, considering the Tribunal’s decision of June 16, 2009, which split the amount for lost profit for the leasehold improvements in two, Dumais submitted that it would be logical for the Tribunal to consider awarding 50 percent of the fees, consulting work and outlays incurred by Dumais, which is half of the $50,000 paid out by Dumais.⁴³

85. PWGSC considered Dumais’s claim to be excessive and submitted that the compensation for its expenses should not exceed the highest amount provided for by the Guideline, namely, $4,100. PWGSC noted that the Tribunal had already set costs at $1,000 for the complaint and that after that decision, the Tribunal heard only two motions, the success of which was divided. According to PWGSC, the amount of $10,000 is excessive in view of the Guideline and the Federal Court rates. PWGSC submitted that, in this case, the maximum that Dumais could obtain in the Federal Court would be $3,360. Thus, complexity level 3 ($4,100) of the Guideline is appropriate. Also, PWGSC noted that the Tribunal awarded $10,000 in its order in Canadian North Inc.,⁴⁴ but that, compared to that case, Dumais’s complaint case is simple. Lastly, PWGSC maintained that Dumais’s position, according to which the legal and consultant fees incurred were “lost profit” to be compensated, is unfounded.

86. The Tribunal confirms its decision of June 16, 2009, to award $10,000 as compensation for fees that Dumais incurred for all the proceedings before the Tribunal.

87. Although that amount is not enough to fully compensate Dumais for the consultant and legal fees that it incurred, the Tribunal is of the view that it is in keeping with the guiding principles contemplated in subsection 2.1 of the Guideline, particularly the one according to which “[t]he costs awarded normally represent a partial indemnity.” In this regard, the Tribunal notes that this is significantly different from the principle that applies to calculating the amount of compensation for lost profit, the objective of which is “. . . to place the complainant in the position in which it would have been, but for the government’s breach or breaches.”

88. The Tribunal generally applies three criteria in determining the level of complexity of a complaint case: (i) the complexity of the procurement, (ii) the complexity of the complaint and (iii) the complexity of the complaint proceedings.

89. In this case, the Tribunal is of the view that the complexity of the complaint proceedings, especially at the compensation stage, was particularly high. Although the success was split in connection with the motions, many formalities were still needed, thereby resulting in long delays. Moreover, the parties had to resort to consultants (e.g. accounting and construction) for preparing their submissions on the issue of compensation. In view of the difficulties raised by the submissions, the Tribunal had to issue decisions on certain aspects of the lost profit calculation and ask the parties to file new submissions taking those decisions into account. Thus, the unusually high level of complexity required the Tribunal to exceed the thresholds set out in the Guideline. Therefore, and as indicated above, the Tribunal confirms its decision of June 16, 2009, and awards Dumais $10,000 for the costs that it incurred for all proceedings relating to the complaint.

CONCLUSION

90. The Tribunal hereby recommends that PWGSC compensate Dumais in the amount of $172,204.07 for the profit that it lost in not being awarded the contract in question.

91. In addition, the Tribunal hereby confirms its preliminary indication of the amount of its cost award, dated June 16, 2009, by awarding Dumais costs in the amount of $10,000 for all proceedings relating to the complaint and directs PWGSC to take appropriate action to ensure prompt payment.

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¹ . R.S.C. 1985 (4th supp.), c. 47 [CITT Act].

² . On July 7, 2008, PWGSC filed with the Federal Court of Appeal an application for judicial review of the Tribunal’s decision of June 10, 2008. On April 6, 2009, PWGSC discontinued its application for judicial review.

³ . S.O.R./93-602.

⁴ . In its order in Re Complaint Filed by Spacesaver Corporation (27 April 27 1999), PR-98-028 (CITT), the Tribunal stated that the burden on the complainant was to prove the loss of profit for which compensation was claimed “. . . on a reasonable preponderance of evidence.”

⁵ . There is no doubt an error in PWGSC’s calculations because 20 percent of $279,219 is $55,844.

⁶ . Written submissions (amount of compensation), 6 April 2009, at paras. 5-6.

⁷ . Response to PWGSC’s written submissions, 24 April 2009, at 3.

⁸ . Dumais’s submission dated August 17, 2009, on compensation to be awarded in accordance with the Tribunal’s comments of June 16, 2009, Annex 1 at 10.

⁹ . Further submissions on lost profit, 17 August 2009, at para. 7.

¹⁰ . Dumais’s submission dated March 6, 2009, on the compensation that it should be paid, following the Tribunal’s decision of June 10, 2008.

¹¹ . Written submissions (compensation amount), 6 April 2009, at paras. 30-35.

¹² . Response to PWGSC’s written submission, 24 April 2009, at 8-9.

¹³ . Additional submissions, 25 April 2009, at para. 2.

¹⁴ . According to Dumais, it would seem that the work on Headway’s building was not finished before February 4, 2009. Dumais’s submission dated March 6, 2009, at para. 28, on the compensation that it should be paid, following the Tribunal’s decision of June 10, 2008.

¹⁵ . Dumais’s submission dated March 6, 2009, Annex E at 5, on the compensation that it should be paid, following the Tribunal’s decision of June 10, 2008.

¹⁶ . Additional representations on lost profit, 17 August 2009, at para. 12. In its written submission (compensation amount) of April 6, 2009, at para. 27, PWGSC estimated those expenses at $62,753 per year, which is $111.66 per square metre.

¹⁷ . The Tribunal assumed that the difference between the amount submitted by Dumais at the time of the solicitation, namely, $51,120 per year, and the amount submitted by Dumais during these proceedings, namely, $44,322, represents its profit margin on its operating costs.

¹⁸ . Response to PWGSC’s written submission, 24 April 2009, Annex 4.

¹⁹ . These costs include an 11.71 percent markup to take into account contractors’ overhead costs.

²⁰ . Response to PWGSC’s written submission, 24 April 2009, Annex 3.

²¹ . Dumais’s submission dated March 6, 2009, on the compensation that it should be paid, following the Tribunal’s decision of June 10, 2008.

²² . Written submission (compensation amount), 6 April 2009, Annex A at 15-16.

²³ . Dumais’s submission dated March 6, 2009, Annex D, on the compensation that it should be paid, following the Tribunal’s decision of June 10, 2008.

²⁴ . Reply to PWGSC’s written submission, 24 April 2009, Annex 6.

²⁵ . This rate is a rate of return that Dumais could have hoped to get on the market for a no-risk investment. Dumais’s submission dated March 6, 2009, Annex E at 11, on the compensation that it should be paid, following the Tribunal’s decision of June 10, 2008.

²⁶ . The calculations were done using the tool found at the following address: http://www.loanscalculator.org.

²⁷ . Ibid.

²⁸ . $148,340.00 x 0.04 = $5,933.60.

²⁹ . These amounts are broken down as follows: 2009, $17,507; 2010, $17,857; 2011, $18,214; 2012, $18,579; 2013, $18,950.

³⁰ . Damages for Breach of Contract, 2d ed., Carswell, at 1-7, 1-8.

³¹ . Re Complaint Filed by Ready John Inc. (23 August 2005) PR-2003-005R (CITT).

³² . Re Complaint Filed by Averna Technologies Inc. (10 October 2006), PR-2005-035 (CITT).

³³ . The outcome would have been the same if the Tribunal had instead deducted that amount from the operating costs.

³⁴ . Calculations of the discounted values were done using the Cash Flow Value & Rate of Return Calculator. See http://sporkforge.com/finance/cash_flow.php.

³⁵ . This rate is a rate of return that Dumais could have hoped to get on the market for a no-risk investment. Dumais’s submission dated March 6, 2009, Annex E at 11, on the compensation that it should be paid, following the Tribunal’s decision of June 10, 2008.

³⁶ . $27,922.00 x 0.04 = $1,116.88.

³⁷ . ($27,922.00 + $1,116.88) x 0.04 x 4/12 = $387.19.

³⁸ . The future value of unrealized profits of $2,349.92 per month ($28,199/12) invested at 4 percent is $28,817.49. Therefore, the interest revenue is $28,817.49 - $28,199, i.e. $618.49.

³⁹ . $28,817.49 x 0.04 x 4/12 = $384.23.

⁴⁰ . The future value of unrealized profits of $2,419.50 per month ($29,034/12) invested at 4 percent for four months is $9,758.91. Therefore, the interest revenue is $9,758.91 - ($2,419.50 x 4), i.e. $80.91.

⁴¹ . Dumais’s submission dated March 6, 2009, at para. 28, on the compensation that it should be paid, following the Tribunal’s decision of June 10, 2008.

⁴² . Written submission (amount of compensation), dated April 6, 2009, at para. 39.

⁴³ . Dumais’s comments on PWGSC’s additional submissions on lost profits, September 8, 2009, at paras. 30-32.

⁴⁴ . Re Complaint Filed by Canadian North Inc. (15 May 2007), PR-2006-026R (CITT).