File No. PR-2018-042 Kileel Developments Ltd. v. Department of Public Works and Government Services

Determination issued Thursday, April 4, 2019 Reasons issued Wednesday, April 24, 2019

 

TABLE OF CONTENTS

DETERMINATION.. i

STATEMENT OF REASONS. 1

SUMMARY OF COMPLAINT. 1

PROCUREMENT PROCESS. 1

PRELIMINARY ISSUE – TRIBUNAL’S JURISDICTION.. 2

POSITIONS OF THE PARTIES. 4

Kileel 4

PWGSC.. 5

Joint Venture. 6

Kileel’s Reply. 6

ANALYSIS. 7

Conclusion. 11

COSTS. 11

DETERMINATION OF THE TRIBUNAL. 11

APPENDIX 1: RELEVANT PROVISIONS OF THE ITO.. 12

Part 1 – Instructions to Offerors and Requirements. 12

Part 2 – Irrevocable Offer to Lease. 13

Part 3 – Form of Lease. 15

 

IN THE MATTER OF a complaint filed by Kileel Developments Ltd. pursuant to subsection 30.11(1) of the Canadian International Trade Tribunal Act, R.S.C., 1985, c. 47 (4th Supp.);

AND FURTHER TO a decision to conduct an inquiry into the complaint pursuant to subsection 30.13(1) of the Canadian International Trade Tribunal Act.

BETWEEN
KILEEL DEVELOPMENTS LTD.	Complainant
AND
THE DEPARTMENT OF PUBLIC WORKS AND GOVERNMENT SERVICES	Government Institution

DETERMINATION

Pursuant to subsection 30.14(2) of the Canadian International Trade Tribunal Act, the Canadian International Trade Tribunal determines that the complaint is not valid. No costs shall be awarded to either party.

Cheryl Beckett                        
Cheryl Beckett
Presiding Member

The statement of reasons will be issued at a later date.

Tribunal Panel:                                                Cheryl Beckett, Presiding Member

Support Staff:                                                  Courtney Fitzpatrick, Counsel
Kalyn Eadie, Counsel

Complainant:                                                   Kileel Developments Ltd.

Counsel for the Complainant:                          Michael J. Connors

Government Institution:                                   Department of Public Works and Government Services

Counsel for the Government Institution:          Susan D. Clarke
Ian McLeod
Roy Chamoun
Kathryn Hamill
Nick Howard

Intervener:                                                       Joint Venture of Donald Bondy and Earl Brewer

Counsel for the Intervener:                              Michael S. Rankin
Timothy Cullen

Please address all communications to:

The Registrar
Secretariat to the Canadian International Trade Tribunal
333 Laurier Avenue West
15th Floor
Ottawa, Ontario  K1A 0G7

Telephone: 613-993-3595
Fax: 613-990-2439
E-mail: citt-tcce@tribunal.gc.ca

 

STATEMENT OF REASONS

1.                  On November 20, 2018, Kileel Developments Ltd. (Kileel) filed a complaint with the Canadian International Trade Tribunal (the Tribunal) under subsection 30.11(1) of the Canadian International Trade Tribunal Act[1] regarding an Invitation to Offer (ITO) (Solicitation No. 81000624) issued by the Department of Public Works and Government Services (PWGSC) on behalf of Employment and Social Development Canada for the leasing of office space in Fredericton, New Brunswick.

2.                  On November 26, 2018, the Tribunal decided to conduct an inquiry into the complaint, having determined that it met the requirements of subsection 30.13(1) of the CITT Act and the conditions set out in subsection 7(1) of the Canadian International Trade Tribunal Procurement Inquiry Regulations.[2]

3.                  The Tribunal inquired into the complaint, as required under sections 30.13 to 30.15 of the CITT Act.

4.                  For the reasons provided below, the Tribunal finds that the complaint is not valid.

SUMMARY OF COMPLAINT

5.                  Kileel alleges that the successful bidder submitted a non-compliant bid. In particular, Kileel alleges that the successful bidder did not follow the Measurement Instructions provided as part of the ITO documents in determining the amount of rentable space quoted in their Irrevocable Offer to Lease, even though the successful bidder certified that they did so when they submitted their offer.

6.                  As a remedy, Kileel requests that the bids be re-evaluated, that the designated contract be terminated, that the designated contract be awarded to the complainant, or that the complainant be compensated by an amount specified by the Tribunal. Kileel also requests reimbursement of its complaint costs and its bid preparation costs.

PROCUREMENT PROCESS

7.                  On February 14, 2018, PWGSC issued an Invitation to Submit an Expression of Interest (EOI) for the potential lease of office space in Fredericton, New Brunswick. Three responses were received by the deadline of March 14, 2018. All three responses proposed new buildings that would be constructed for the requirement.[3]

8.                  On August 2, 2018, PWGSC issued the ITO to the three entities who responded to the EOI: the complainant, Kileel; the Joint Venture of Donald Bondy and Earl Brewer (the Joint Venture); and Ross Ventures Ltd.[4]

9.                  On September 5, 2018, the ITO solicitation process closed.

10.              On the same day as the process closed, three offers were received and opened in accordance with the public opening procedure set out in Clause 16 of Part 2 – Irrevocable Offer to Lease.[5] Representatives of all three Offerors were present at the opening.[6]

11.              On September 10, 2018, again in accordance with Clause 16 of Part 2 – Irrevocable Offer to Lease, all three Offerors were sent electronic copies of Clauses 1 and 2 of each Irrevocable Offer to Lease received.[7]

12.              On October 16, 2018, PWGSC informed the Joint Venture that its Irrevocable Offer to Lease had been accepted.[8]

13.              On October 17, 2018, PWGSC advised Kileel that its offer was not accepted. On the same day, Kileel requested an in-person debriefing. The debriefing was held on November 6, 2018. At the debriefing Kileel raised the issue that the Joint Venture had quoted the same number of usable and rentable square metres in its offer. PWGSC confirmed during the debriefing that the financial evaluation of all the offers used the numbers quoted in the offers and, once the buildings were constructed and measurements completed, the rent payable would be based on the lesser of the space measurement of the rentable square metres or the rentable square metres quoted in the offer.[9]

14.              On November 7, 2018, Kileel submitted a letter of objection to PWGSC. Kileel filed its complaint with the Tribunal on November 20, 2018, before receiving a reply to its written objection. PWGSC provided the Tribunal with a draft response to this objection that reiterated its position provided to Kileel during the debriefing.[10]   

15.              On November 26, 2018, as noted above, the Tribunal accepted the complaint for inquiry.

16.              On December 17, 2018, the Joint Venture submitted a request to participate in these proceedings as an intervener. On December 21, 2018, having received no objections to this request from the parties, the Tribunal granted the Joint Venture the status of intervener.[11]

PRELIMINARY ISSUE – TRIBUNAL’S JURISDICTION

17.              In its complaint, Kileel submitted that Article 515 of the Canadian Free Trade Agreement[12] and Article XV of the Revised Agreement on Government Procurement[13] are applicable.

18.              In the Government Institution Report, PWGSC submitted that the Tribunal does not have jurisdiction to conduct an inquiry into this complaint, because the procurement was not in respect of a designated contract within the meaning of subsection 30.11(1) of the CITT Act.

19.              PWGSC requested that the Tribunal reconsider its previous position, as articulated in Immeubles Yvan Dumais v. Department of Public Works and Government Services,[14] that real estate leasing is a service that is not excluded from coverage under the Agreement on Internal Trade,[15] the WTO Agreement on Government Procurement,[16] and the North American Free Trade Agreement.[17]

20.              PWGSC submitted that the Tribunal should reconsider its characterization of real estate leasing as a “service” in light of the fact that, at common law, leasing is considered a conveyance of an estate or interest in real property, and not a good or a service.

21.              PWGSC also submitted that there has been a general trend towards exclusion of real estate leasing from coverage by Canada’s recently negotiated free trade agreements, and that amendments to the AIT (now the CFTA) and the Agreement on Government Procurement (now the Revised AGP) have made it clear that real estate leasing is not covered by the trade agreements.

22.              Specifically, Article 504: Scope and Coverage of the CFTA now includes the following language:

11.        This Chapter does not apply to:

            . . .

(e)        acquisition or rental of land, existing buildings, or other immovable property, or the rights thereon;

23.              PWGSC submitted that the Revised AGP contains similar language to the CFTA and that therefore real estate leasing is no longer covered under that agreement. PWGSC relied on subparagraph 3(a) of Article II, which provides:

3. Except where provided otherwise in a Party’s annexes to Appendix I, this Agreement does not apply to:

a. the acquisition or rental of land, existing buildings or other immovable property or the rights thereon;

24.              With respect to NAFTA, PWGSC acknowledged that there has been no amendment to that agreement as the new Canada-United States-Mexico Agreement[18] is not yet in force. However, PWGSC noted that Canada’s procurement obligations under that agreement will be governed by the Revised AGP with respect to the United States and by the Comprehensive and Progressive Trans-Pacific Partnership[19] with respect to Mexico. PWGSC submitted that real estate leasing is excluded from coverage by both of these agreements.

25.              In reply, Kileel submitted that the Revised AGP does include coverage of real estate leasing as a service. Kileel noted that Canada’s Annex 5 to Appendix 1 of the Revised AGP, which sets out the list of included services, includes “real estate services involving own or leased property” (code 821 of the United Nations Provisional Central Product Classification).[20] According to the explanatory note associated with this code, these services include:

Renting or leasing services of industrial, commercial or other non-residential buildings or property by owners or leaseholders to others. Examples include factories, office buildings, warehouses, theatres and multiple use buildings which are primarily non-residential, as well as agriculture, forest and similar properties, and land for mineral or oil exploration.[21]

26.              In Immeubles Yvan Dumais, the Tribunal found that this code included real estate leasing services and that the Tribunal accordingly had jurisdiction over procurements of these services under the AGP.

27.              The Tribunal finds that Article 504(11)(e) of the CFTA explicitly excludes the rental of real property from coverage by that agreement. Accordingly, the Tribunal accepts that it does not have jurisdiction over this procurement under the CFTA.

28.              However, the Tribunal does not accept PWGSC’s arguments with respect to the Revised AGP. Although the wording of subparagraph 3(a) of Article II of the Revised AGP is the same as is now found in the CFTA, the chapeau to paragraph 3 allows parties to include excluded items, such as the rental of real property, in their annexes. As noted by Kileel, Canada’s Annex 5, entitled “Services”, contains the same language that the Tribunal found included the leasing of office space in Immeubles Yvan Dumais. Accordingly, the Tribunal finds that real estate leasing is a “service” that is covered under the Revised AGP.

29.              The Tribunal also finds that it has jurisdiction over procurements for real estate leasing under NAFTA. In Immeubles Yvan Dumais, the Tribunal found that real estate leasing was a “service”, in accordance with the ordinary meaning of the word “leasing”.[22] In its analysis of the terms of NAFTA, the Tribunal found that real estate leasing was not included in the services listed in Section B of Annex 1001.1b-2, which lists all of the services excluded from coverage by NAFTA, and that the Tribunal therefore had jurisdiction over procurements involving real estate leasing services under that agreement.

30.              The Tribunal notes that PWGSC conceded that the wording of NAFTA has not changed since the decision in Immeubles Yvan Dumais. The Tribunal does not consider the fact that other trade agreements, including the agreement that will replace NAFTA, may exclude real estate leasing from coverage an adequate reason to adopt a different interpretation of the terms of the agreement. In any event, given that the Tribunal has found above that real estate leasing is a service that is explicitly included in Canada’s Annex 5 to the Revised AGP, it appears that PWGSC has overstated the degree to which the new CUSMA will exclude real estate leasing from coverage.

31.              Accordingly, the Tribunal finds that it has jurisdiction over the procurement at issue in this complaint under the Revised AGP and NAFTA.

POSITIONS OF THE PARTIES

Kileel

32.              As noted above, Kileel’s complaint is that PWGSC accepted a non-compliant offer in violation of Article XV of the Revised AGP and Article 515 of the CFTA.

33.              Specifically, Kileel submitted that the Joint Venture’s bid did not comply with the Measurement Instructions found at Schedule B to Part 3 – Form of Lease and as required by Clause 5 of Part 1 – Instructions to Offerors and Requirements, even though the Joint Venture had certified compliance with these Instructions in accordance with Clause 5 of Part 2 – Irrevocable Offer to Lease.

34.              Clause 5 of Part 1 – Instructions to Offerors and Requirements specified that PWGSC required office space of not less than 3310.65 square metres of usable area but that Offerors must quote rental rates on the basis of rentable area. Both usable area and rentable area were to be determined in accordance with the Measurement Instructions.

35.              In summary, according to the Measurement Instructions, rentable area is defined as the total interior area available and includes “Accessory Areas”. The definition of usable area, on the other hand, explicitly excludes “Accessory Areas”. Therefore, by definition, rentable area must be bigger than usable area.

36.              In Clause 2 of its Irrevocable Offer to Lease, the Joint Venture quoted exactly 3310.65 square metres for both usable and rentable area. Kileel submitted that, based on the definitions of usable and rentable space, one of these measurements must be incorrect. If the rentable area measurement is correct, then the Joint Venture’s offer would not meet the minimum requirement for usable area.

37.              Conversely, if the usable area measurement is correct, then the rentable area should be higher. Since the Basic Annual Rent is determined by multiplying the quoted annual basic rental rate by the rentable area(s),[23] Kileel submitted that the Joint Venture’s price should also have been higher. Kileel submitted that either way the other Offerors were disadvantaged by this non-compliance.

PWGSC

38.              PWGSC submitted that that it conducted the real property leasing process in a fair and reasonable manner, consistent with both the terms of the Invitation to Offer document and with normal commercial leasing practices.

39.              In accordance with such leasing practices, the identical usable and rentable areas quoted by the Joint Venture were considered acceptable, on the basis that the usable area quoted in the Offer met the minimum requirement of 3310.65 square metres identified in Clause 5(a) of the ITO, and the rentable area had not been left blank.

40.              PWGSC submitted that, while the value submitted by the Joint Venture with respect to rentable area was the same as the value submitted with respect to the usable area, there was no set minimum requirement in the ITO for rentable area.

41.              Furthermore, PWGSC submitted that the custom in the review of all such ITOs was that the numerical value of the rentable area was not verified nor required to be demonstrated, on the basis that the ITO did not specifically require the submission of the detailed rentable area measurements necessary to verify this value.

42.              PWGSC noted that the ITO was issued in contemplation of offers based on future construction and, accepting that this necessarily meant that the dimensions of the ultimate rentable area required to provide the specified usable area would be uncertain prior to full design and construction, the ITO provided for a future adjustment process with respect to calculating the rentable area. This adjustment mechanism is found in Clause 5 of Part 2 – Irrevocable Offer to Lease.

43.              Finally, PWGSC submitted that, since the value of the rentable area is one of the components of Present Value of the Offer, as a competitive bidding strategy, offerors in the industry would be motivated to submit, in their judgment, their lowest possible rentable area value. A bidder that submitted such a minimum value for rentable area was accepting a business risk, since PWGSC would hold the offeror to the calculated net present value of the rent, regardless of the actual amount of rentable space that resulted. In fact, PWGSC had seen such practices from time to time in its own experience with the real property leasing industry and the Crown would be the beneficiary of such competitive bid offers.

Joint Venture

44.              The Joint Venture echoed PWGSC’s view that there was no verification of the certified measurements provided by suppliers in their Irrevocable Offers to Lease and that the Joint Venture satisfied the minimum requirements of the ITO by certifying the usable area was 3310.65 square metres and providing a rentable area value.

45.              In addition, the Joint Venture submitted that the Tribunal has consistently held that evaluators may take supplier certifications at face value. In this case, there was no reason for PWGSC to believe the usable area in the Joint Venture’s Irrevocable Offer to Lease would be less than the certified minimum requirement.

46.              Further, it was fair and reasonable for PWGSC to rely on the Joint Venture’s certification without questioning the amount of rentable area quoted, because the Form of Lease included in the ITO provided for PWGSC to measure for itself the actual rentable area and obtain any pricing advantage created by the actual measurement.

47.              The Joint Venture submitted that, contrary to Kileel’s assertion, if the Joint Venture had used a higher number for rentable area, the price per square metre in the Joint Venture’s Offer would have been lower, not higher. This is because, in the Joint Venture’s submission, the starting point is the total annual rent the Joint Venture had determined it needed to generate in order for their offer to be financially viable. If the rentable area had been higher, the Joint Venture would have reduced its price per square metre accordingly to achieve the same final number.

48.              Finally, the Joint Venture submitted that the terms of the Form of Lease are very favourable to the government and there is a real risk that suppliers will receive less than the total annual rent needed to have a financially viable offer if the actual rentable area measured by PWGSC is less than the quoted rentable area. In these circumstances, the prudent supplier will ensure the quoted rentable area is not overstated.

Kileel’s Reply

49.              In reply to the submissions of PWGSC and the Joint Venture, Kileel submitted that, while it may not be possible for PWGSC to require accurate measurements at the time of bid submission, PWGSC was nevertheless required to evaluate bids for prima facie compliance with the requirements of the solicitation documents. According to Kileel, the fact that the rentable area value quoted by the Joint Venture was the same as the usable area was an indication of prima facie non-compliance with the Measurement Instructions.

50.              Kileel also submitted that PWGSC cannot rely on references to common commercial leasing practices if those were not included as part of the criteria in the solicitation documents.

51.              Finally, Kileel submitted that the fact that the Crown would be the beneficiary of any difference between the quoted rentable area and the actual measured rentable area is not a justification for accepting a non-compliant bid.

ANALYSIS

52.              Subsection 30.14(1) of the CITT Act requires that, in conducting an inquiry, the Tribunal limit its considerations to the subject matter of the complaint. 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.

53.              Section 11 of the Regulations provides that the Tribunal is required to determine whether the procurement was conducted in accordance with the applicable trade agreements.

54.              Kileel’s complaint is that the winning Offer was not compliant with the essential requirements of the solicitation because the winning Offeror did not comply with the Measurement Instructions when determining the value for rentable area submitted in its Irrevocable Offer to Lease.  

55.              All of the trade agreements require that tenders be evaluated in accordance with the requirements of the tender documents and that non-compliant bidders not be considered for contract award. In particular, Article 1015(4) of NAFTA provides that:

(a) to be considered for award, a tender must, at the time of opening, conform to the essential requirements of the notices or tender documentation and have been submitted by a supplier that complies with the conditions for participation; . . .

(d) awards shall be made in accordance with the criteria and essential requirements specified in the tender documentation; . . .

[Emphasis added]

56.              It is well established that a procuring entity will meet this obligation when it conducts a reasonable evaluation consistent with the terms of the tender documents. However, the Tribunal may find an evaluation to be unreasonable where the evaluators have not applied themselves in evaluating the proposal, have wrongly interpreted the scope of a requirement, have ignored vital information provided in a bid, have based their evaluation on undisclosed criteria or have not conducted the evaluation in a procedurally fair way.

57.              Preliminarily, the Tribunal accepts that, if determined in accordance with the Measurement Instructions, the value for rentable area must be greater than the value for usable area, since rentable area includes Accessory Areas and usable area does not.

58.              The Tribunal also accepts that it is obvious that the rentable area value in the Joint Venture’s Offer was not determined in accordance with the Measurement Instructions, since it is the same as the usable area value. The Tribunal notes that neither PWGSC nor the Joint Venture have argued that the Joint Venture did comply with the Measurement Instructions when it submitted its Offer.

59.              It is trite to state that PWGSC’s evaluation cannot be considered reasonable if it waived an essential requirement of the solicitation. However, it is not clear from the terms of the ITO document whether compliance with the Measurement Instructions was in fact an essential requirement of the ITO. The Tribunal must therefore determine whether it was reasonable for PWGSC to conclude that compliance with the Measurement Instructions was not an essential requirement of the ITO, and to find the Joint Venture’s Offer compliant. 

60.              Solicitation documents are interpreted according to the rules of contract interpretation, which provide that the terms of contracts are interpreted according to their ordinary meaning within the context in which they are used.[24] According to the Supreme Court of Canada in Tercon Contractors, “the key principle of contractual interpretation” in dealing with the interpretation of tender documents “is that the words of one provision must not be read in isolation but should be considered in harmony with the rest of the contract and in light of its purposes and commercial context.”[25]

61.              Kileel based its argument on Clause 5(b) of Part 1 – Instructions to Offerors and Requirements, and Clause 5 of Part 2 – Irrevocable Offer to Lease. Clause 5(b) of Part 1 provides as follows:

(b)        Leased Premises space requirements are set forth in terms of usable area, however; Offerors shall quote rental rates on the basis of rentable area as defined and determined in accordance with the “Measurement Instructions” attached as a Schedule to the Form of Lease. In completing an Irrevocable Offer to Lease, Offerors shall set forth both the usable area and the rentable area of the Leased Premises offered.

[Underlining in original]

62.              Clause 5 of Part 2 – Irrevocable Offer to Lease provides as follows:

5.         SPACE MEASUREMENTS

(a)        The Offeror certifies that the rentable and usable areas quoted in Clause 2 of this Irrevocable Offer to Lease have been measured in accordance with the Measurement Instructions specified in the Schedule entitled “Measurement Instructions”, attached to Part 3, the Form of Lease, of this Invitation to Offer document and agrees that if this Irrevocable Offer to Lease is accepted, any amount payable under the Lease shall be calculated based upon the actual measured rentable area as determined by the Lessee or the amount of rentable space specified in the Irrevocable Offer to Lease, whichever is less.

(b)        In the event the measured usable area of the Leased Premises is determined by the Lessee to be less than that set forth in this Irrevocable Offer to Lease, the Offeror shall provide the balance of the Leased Premises in a location acceptable to the Lessee. If the Irrevocable Offer to Lease has already been accepted by the Lessee, and the Offeror is unable to provide such balance of Leased Premises, the Offeror shall be liable and pay for any loss, cost or damage suffered by the Lessee connected or related thereto.

(c)        In the event that the measured usable area of the Leased Premises is determined by the Lessee to be more than that set forth in Clause 5(a) Part 1 – Instructions to Offerors and Requirements, the Lessee reserves the right to pay rent only for that usable and rentable area which is required. The Offeror shall be responsible for any costs associated with the application of this right.

(d)        The Lessee establishes, advertises and confirms its spatial requirements in terms of usable area(s) and the Lessee performs the financial evaluation of Irrevocable Offers to Lease using the Offeror’s quoted rentable area(s).

[Emphasis added]

63.              Kileel highlighted the language in Clause 5(b) which specified that “Offerors shall quote rental rates on the basis of rentable area as defined and determined in accordance with the ‘Measurement Instructions’ attached as a Schedule to the Form of Lease” [emphasis added]. In addition, as per Clause 5(a) of Part 2 – Irrevocable Offer to Lease, Offerors had to certify that the rentable and usable areas quoted in the Offer were measured in accordance with the Measurement Instructions.

64.              The Tribunal acknowledges that, on first reading, the use of the word “shall” in Clause 5(b) of Part 1, and the fact that bidders were required to certify compliance in Clause 5(a) of Part 2, suggests that it was an essential requirement of the ITO that the rentable area(s) submitted in Clause 2 of the Irrevocable Offers to Lease be determined in accordance with the Measurement Instructions.

65.              However, this language must be considered in the context of the requirements of the ITO as well as the purpose of those clauses and of the ITO as a whole. As PWGSC and the Joint Venture have suggested, it is important to consider this wording in light of the entirety of Clause 5 of Part 2, and to consider the purpose for which the rentable and usable area measurements were provided. 

66.              The Tribunal notes that the last line of Clause 5(b) of Part 1 states succinctly “[i]n completing an Irrevocable Offer to Lease, Offerors shall set forth both the usable area and the rentable area of the Leased Premises offered.” It is clear that it was a requirement of the ITO document for Offerors to include both a number for usable area and a number for rentable area, as stated by PWGSC, albeit for different purposes. As set out in Clause 5(b) of Part 1 and 5(d) of Part 2, the purpose of the usable area number in the table in Clause 2 of the Irrevocable Offer to Lease was to confirm that the Offeror was able to meet the government’s minimum space requirement of 3310.65 square metres. 

67.              As set out in Clause 5(b) of Part 1 and 5(a) and 5(d) of Part 2, the quoted rentable area, as highlighted in the underlined section of Clause 5(b), was to be used in conjunction with the quoted rental rate to determine the amount of the rental payments for the purposes of evaluating the bids. Specifically, in accordance with Clause 16(iv)(aa) of Part 1, the Basic Annual Rent is calculated by multiplying the quoted rental rate per square metre by the quoted rentable area. This is the number that was used in the financial evaluation of the Offers.

68.              However, Clause 5(a) of Part 2 – Irrevocable Offer to Lease states that “any amount payable under the Lease shall be calculated based upon the actual measured rentable area as determined by the Lessee or the amount of rentable space specified in the Irrevocable Offer to Lease, whichever is less” [emphasis added]. Clause 1 of Part 3 – Form of Lease permits the Lessee to take measurements in accordance with the Measurement Instructions once the Irrevocable Offer to Lease has been accepted. The effect of Clause 5(a) of Part 2 is that the Basic Annual Rent will not increase if the rentable area turns out to be greater than what was quoted in the Irrevocable Offer to Lease – the value that will change is the rental rate per square metre. Accordingly, the government can never be charged more rent than what was quoted in the Offer.

69.              The Tribunal notes that, as submitted by the Joint Venture, it was therefore feasible for an Offeror to determine the total amount of rent (the Basic Annual Rent) that it wished to charge and work backwards from that number to arrive at values for the rental rate per square metre and the rentable area. If the values are determined this way, there is technically no minimum value for rentable space; however, from a practical perspective, it is logical that an Offeror would not enter a value for rentable area that was less than the usable area. By entering a rentable area value equal to the minimum usable area, the Offeror would be guaranteed to receive an amount of rent that corresponds to the minimum amount of actual physical space it must provide.

70.              Both PWGSC and the Joint Venture claimed that the inclusion of these adjustment clauses is common practice in the commercial leasing industry due to the inherent level of uncertainty associated with prospective construction. The Joint Venture submitted affidavit evidence to this effect.[26]

71.              The Tribunal accepts that there is a certain amount of uncertainty inherent in providing measurements where a building has not yet been constructed or is in the process of being built. The inclusion of Clause 5 of Part 2 demonstrates that the ITO document contemplates a situation where the values for both usable and rentable space can be uncertain at the time of submission of the Offers.

72.              Accordingly, the Tribunal finds that Clause 5(b) of Part 1, which provides that Offerors “shall quote rental rates on the basis of rentable area as defined and determined in accordance with the ‘Measurement Instructions’ attached as a Schedule to the Form of Lease”, must be read in conjunction with Clause 5 of Part 2, which provides more detailed instructions to Offerors regarding Space Measurements. When considered in the context of the rest of the ITO, a reasonable reading of Clause 5(b) of Part 1 is that it did not require that Offerors determine rentable area in accordance with the Measurement Instructions at the time of the submission of the Offers. As PWGSC has argued, it was reasonable to consider that the only requirement was to provide a rentable area value that could be used as the variable to calculate the Basic Annual Rent for the premises.

73.              This value, contrary to what was argued by Kileel, did not necessarily have to be greater than the value for usable area at the time of the Offer. The Tribunal considers that the true measurement of rentable area will necessarily only be ascertainable once the buildings are constructed and these measurements are verified by the Lessee in accordance with the Measurement Instructions. As Kileel has stated in its complaint, based upon the definitions set out in the Lease, the final rentable area set out in the Lease will be a larger number than the usable area. However, Kileel’s statement that the Basic Annual Rent would increase where there is a higher rentable area is incorrect. The factor that will change is that the Joint Venture will receive a lower rental rate per square metre. There is no possibility under the terms of the ITO that the Basic Annual Rent will change.

74.              The existence of the adjustment mechanism is also important context for the interpretation of the obligation to certify compliance with the Measurement Instructions, which are both found in Clause 5(a) of Part 2. The Tribunal considers that the purpose of the certification requirement with respect to rentable area was principally to require an acknowledgment from the Offerors that the rentable area quoted in the Offer will be used to calculate the rent payable regardless of whether the measured rentable area is greater than the quoted rentable area.

75.              It is also important that PWGSC had no means of verifying the certification of the measurements at the time the Offers were submitted, since the floor plans submitted with the Offers were not sufficiently detailed to allow for this.[27] It follows that it was reasonable for the evaluators to accept at face value the Joint Venture’s certification that the rentable area had been measured in accordance with the Measurement Instructions at the time of submission of their Irrevocable Offer to Lease.

76.              It is understandable how Kileel arrived at the interpretation that it was an essential requirement to comply with the Measurement Instructions at the time the Offers were submitted, given the wording of Clause 5(b) of Part 1 and 5(a) of Part 2. The way that these provisions were worded is unclear, and as demonstrated by this complaint, have caused confusion for Offerors.

77.              It is also understandable that Kileel would take issue with the fact that the Joint Venture did not even attempt to comply with the Measurement Instructions, especially since it and the other Offeror did quote larger numbers for rentable area than for usable area, and appear to have made some effort to provide their best estimates based on the floor plans provided with their Offers, even though all three Offers involved new construction.[28] 

78.              However, the Tribunal observes that that the only reason it is apparent that the Joint Venture did not comply with the Measurement Instructions is that it submitted the same value for rentable and usable area. If it had inflated its quoted rentable area by some arbitrary amount and reduced its rental rate per square metre accordingly, it would not be apparent that the Joint Venture had not complied with the Measurement Instructions. 

79.              The ITO was clear that, regardless of the value of the rentable area and the rental rate, the resulting Basic Annual Rent would be fixed at the time of submission of the Offer, would be used for evaluation purposes and would become the final annual amount of rent in the winning Offer. All Offerors were aware of this condition and acted consistently with this knowledge. Upon evaluating the Offers, PWGSC did not look behind the rentable area values provided by any of the Offerors and simply took those numbers at face value for the purpose of its evaluation.

80.              Accordingly, the Tribunal considers that compliance with the Measurement Instructions was not an essential requirement of the ITO document, and that the evaluator’s decision to consider the Joint Venture’s Offer as compliant was reasonable.

Conclusion

81.              For the reasons provided above, the Tribunal finds that the complaint is not valid.

COSTS

82.              PWGSC did not request its costs incurred in proceeding with this complaint. Therefore, each party will bear its own costs.

DETERMINATION OF THE TRIBUNAL

83.              Pursuant to subsection 30.14(2) of the CITT Act, the Tribunal determines that the complaint is not valid. No costs shall be awarded to either party.

Cheryl Beckett                        
Cheryl Beckett
Presiding Member

APPENDIX 1: RELEVANT PROVISIONS OF THE ITO

Part 1 – Instructions to Offerors and Requirements

5.         LEASED PREMISES

(a)    Category and amount of Leased Premises space required:

                                                        (i)            Basic Office Space: approximately but not less than 3310.65 square metres (m²)

in usable area as defined and determined in accordance with the “Measurement Instructions” found as a Schedule to the Form of Lease – Part 3 of this Invitation to Offer document.

(b)    Leased Premises space requirements are set forth in terms of usable area, however; Offerors shall quote rental rates on the basis of rentable area as defined and determined in accordance with the “Measurement Instructions” attached as a Schedule to the Form of Lease. In completing an Irrevocable Offer to Lease, Offerors shall set forth both the usable area and the rentable area of the Leased Premises offered.

[Underlining in original]

11.        PREPARATION AND SUBMISSION OF AN IRREVOCABLE OFFER TO LEASE

. . .

(b)     Where the Building in which the Leased Premises are offered is not yet constructed, not yet completed, or does not presently meet all the provisions, requirements and standards set out in this Invitation to Offer document, Irrevocable Offers to Lease submitted, in accordance with the provisions of Part 2- Irrevocable Offer to Lease, automatically include a commitment by the Offeror to meet these provisions, requirements and standards prior to the Lease Commencement Date, all at the Offeror's sole expense.

(c)     When submitting an Irrevocable Offer to Lease, the Offeror must include the following information:

. . .

(iii)       AutoCAD Drawings or hard copies of current floor plans showing the Leased Premises being offered as well as columns, washrooms, elevators, stairs, including any architectural elements normally present in such floor plans;

. . .

16.        EVALUATION PROCEDURES

. . .

(b)        General Information:

(i)         Irrevocable Offers to Lease will be assessed in accordance with the requirements of the Invitation to Offer document.

(ii)        The Lessee will evaluate the Irrevocable Offers to Lease. Outside consultants may assist the Lessee but will not form part of the Lessee’s evaluation team.

(c)        Overview of the Evaluation Procedure:

There are several parts to the evaluation process, which are described below. Requests for clarification may be sent to Offerors at any time during the evaluation process.

(i)         Irrevocable Offers to Lease verification:

(aa)       The Lessee will verify that an Irrevocable Offer to Lease includes all documentation required under this Invitation to Offer document and that such information is complete.

(bb)      Irrevocable Offers to Lease that fail to include all the required documentation will be considered non-compliant and will be given no further consideration.

            (ii)        Confirmation of Compliance to the Requirements:

(aa)       Each Irrevocable Offer to Lease will be reviewed for compliance with the requirements of this Invitation to Offer document.

(bb)      Irrevocable Offers to Lease that do not meet the requirements will be declared non-compliant and will be given no further consideration.

(cc)       An Irrevocable Offer to Lease will not be subject to further evaluation if, in the sole opinion of the Lessee, the Irrevocable Offer to lease is conditional.

            (iii)       Evaluation of the compliant Irrevocable Offers to Lease:

(aa)       From the compliant Irrevocable Offers to Lease, as described in 16(c)(i) and 16(c)(ii), the Lessee may recommend for acceptance the lowest compliant Irrevocable Offer to Lease which shall be justified in relation to the market value of the property as determined by PWGSC in its sole and absolute discretion.

(bb)      Monthly rent payments, operating costs, utilities costs and front-end costs, to be paid over the Term of the Lease (excluding option to extend), are discounted to the Lease Commencement Date to calculate their Present Value which is then reduced by the Present Value of any offered inducements.

            (iv)       Payments and Income – Calculation Method:

(aa)       The Basic Annual Rent is calculated by multiplying the quoted annual basic rental rate, which includes realty taxes, by the rentable area(s) offered by the Offeror. The basic monthly rent payment is then calculated.

Part 2 – Irrevocable Offer to Lease

. . .

2.         IRREVOCABLE OFFER TO LEASE

            . . .

(d)        Basic Office Space Offered:

 

FLOOR NUMBER		MEASUREMENT m2
WHOLE	PART	USABLE	RENTABLE
TOTAL

 

(i)         as clearly identified on the attached and initialled plans.

(ii)        The correct arithmetic calculations will always take precedence over the amounts actually entered as the Total.

(iii)       Measurements for both the usable and rentable areas should be rounded to no more than a single decimal place.

[Underlining in original]

. . .

5.         SPACE MEASUREMENTS

(a)        The Offeror certifies that the rentable and usable areas quoted in Clause 2 of this Irrevocable Offer to Lease have been measured in accordance with the Measurement Instructions specified in the Schedule entitled “Measurement Instructions”, attached to Part 3, the Form of Lease, of this Invitation to Offer document and agrees that if this Irrevocable Offer to Lease is accepted, any amount payable under the Lease shall be calculated based upon the actual measured rentable area as determined by the Lessee or the amount of rentable space specified in the Irrevocable Offer to Lease, whichever is less.

(b)        In the event the measured usable area of the Leased Premises is determined by the Lessee to be less than that set forth in this Irrevocable Offer to Lease, the Offeror shall provide the balance of the Leased Premises in a location acceptable to the Lessee. If the Irrevocable Offer to Lease has already been accepted by the Lessee, and the Offeror is unable to provide such balance of Leased Premises, the Offeror shall be liable and pay for any loss, cost or damage suffered by the Lessee connected or related thereto.

(c)        In the event that the measured usable area of the Leased Premises is determined by the Lessee to be more than that set forth in Clause 5(a) Part 1 – Instructions to Offerors and Requirements, the Lessee reserves the right to pay rent only for that usable and rentable area which is required. The Offeror shall be responsible for any costs associated with the application of this right.

(d)        The Lessee establishes, advertises and confirms its spatial requirements in terms of usable area(s) and the Lessee performs the financial evaluation of Irrevocable Offers to Lease using the Offeror’s quoted rentable area(s).

. . .

Part 3 – Form of Lease

1.         LEASED PREMISES

The Lessor hereby leases to the Lessee:

(a)        As Basic Office Space:

(i) the whole of floors ______ of the Building, being respectively, _____ square metres (_____m²) in rentable area; and

(ii) those portions of floors _____ of the Building, respectively shown heavily outlined on the attached Schedule entitled “Floor Plan(s)”, being respectively, ______ square metres ( _____ m²) in rentable area.

All such Basic Office Space together having a total of _____ square metres (_____ m²) in rentable area, measured in accordance with the Schedule entitled “Measurement Instructions” appended hereto, hereinafter collectively called the “Leased Premises”.

[Underlining in original]

…

SCHEDULE “B”

MEASUREMENT INSTRUCTIONS

1.         DEFINITIONS

a)         “Accessory Areas” means the common use areas of the Building, along with their enclosing walls (except where such walls abut Building Service Areas), including but not limited to: washrooms, janitor closets, slop-sinks, electrical closets, telecommunication closets, public corridors and elevator lobbies, legislated fire crossover corridors and refuge areas and storage space.

b)         “Building Service Areas” means those areas, with their enclosing walls, necessary to the operation of the Building, including but not limited to: main entrance lobby, main floor elevator lobby, stairwells, passenger and freight elevators, fire towers, elevator shafts, flues, stacks, pipe shafts, other vertical ducts, heating, ventilation and air conditioning rooms (including fan rooms on floors), telecommunication and meter rooms, garbage and recycling rooms, janitorial storage room (serving the whole Building), dumbwaiter, and loading docks (serving the whole Building), security posts (serving the whole Building), the property manager’s office, shops and other spaces used by Building management and maintenance staff; and the commercial area.

2.         INSTRUCTIONS

a)         The rentable area of a whole floor shall be the area within the outside walls computed by measuring to the inside finish (or surface of the glass, as appropriate) of permanent outer building walls without deduction for columns or projections necessary to the Building or for enclosures around the periphery of the Building used for the purposes of cooling, heating and ventilating, excluding from such measurement Building Service Areas, but including Accessory Areas within and serving only that floor and, if applicable, a proportionate share of Accessory Areas serving more than one floor.

b)         The rentable area of a portion of a floor shall be the area within the outside walls computed by measuring to the inside finish (or surface of the glass, as appropriate) of permanent outer building walls, to the inside surface of the corridor walls and to the centre of the partitions that separate the portion of the floor from adjoining portions of the floor, without deduction for columns or projections necessary to the Building or for enclosures around the periphery of the Building used for the purposes of cooling, heating and ventilating, excluding from such measurement Building Service Areas, but including Accessory Areas within and serving only that floor and, if applicable, a proportionate share of Accessory Areas serving more than one floor.

c)         The usable area of a floor or of a portion of a floor shall be the area within the outside walls computed by measuring in the manner described for computing the rentable area, excluding from such measurement Building Service Areas and Accessory Areas (together with the enclosing walls of such Accessory Areas which separate them from usable area on the balance of the floor) and also excluding the area occupied by columns and projections necessary to the Building or by enclosures around the periphery of the Building used for the purposes of cooling, heating and ventilating.