File No. PR-2018-031 V Zero Corporation v. Department of Public Works and Government Services

Order and reasons issued Wednesday, June 17, 2020

 

TABLE OF CONTENTS

ORDER  i

STATEMENT OF REASONS  1

INTRODUCTION  1

COMPENSATION FOR LOST PROFIT  2

Profit Formula  3

Revenue  3

Costs  4

Lost Profit Calculation  10

CONCLUSION  12

 

IN THE MATTER OF a complaint filed by V Zero Corporation 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 recommendation of the Canadian International Trade Tribunal, made pursuant to subsections 30.15(2) and (3) of the Canadian International Trade Tribunal Act, that V Zero Corporation be compensated for any lost profit up until the moment it is issued the standing offer in question.

BETWEEN
V ZERO CORPORATION	Complainant
AND
THE DEPARTMENT OF PUBLIC WORKS AND GOVERNMENT SERVICES	Government Institution

ORDER

The Canadian International Trade Tribunal hereby recommends that the Department of Public Works and Government Services compensate V Zero Corporation in the amount of $100,082.76 for the profit that it lost up until the moment it was issued the standing offer in question.

STATEMENT OF REASONS

INTRODUCTION

[1]  In a decision made on December 19, 2018, the Canadian International Trade Tribunal (the Tribunal) determined, pursuant to subsection 30.14(2) of the Canadian International Trade Tribunal Act, [1] that the complaint filed by V Zero Corporation (V Zero) regarding a Request for Standing Offer (RFSO) issued by the Department of Public Works and Government Services (PWGSC) on behalf of the Royal Canadian Mounted Police (RCMP) for the provision of general duty rifle plates was valid. The Tribunal found that PWGSC improperly deemed V Zero’s bid as being non-compliant with a mandatory criterion of the solicitation.

[2]  In terms of remedy, the Tribunal recommended, pursuant to subsections 30.15(2) and (3) of the CITT Act, that PWGSC issue the standing offer for the provision of general duty rifle plates to V Zero and that it compensate V Zero for any lost profit it suffered resulting from rifle plates ordered from M.D. Charlton [2] until such time as it is issued the standing offer in question and begins fulfilling call-ups. The Tribunal indicated that, should the parties be unable to agree on the amount of compensation for lost profit, they were to file submissions with the Tribunal on this issue.

[3]  On March 7, 2019, V Zero was notified by PWGSC that M.D. Charlton had previously been issued a call-up for 800 sets of rifle plates. [3]

[4]  On March 28, 2019, PWGSC informed the Tribunal that the standing offer had been issued to V Zero and that it had requested further information from V Zero with respect to determining the amount of compensation to be paid. [4]

[5]  As the parties were unable to reach an agreement on the amount of compensation for lost profit, V Zero filed a statement of lost profit with supporting evidence with the Tribunal on April 11, 2019. Following the granting of two extensions of time by the Tribunal, PWGSC filed a response to V Zero’s statement of lost profit on July 16, 2019. V Zero filed a reply to PWGSC’s response on July 23, 2019.

[6]  On August 2, 2019, PWGSC sought leave of the Tribunal to file correspondence between PWGSC and V Zero, which was not available at the time submissions were made and which it claimed was relevant to V Zero’s claim for compensation. On August 8, 2019, the Tribunal advised the parties of its decision not to authorize the filing of the correspondence as it was of the view that it pertained to the administration of the contract and was not relevant to the claim for compensation currently before it.

[7]  V Zero initially claimed that it should receive $xxxxxxxxxx as reasonable compensation for the profit that it lost up until it was issued the standing offer in question (i.e. for the profit that it would have earned if it had been issued a call-up for 800 sets of rifle plates). It then revised this amount to $xxxxxxxxxx in its reply to PWGSC’s response. For its part, PWGSC submitted that the information provided by V Zero is insufficient to justify its claimed profit margin and that it should be reduced to account for uncertainties relating to its claimed costs and, more specifically, the possibility that its actual expenses would be significantly higher than stated. PWGSC did not, however, put forth a precise profit margin or dollar amount.

[8]  The Tribunal must now determine the appropriate amount of compensation to recommend that PWGSC pay to V Zero for its lost profit.

COMPENSATION FOR LOST PROFIT

[9]  The CITT Act and the Canadian International Trade Tribunal Procurement Inquiry Regulations [5] do not provide any guidance regarding the manner in which lost profit is to be quantified or regarding compensation matters generally. [6] The Tribunal’s Procurement Compensation Guidelines (the Guidelines), last updated in May 2014, do however set out a number of principles that will guide the Tribunal’s determination in the matter at hand. Most importantly, with respect to lost profit, the Guidelines provide as follows:

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. In doing so, the Tribunal may recommend prejudgment interest be included in the compensation amount.

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 recommended 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.

[10]  The Guidelines also provide that compensation recommendations will not be based on speculation or conjecture, that claims for compensation must be accompanied by credible economic, financial and other evidence, and that complainants ultimately bear the onus of proof in establishing their claims. [7]

[11]  Thus, on the basis of the above, it is clear that the goal of the compensation exercise in the present case is to attempt to place V Zero in the position in which it would have been if it had been the standing offer holder at all relevant times. [8] It is equally clear that it is V Zero that bears the burden of establishing its claim, and this, on the basis of evidence that is credible.

Profit Formula

[12]  It is not disputed that, if V Zero had been the standing offer holder at all relevant times, it would have received a call-up for 800 sets of rifle plates. The Tribunal must therefore determine the amount of profit that V Zero would have earned on this sale or, put differently, the amount of profit that it lost by not making the sale.

[13]  In order to calculate its lost profit, V Zero estimated the revenue that it would have earned on the sale of 800 sets of rifle plates and deducted therefrom all applicable costs, including overhead. This is commonly referred to as the revenue-less-costs, or revenue-less-expenses, methodology. [9] While PWGSC did not suggest that the use of this methodology was inappropriate in the present case, it did express concern that V Zero’s actual expenses could be significantly higher than claimed and that its profit margin should, as a result, be reduced to reflect typical margins in the defence industry and in procurement complaints before the Tribunal.

[14]  As will be explained further below, the Tribunal is of the view that V Zero has, for the most part, satisfactorily demonstrated the costs that it would have incurred to manufacture 800 sets of rifle plates and deliver them to the RCMP. Hence, there is nothing to suggest that the revenue-less-expenses methodology utilized by V Zero in this case has been rendered unreliable and that the Tribunal must instead turn to a profit margin approach.

[15]  That being said, in The Masha Krupp Translation Group Ltd. v. Canada Revenue Agency, [10] the Tribunal stated that the decision of which methodology to adopt to calculate lost profits is not strictly binary and that, even when using a revenue-less-expenses methodology, it will also consider historical and/or qualitative evidence of firm- and industry-specific profit margins for similar goods and services to test the soundness of the resulting profit margin. [11]

[16]  In light of this guidance, the Tribunal will proceed by first estimating the revenue that V Zero would have earned on the sale of 800 sets of rifle plates and the total costs that it would have incurred in order to earn this revenue. It will then test the soundness of the resulting profit margin by considering the more general types of evidence mentioned above.

Revenue

Rifle Plate Sets

[17]  The offer submitted by V Zero in response to the RFSO stipulated a firm unit price of $xxx per set of rifle plates. [12] V Zero would therefore have earned $xxxxxxx on the sale of 800 sets of rifle plates. Both parties are in agreement with this amount.

Harmonized Sales Tax

[18]  In its statement of lost profit, V Zero added an amount of $xxxxxx to its estimated revenue to account for the harmonized sales tax (HST) of 13% that it would have collected if it had actually sold the 800 sets of rifle plates.

[19]  In its response, PWGSC submitted that taxes collected by a contractor, including HST, cannot be included in the calculation of lost profits since they will eventually be remitted to the government, whether provincial or federal. It submitted that this principle has been recognized by the Tribunal in previous cost orders and in the Procurement Costs Guideline in the context of bid preparation costs.

[20]  In its reply to PWGSC’s response, V Zero submitted that it was up to the Tribunal to decide if the HST needs to be paid to V Zero and remitted back to the government or if it is omitted. It added that, either way, it did not recognize HST as profit and adjusted its claimed amount of compensation accordingly.

[21]  The Tribunal has previously stated that compensation awards are based on the value of the contract, excluding GST/HST. [13] As taxes are collected and then remitted to the Crown, they do not form part of a business’s profits. Moreover, in the present case, there is no basis upon which to even collect the HST as V Zero has not actually sold the 800 sets of rifle plates. For these reasons, the Tribunal will not include an amount for the HST in V Zero’s estimated revenue.

Total Revenue

[22]  In consideration of the foregoing, the Tribunal finds that, had V Zero been the standing offer holder and received a call-up for 800 sets of rifle plates, it would have earned $xxxxxxx in revenue.

Costs

[23]  The Tribunal must now estimate the total costs that V Zero would have incurred in order to earn this revenue.

Material Costs

[24]  V Zero claimed that material costs relating to the production of 800 sets of rifle plates would have totalled $xxxxxxx. In this regard, it included in its statement of lost profit a table listing all of the materials it claimed are used in the manufacture of the rifle plates, their unit prices, the total quantities required to produce 800 sets of rifle plates and the total price for each material based on those quantities. [14] It also provided supporting documentation in the form of invoices, quotations and purchase orders for these materials. [15]

[25]  In its response, PWGSC submitted that V Zero has not provided any information or explanation as to how its rifle plates are built and why the amount of material claimed is reasonable. It submitted that, without a specific breakdown, V Zero’s claimed costs cannot be verified.

[26]  In its reply to PWGSC’s response, V Zero submitted that PWGSC is simply trying to confuse the issue by labelling its extensive documentary evidence as insufficient. V Zero provided with its reply the drawing it generated for responding to the RFSO, which includes the bill of materials [16] used to produce the samples provided to the Technical Authority (i.e. the RCMP). [17] It questioned what else it could reasonably provide if the actual invoices, quotations and purchase orders for each component listed on the bill of materials are not suitable verification.

[27]  The materials listed in the table included with V Zero’s statement of lost profit are ceramic plates, aramid fibre, fiberglass, foam, nylon and two types of labels. These materials, save for the labels, which are affixed to each plate once completed, are also found on the bill of materials submitted by V Zero.

[28]  In addition, the Tribunal notes that the quantities provided in the table are consistent with the total number of rifle plates that would have been produced (1600 rifle plates would have been produced as there are two plates per set), their dimensions as indicated on the drawing provided by V Zero, and the number of layers listed on the bill of materials. [18] As for the unit prices provided in the table, they appear to be generally consistent with the information contained in the supplied invoices, quotations and purchase orders. However, in some cases, the Tribunal’s own calculations resulted in unit prices that were either slightly higher or lower than those provided in the table. [19]

[29]  The Tribunal also observes that three layers of adhesive film are listed on the bill of materials, but not in the table. This means that V Zero has omitted to include the cost of approximately 4,800 square feet of adhesive film in its total material costs. [20] In order to account for this omission and the possible minor variations in unit prices discussed above, the Tribunal finds it both appropriate and reasonable to increase V Zero’s claimed material costs by 10%, which amounts to an increase of $xxxxxx. Therefore, the Tribunal finds that V Zero would have incurred total material costs of $xxxxxxx.

Labour Costs

[30]  V Zero claimed that labour costs relating to the production of 800 sets of rifle plates would have totalled $xxxxxxxxx. It indicated that this amount is the result of two employees earning a specified wage working for eight hours per day for a period of 60 days (480 hours per employee and 960 hours in total).

[31]  In its response, PWGSC submitted that V Zero has not provided any specifics as to how the rifle plates are assembled or any information to substantiate that only two resources can produce 800 sets of rifle plates in the required time. It submitted that there should be concern that this amount has been understated.

[32]  In its reply, V Zero explained that there are three major stages in producing rifle plates: material preparation, curing and covering/finishing. For each of these stages, it provided detailed calculations showing the number of hours required per employee to produce 800 sets of rife plates. [21]

[33]  The Tribunal is of the view that the detailed calculations provided by V Zero adequately substantiate its claimed labour costs. It is also of the view that the wage specified in V Zero’s statement of lost profit is reasonable given the nature of the work. The Tribunal does note, however, that V Zero neglected to multiply by two the number of hours required per employee for the covering/finishing stage of production. Once this error is corrected, the total number of hours required to produce 800 sets of rifle plates increases from 960 to 1,227. Therefore, after taking into account this revised figure (i.e. by multiplying it by the specified wage), the Tribunal finds that V Zero would have incurred total labour costs of $xxxxxxxxx.

Packaging and Shipping Costs

[34]  V Zero claimed that packaging and shipping costs relating to the delivery of 800 sets of rifle plates to the RCMP would have totalled $xxxxx and $xxxxxx, respectively. In support of its claimed packaging costs, it provided pricing for corrugated boxes and wood pallets from a reputable distributor of shipping, industrial and packaging materials. [22] For the shipping costs, it provided a recent invoice for the shipment of rifle plates and made the necessary adjustment to account for the size of the order. [23]

[35]  In its response, PWGSC simply submitted that V Zero has not provided any information or explanation as to why the claimed packaging and shipping costs are reasonable.

[36]  In its reply, V Zero explained that packaging costs were estimated by following the packing, packaging and marking requirements outlined in the resulting contract clauses. [24]

[37]  The Tribunal is of the view that V Zero has fully substantiated its claimed packaging and shipping costs. The amounts are perfectly reasonable in light of the supporting information provided by V Zero, which the Tribunal finds credible. With respect to packaging costs, the Tribunal notes that the sum of the estimated cost for the corrugated boxes and wood pallets is lower than the total amount of packaging costs claimed. As V Zero provided no explanation for this discrepancy, and given that it is entirely feasible that the difference is at least partly attributable to the cost of labour to package the rifle plates, [25] the Tribunal will retain the total amount as claimed by V Zero in its statement of lost profit.

[38]  Therefore, the Tribunal finds that V Zero would have incurred total packaging and shipping costs of $xxxxx and $xxxxxxxx, respectively.

Testing Costs

[39]  V Zero claimed that ballistic testing costs relating to the supply of 800 sets of rifle plates to the RCMP would have totalled $xxxxx. It indicated that this amount represents the cost of testing 16 rifle plates by a certified laboratory. In this regard, it provided an invoice for earlier tests on its rifle plates from such a laboratory in the United States. [26]

[40]  PWGSC did not directly address V Zero’s claimed testing costs.

[41]  Section 6.10 of the resulting contract clauses provides that the RCMP will randomly select 1% of rifle plates from each production lot for testing in accordance with a specified standard. This testing is referred to as Production Lot Acceptance Testing (PLAT). The Tribunal finds that, as a total of 1600 rifle plates would have been produced, 16 plates (as correctly indicated by V Zero) would have been tested in accordance with the PLAT protocol outlined in the RFSO. In terms of the costs for these tests, it appears that V Zero converted the rate provided on the invoice from the laboratory in the United States from U.S. dollars to Canadian dollars using a factor of 1.33. [27] The Tribunal finds this reasonable.

[42]  However, the Tribunal notes that the aforementioned contract clause also specifies that PLAT “must be at the expense of the Contractor” and that “[t]he plate quantities for PLAT must be in addition to the deliverable quantities required by the Contract and must be at the expense of the Contractor.” This expense was not included in V Zero’s statement of lost profit. As the 16 rifle plates that would have been subjected to PLAT represent 1% of the total quantity of rifle plates that would have been produced, the Tribunal finds it appropriate to add 1% of the sum of the material, labour, packaging and shipping costs determined above to V Zero’s claimed testing costs. This amounts to an added cost of $xxxxxxxx.

[43]  Therefore, the Tribunal finds that the costs that V Zero would have incurred in relation to the testing of the rifle plates as per the terms of the RFSO would have totalled $xxxxxxxx.

Overhead Costs

[44]  V Zero claimed that general and administrative costs (i.e. overhead costs) attributable to the production of the 800 sets of rifle plates would have totalled $xxxxxxxxx. It explained that, since section 6.3 of the resulting contract clauses stipulates that PLAT is due within 60 calendar days of call-up and that delivery of the rifle plates is due within 30 calendar days of PLAT approval, it prorated its actual overhead costs for 2018 over a period of 90 days. It noted that, as V Zero is a small company and the production of this quantity of rifle plates would have occupied its entire operations for 90 days, it assigned all overhead costs for that three-month period to this call-up.

[45]  In its response, PWGSC submitted that the allocation of 90 days of overhead costs by V Zero understates the actual period for which these costs would have been incurred as the resulting contract clauses only specify that PLAT is due within 60 calendar days of call-up and delivery is due within 30 calendar days of PLAT approval, which means that additional time would have been required to allow for testing, communication of test results and possible production issues and corrections. It also noted that there was an inconsistency between V Zero’s total overhead costs for 2018 as reported in its statement of lost profit and as set out in its unaudited financial statements, which, it submitted, raises a concern regarding the accuracy of V Zero’s claim for compensation.

[46]  PWGSC further submitted that V Zero’s claimed overhead costs do not include wages or salaries of permanent company employees, directors or officers and that, while its unaudited financial statements refer to significant liabilities, they do not appear to include any expenses in relation to these liabilities, other than some interest charges.

[47]  In its reply, V Zero submitted that PWGSC’s contention that overhead costs should extend beyond 90 days is unreasonable as PLAT would have been proceeding concurrently with the production of individual batches of rifle plates such that the last batch would have been delivered within 90 days. With respect to the inconsistency in its reported total overhead costs for 2018, V Zero explained that this was the result of adjustments and corrections made by its accounting firm in the course of completing year-end financial statements, which occurred after the filing of its statement of lost profit with the Tribunal. It submitted that the adjustment would increase the total overhead costs for the 90-day period by $xxxxxx to $xxxxxxxxx, an amount which it stated it is prepared to accept.

[48]  V Zero submitted that, like all small corporations, it is funded by its owners and bank debt, and that it makes no sense for an owner to loan after-tax money to the corporation and then withdraw that same money as a salary, which would incur taxation. It submitted that, once it has generated enough revenue to be self-sustaining, the owner could start to draw a salary. Finally, it submitted that, as most companies work on a floating line of credit, liability fluctuates over time as payments are made and interest is charged on the outstanding balance.

[49]  The Tribunal finds that the allocation of all of V Zero’s overhead costs for a period of 90 days to the production and delivery of the 800 sets of rifle plates is appropriate in this instance. There is nothing in the resulting contract clauses that would appear to have prevented PLAT from proceeding concurrently with the production of individual batches of rifle plates, as V Zero claimed would have occurred. [28] Therefore, as individual batches would have been produced, they could have been tested immediately and production issues, if any, could have been corrected without delay such that the delivery of all batches would have been completed within 90 days. The Tribunal notes that, even if there would have been a delay in obtaining PLAT approval for the last batches such that final delivery would only have occurred beyond the 90-day period, any overhead costs incurred during this “down time” would not have been directly attributable to the call-up.

[50]  The Tribunal also finds that the inconsistency in V Zero’s reported total overhead costs for 2018 is properly explained by the fact it filed its statement of lost profit with the Tribunal before it adjusted its overhead costs in the course of completing year-end financial statements. In the Tribunal’s view, this raises no concerns whatsoever regarding the accuracy of V Zero’s claim for compensation. Moreover, the adjustment is so minor that its impact on the compensation exercise is practically insignificant. Nonetheless, the Tribunal will take into account the adjusted amount when establishing the total overhead costs that V Zero would have incurred.

[51]  As for the lack of expenses related to V Zero’s liabilities and to salaries of permanent company employees, directors or officers, the Tribunal notes that such expenses, even if they had actually been incurred or shown in V Zero’s reported overhead costs for 2018, would not have needed to be taken into account for the purpose of the present compensation exercise as they would have been incurred regardless of whether V Zero had been issued the call-up for 800 sets of rifle plates.

[52]  Indeed, in recommending that PWGSC compensate V Zero for any lost profit it suffered up until it was issued the standing offer, the Tribunal was attempting to place V Zero in the position in which it would have been, but for PWGSC’s breach of the provisions of Chapter Five of the Canadian Free Trade Agreement. [29] Under this approach, the profit that V Zero lost on the sale of 800 sets of rifle plates is established by estimating the revenue that it would have earned on the sale (i.e. its incremental revenue) and deducting therefrom the costs that it would have incurred to earn this revenue (i.e. its incremental costs). [30]

[53]  The Tribunal notes that all of V Zero’s reported overhead costs for 2018 are expenses that were actually incurred before the time it would have been issued the call-up. [31] In other words, they are not incremental costs resulting from the call-up and should therefore not be taken into consideration. That being said, the Tribunal recognizes that V Zero’s reported overhead costs were for 2018, a year during which it was not engaged in any meaningful operations as it was just starting to expand its sales efforts. [32] Thus, in this context, the sale of 800 sets of rifle plates would have produced a significant increase in revenue such that it would likely have led to an increase in overhead costs as compared to those reported in 2018. For this reason, the Tribunal is of the view that the amount claimed by V Zero, although not strictly consisting of incremental costs, is reasonably representative of the additional costs that it likely would have incurred if it had been issued the call-up.

[54]  Therefore, the Tribunal finds that V Zero would have incurred total overhead costs of $xxxxxxxxx.

Total Costs

[55]  In its response, PWGSC submitted that, because V Zero was not engaged in any meaningful operations in 2017 and 2018, there is significant risk that it is underestimating the total costs associated with manufacturing 800 sets of rifle plates. It added that, on this basis, there is insufficient information to determine whether V Zero’s claimed costs accurately represent the costs that would actually have been incurred.

[56]  The Tribunal does not agree. Included with V Zero’s statement of lost profit were actual invoices, quotations and purchase orders for the materials required to produce rifle plates, as well as invoices related to the testing and shipment of the plates. Moreover, in its reply to PWGSC’s response, V Zero provided detailed calculations showing the amount of labour required to produce the rifle plates and provided the bill of materials used to produce the samples provided to the RCMP. This type of evidence greatly reduces the risk that the costs are being underestimated.

[57]  In addition, the Tribunal notes that, while V Zero describes itself as a small start-up company, it states that its owner has been designing and manufacturing composite armour since 1996 and has previously supplied the RCMP and other law enforcement agencies with rifle plates. [33] This unquestionably adds to the credibility of the information provided by V Zero.

[58]  On balance, the Tribunal is satisfied that V Zero’s claimed costs, as further adjusted by the Tribunal, are supported by credible evidence and accurately represent the total costs that would have been incurred if it had been issued the call-up for 800 sets of rifle plates.

[59]  Therefore, taking into consideration the costs indicated above, i.e. $xxxxxx in material costs, $xxxxxxxxx in labour costs, $xxxxx in packaging costs, $xxxxxxx in shipping costs, $xxxxxxx in testing costs and $xxxxxxxx in overhead costs, the Tribunal finds that V Zero would have incurred total costs of $xxxxxxxxx.

Lost Profit Calculation

[60]  In light of the foregoing, the Tribunal considers that total revenue of $xxxxxx less total costs of $xxxxxxxxxx, which equals $100,082.76, reasonably represents the profit that V Zero lost on the sale of 800 sets of rifle plates. This translates into a profit margin of xxxx% for this particular sale.

[61]  In its response, PWGSC submitted that the information provided by V Zero is insufficient to justify a profit margin of xxxx%, [34] particularly since net profit margins in the defence industry are typically between 5% and 10%. It added that the Tribunal also determined in Oshkosh that typical net profit rates will be approximately 10% (plus or minus 5%) in procurement complaints. It submitted that an increase beyond typical net profit rates should require substantial and persuasive evidence, which has not been provided by V Zero in this case.

[62]  In its reply, V Zero submitted that it is not in the defence industry but is rather a composite manufacturer for which the closest Industry Canada category is “miscellaneous manufacturing”. It submitted that, according to official government of Canada industry statistics for 2017, the top quartile of small and medium-sized companies in this category reported net profits ranging from 30.9% to 100%, with the average being 51.4%. [35]

[63]  V Zero further submitted that accurate financial documentation of actual or planned expenditures combined with accurate estimations of labour and other expenses should be sufficient to establish a higher profit margin. It submitted that implying that some extra level of due diligence is required because the profit margin is higher than usual prevents the Tribunal from exercising its discretion to recommend any remedy that it considers appropriate.

[64]  As mentioned above, the Tribunal will consider historical and/or qualitative evidence of firm- and industry-specific profit margins for similar goods to test the soundness of the resulting profit margin in this case. Given that V Zero is a small start-up company that had, at the time the submissions were filed in the current proceeding, no significant past production of rifle plates or any other product for that matter, there is no historical evidence of firm-specific profit margins.

[65]  PWGSC stated that net profit margins in the defence industry are typically between 5% and 10%. However, the reference it provided in support of this statement clearly shows that these numbers are for large publicly traded companies operating in the aerospace and defence industry within the capital goods sector. [36] The Tribunal is of the view that this is of little use or relevance in the present case as V Zero is manifestly a small private company operating in a narrower, albeit not well-defined, sector.

[66]  On the other hand, the Tribunal finds that the Canadian industry statistics referenced by V Zero are particularly compelling. They show that net profit margins for the top quartile of small and medium-sized companies (i.e. companies with annual revenues of $30,000 to $5,000,000) in the “miscellaneous manufacturing” category, which is the most apt category based on the available categories, ranged from 30.9% to 100% in 2017, with the average margin standing at 51.4%. [37] The statistics for 2018 are essentially identical with net profit margins for the top quartile ranging from 31.7% to 100% and averaging 52.8%. [38] Viewed in this light, V Zero’s resulting profit margin can certainly be characterized as falling within the bounds of reasonableness.

[67]  In Oshkosh, the Tribunal stated that a reasonable net profit rate in a procurement complaint will typically hover around 10% (plus or minus 5%), to be varied as appropriate based on historical and/or qualitative evidence of firm- and industry-specific net profit margins for similar goods or services. [39] However, the Tribunal added that it would consider net profit rates of below 5% or above 15% appropriate where compelling circumstances exist. [40] As such, it is clear that this guidance was not intended to fetter the Tribunal’s discretion in future compensation cases and that each case is ultimately decided on its own merits. Indeed, in two compensation cases that followed Oshkosh, the Tribunal recommended compensation on the basis of net profit margins that were above 15%. [41]

[68]  The Tribunal finds that, in the present case, V Zero has provided substantial and credible economic, financial and other evidence, which supports a profit margin of xxxx%. The Tribunal is of the view that this margin reflects the actual loss suffered by V Zero as a result of the government’s breach, as opposed to a windfall.

CONCLUSION

[69]  The Tribunal hereby recommends that PWGSC compensate V Zero in the amount of $100,082.76 for the profit that it lost up until the moment it was issued the standing offer in question.