Date: 20030211
Dockets: A-612-02
A-632-02
Neutral citation: 2003 FCA 71
CORAM: LÉTOURNEAU J.A.
BETWEEN:
A-612-02
SEPROTECH SYSTEMS INC.
Applicant
and
PEACOCK INC., ZENON ENVIRONMENTAL INC. and
PUBLIC WORKS AND GOVERNMENT SERVICES CANADA
Respondents
A-632-02
THE MINISTER OF PUBLIC WORKS AND GOVERNMENT SERVICES
Applicant
and
PEACOCK INC., ZENON ENVIRONMENTAL INC. and
SEPROTECH SYSTEMS INC.
Respondents
Heard at Ottawa, Ontario, on January 28, 2003.
Judgment delivered at Ottawa, Ontario, on February 11, 2003.
REASONS FOR JUDGMENT BY: EVANS J.A.
CONCURRED IN BY: LÉTOURNEAU J.A.
NADON J.A.
Date: 20030211
Dockets: A-612-02
A-632-02
Neutral citation: 2003 FCA 71
CORAM: LÉTOURNEAU J.A.
NADON J.A.
EVANS J.A.
BETWEEN:
A-612-02
SEPROTECH SYSTEMS INC.
Applicant
and
PEACOCK INC., ZENON ENVIRONMENTAL INC. and
PUBLIC WORKS AND GOVERNMENT SERVICES CANADA
Respondents
A-632-02
THE MINISTER OF PUBLIC WORKS AND GOVERNMENT SERVICES
Applicant
and
PEACOCK INC., ZENON ENVIRONMENTAL INC. and
SEPROTECH SYSTEMS INC.
Respondents
REASONS FOR JUDGMENT
A. INTRODUCTION
[1] Applications for judicial review have been brought by the Minister of Public Works and Government Services Canada ("PWGSC") and Seprotech Inc. to set aside a decision of the Canadian International Trade Tribunal holding that PWGSC had improperly awarded a contract to Seprotech Inc. and recommending that the contract be terminated. The applications were heard together and these reasons apply to both.
[2] The applicants' principal submission is that the Tribunal erred in law in holding that Seprotech had failed to comply with a provision in the solicitation and request for a proposal ("RFP") issued by the Department of National Defence ("DND") and PWGSC. The alternative submission is that, if Seprotech did not comply, the Tribunal erred in recommending the termination of the contract as a remedy. The respondents, ZENON Environmental Inc. and Peacock Inc., the other remaining bidders for the contract, deny that the Tribunal committed any reviewable error.
B. FACTUAL BACKGROUND
[3] The contract in question was for the supply of services to overhaul, repair and maintain equipment ("SRODs") installed on Canadian Forces' vessels for converting sea water into fresh water for use on board ship. The contract was for $6.9 million and was to last for three years plus two option years. The equipment had been designed and installed by ZENON.
[4] Seprotech was awarded the contract in June 2002 and has been performing it since then. ZENON complained to the Tribunal that PWGSC had awarded the contract to Seprotech in breach of Article 506(6) of the Agreement on Internal Trade, which provides:
The tender documents shall clearly identify the requirements of the procurement, the criteria that will be used in the evaluation of bids and the methods of weighting and evaluating the criteria.
In particular, ZENON alleged, Seprotech had not complied with a mandatory provision in the RFP requiring bidders to establish that, if awarded the contract, they would have access to the components needed to perform it. Some of the components had been specially developed by particular manufacturers for use in the SRODs and could neither be substituted for components manufactured by others, nor purchased commercially "off-the-shelf".
[5] The provision of the RFP in dispute appeared in Annex "A" in a section headed, "Technical Proposal", and provided as follows:
Bidders are asked to submit a full technical proposal showing that they have the capability to perform on any resulting contract. This technical proposal shall include, but not be limited to, a full presentation on:
...
* firm indication that all components required to perform the required work are accessible to the bidder (i.e. Letters of Intent from Original Equipment Manufacturers) ("OEMs")
C. TRIBUNAL'S DECISION
[6] The Tribunal found as a fact that Seprotech did not include in its tender documents a written statement from one of the OEMs of an important component of the SRODs. The manufacturer in question was Springcrest Inc., and the component was the sea water pump that feeds the SRODs.
[7] Seprotech had stated in its tender that it had received a verbal assurance from Springcrest that, if Seprotech was awarded the contract, Springcrest would supply it with new pumps. In addition, both before the contact was awarded and while the bids were being evaluated, PWGSC was assured by Springcrest in two telephone conversations that Springcrest would be willing to supply the pump to the successful bidder, whoever that proved to be. Seprotech also included in its submissions to the Tribunal a letter dated April 12, 2002 from Springcrest stating that, subject to Seprotech's acceptance and approval, Springcrest would be pleased to supply the pump if Sperotech was awarded the contract. This letter was never sent to PWSGC, even though bidding did not close until April 17, 2002.
[8] The Tribunal interpreted the words, "a firm indication that all components required to perform the required work are accessible to the bidder" to mean that
written confirmation from OEMs or their distributors or agents is required for components not readily available by commercial supply or not manufactured by a bidder itself. Essentially, these components are those identified in the source drawings where the names and addresses of the approved OEMs are specified.
The sea water pump was identified in the source control drawing, and the name and address of Springcrest was specified as the approved OEM for it. The Tribunal held that a statement by a bidder asserting that it had access to commercially available components was insufficient to comply with this requirement of the RFP.
[9] In its reasons the Tribunal also noted the differing interpretations of the disputed provision advanced on behalf of the parties. ZENON submitted that the phrase meant that the only acceptable form of "a firm intention" was a written statement of a vendor's willingness to supply the bidder: "i.e." means "that is", not "for example". In contrast, Seprotech and PWGSC argued that, in the context of this RFP, and in light of the purpose of the provision, "i.e." does not serve to reduce the scope of the preceding larger category, namely, "firm indication". Accordingly, "letters of intent" were merely one form of "a firm indication" that a bidder could provide and be responsive to the RFP. The Tribunal noted that each party was able to produce common law authority to support its interpretation.
[10] In the event, the Tribunal did not find it necessary to determine how the "i.e. clause" should be interpreted because
there is no question that the preceding expression "firm indication that all components required to perform the required work are accessible to the bidder" contemplates something more concrete than the reporting of a verbal conversation between the bidder and supplier. At the very least, there must be some form of written evidence that the components shown in the SROD source control drawings were available to the bidder for purposes of the procurement. The Tribunal finds that, by accepting these verbal indications as meeting the evaluation criterion, PWGSC allowed the evaluation to differ from what was stated in the RFP.
[11] After deciding that the contract had been improperly awarded, the Tribunal proceeded, without further reasons, to its remedial recommendation. As I have already indicated, the Tribunal recommended that the contract be terminated and the two remaining proposals, namely, those of ZENON and Peacock, re-evaluated to determine if they comply with the requirement that bidders provide a firm indication that they would have access to non-commercially available components. Compliance was to be determined on the basis of the Tribunal's interpretation of the "firm indication" requirement.
D. ISSUES AND ANALYSIS
Issue 1: Standard of review
[12] Counsel for Seprotech submitted that, although the Court has held that decisions of the Tribunal are entitled to the highest level of deference, this standard may not always be appropriate. Much depends on the particular question in dispute (Canada (Deputy Minister of National Revenue - M.N.R. ) v. Mattel Canada Inc., [2001] 2 S.C.R. 100), and all the circumstances of the case.
[13] In support of the application of a less deferential standard, counsel relied on two principal arguments. First, the question in dispute involved a pure question of law, namely, the interpretation of contractual documents, and not a finding of fact, nor the interpretation and application of technical or scientific provisions in the statutory schemes that it administers, such as the classification of imported goods for tariff purposes.
[14] Second, counsel submitted, the Tribunal's reasons were deficient in the following respects. They did not take into account the fact that PWGSC had received confirmation from Springcrest that it would supply its pump to any successful bidder for the contract and that, before the bidding closed, Seprotech had received a letter from Springcrest clearly indicating its willingness to supply the pump to Seprotech if it was awarded the contract. In addition, the Tribunal's reasons do not refer to the bracketed words of the RFP (the "i.e. clause") in explaining why it interpreted the requirement that bidders provide a "firm indication" that they have access to supply as meaning that bidders must submit a written assurance. Finally, the reasons for decision were incoherent because, while the Tribunal agreed that PWGSC intended the "i.e. clause" to introduce an example and not to restrict "firm indications" to letters of intent, it nonetheless held that the requirement mandated a written assurance.
[15] I do not agree that these considerations, either collectively or individually, warrant holding this decision to a more demanding standard than that usually applied to decisions of the Tribunal. I shall deal first with the argument that patent unreasonableness is an inappropriate standard of review because the question in dispute, namely the interpretation of the "firm indication clause", is a question of law outside the Tribunal's area of expertise.
[16] In Siemens Westinghouse Inc. v. Canada (Minister of Public Works and Government Services), [2002] 1 F.C. 292 at paras. 21-23 (C.A.), also a procurement case, this Court reiterated that the specialized character of the Tribunal and the technical nature of many of the questions that it is called upon to decide demand that its decisions be reviewed on the most deferential standard "except for jurisdictional and other exceptional cases" (para. 23), where the Tribunal may be called upon to decide "pure questions of law that require the application of principles of statutory interpretation and other concepts which are intrinsic to commercial law" (Mattel at para. 33).
[17] This is not one of those exceptional cases. The interpretation of the disputed provision of this RFP is within the expertise of the Tribunal as the adjudicator of complaints about the award of government contracts. It calls more for an understanding of the procurement process than of general common law principles of contract or commercial law.
[18] Moreover, as counsel for the Minister conceded, the relevant clause was not well drafted and its meaning is uncertain. Indeed, during the evaluation of the bids, an evaluator wondered whether all assurances from OEMs had to be in writing. Specialist administrative tribunals' expertise is particularly relevant for resolving ambiguities and filling gaps in the text of statutes and other documents that they are required to interpret. In these circumstances, there is no "correct" meaning of the provision for the Court to supply: Canadian Union of Public Employees, Local 269 v. New Brunswick Liquor Corporation, [1979] 2 S.C.R 227 at 236-37.
[19] Nor do I agree that the reasons given by the Tribunal for concluding that Seprotech had not complied with the requirements of the RFP were so defective as to warrant subjecting the decision to a less deferential standard of review than would otherwise be applicable to the Tribunal's interpretation of the disputed provision.
[20] First, the Tribunal decided that Seprotech had not satisfied the disputed RFP requirement when it submitted with its tender only a verbal assurance of availability from Springcrest. Accordingly, it was irrelevant that PWGSC had itself obtained a verbal assurance from Springcrest that it would supply whoever was awarded the contract and that Seprotech had in fact obtained a letter from Springcrest that it did not communicate to PWGSC.
[21] Second, the fact that the Tribunal was able to interpret the "firm indication" provision in the RFP without reference to the "i.e. clause" is a challenge to the correctness of the Tribunal's reasoning, rather than to the adequacy of the reasons as an explanation of its decision.
[22] Third, as far as the allegation of internal inconsistency is concerned, it is not evidence of incoherence that the Tribunal concluded that, even though PWGSC intended the "i.e. clause" to denote only an example, this is not what the requirement meant. In addition, the Tribunal's interpretation is not necessarily inconsistent with what PWGSC said that it intended by the requirement. This is because, even if PWGSC did not intend a letter of intent to be the only acceptable form of assurance, it does not necessarily follow that a mere oral assurance, as opposed to a relatively informal written assurance, would be acceptable as a "firm indication".
[23] Consequently, in my opinion, the Tribunal's decision that Seprotech had not complied with the disputed requirement of the RFP is reviewable for patent unreasonableness.
Issue 2: Was the Tribunal's interpretation of the "firm indication" requirement patently unreasonable?
[24] Counsel for the applicants urged the Court to interpret the "firm indication" provision purposively and not in a strict or technical manner. They submitted that the purpose of the provision was to satisfy the legitimate concern of PWGSC and DND that the successful tenderer would not be prevented from performing the contract because it lacked access to essential components for the SRODs. In this case, it was argued, since the material before the Tribunal clearly indicated that Springcrest would supply the sea water pump to Seprotech, the "firm indication" provision had served its purpose. The Tribunal should have taken this evidence into account when deciding if the verbal assurance included in Seprotech's tender complied with the RFP.
[25] Relying on the decision in Siemens, counsel argued that it was proper for PWGSC to consult material in its possession in order to determine if the purpose of the requirement was satisfied, namely, that the components would be available to Seprotech if it was awarded the contract. This Court held in Siemens that PWGSC was entitled to consult a copy of a contract in its possession in order to verify a claim by the bidder that it had already worked on a similar project and, therefore, if it was awarded the contract, it had the required work experience to perform it.
[26] I do not accept these arguments. Siemens is distinguishable from the present case on two grounds. First, while the specified work experience was a mandatory requirement of the RFP considered in Siemens, the manner of proving it was not: see para. 17 of the reasons. In the present case, however, the Tribunal interpreted the "firm indication" provision as requiring more than a statement by the bidder that it had a verbal assurance from the supplier. Since Seprotech's bid was not compliant, it was impermissible "bid repair" for PWGSC to rely on the blanket assurance that it had received from Springcrest in order to make Seprotech's bid compliant.
[27] Second, the RFP considered in Siemens contained a clause giving PWGSC a wide discretion to verify all claims made by bidders about their work experience: see para. 17. This must have included consulting sources other than the tender documents. In contrast, no analogous clause respecting the verification of claims of access to components was included in the RFP in the case before us.
[28] Nor do I agree with counsel's suggestion that the Tribunal had elevated form over substance when it decided that Seprotech had not satisfied the requirement of providing a "firm indication" without regard to the verbal assurance that PWGSC had received from Springcrest. An oral assurance given to a bidder by a third party can reasonably be regarded as qualitatively different from a letter signed on behalf of a company stating clearly that it was willing to supply a particular component to a particular bidder. Whether or not such a representation might expose the supplier to liability at the instance of either the bidder or the government if it did not honour its undertaking, a written statement of intent to supply the successful bidder is a clear indication that the matter has been considered by the potential supplier with a degree of seriousness and that it indeed has a present intention to supply. Even if a doctrine of "substantial compliance" applies to the federal procurement process, I am not satisfied that it would have been met here.
[29] Counsel criticised the Tribunal for stating, without supporting evidence, that a written assurance of availability was not required with respect to components that either could be purchased commercially "off-the-shelf" or were manufactured by the bidder. However, in my opinion, this interpretation clearly shows that the Tribunal was very alive to the need to interpret the requirement in a manner that was consistent with its purpose.
[30] It was also reasonable for the Tribunal not to regard the letter from Springcrest to Seprotech, which was never sent to PWGSC, as fulfilling the "firm indication" requirement. If Seprotech's bid was non-compliant when PWGSC awarded it the contract, I do not see how it could be retroactively revived by the Tribunal on the basis of that letter.
[31] I would also say in this regard that counsel for Seprotech was unable to provide any satisfactory explanation of why this letter was not included with the tender documents. ZENON and Peacock apparently included letters of assurance from Springcrest with their bids. Moreover, since it went to the trouble of soliciting and including in the tender 33 written assurances from other OEMs, Seprotech must have regarded the inclusion of written assurances as important. If the Springcrest letter arrived on April 12, or very soon thereafter, I would have thought that Seprotech would have made every effort to ensure that it was included with the tender for this valuable contract.
[32] Accordingly, given both the wording and the purpose of the badly drafted "firm indication" requirement, the Tribunal's interpretation of it was not patently unreasonable. Moreover, while the Government should always strive to obtain value for money when it contracts for the supply of goods and services, it also owes a duty of fairness to all bidders. Indeed, maintaining certainty and transparency in the procurement process through adherence to requirements of the RFP is likely to further the public interest in value for money by encouraging suppliers to submit tenders.
Issue 3: Procedural Fairness
[33] Counsel argued that the Tribunal denied Seprotech a fair hearing when it refused to consider Seprotech's reply to ZENON's response to Seprotech's submissions which, in turn, had responded to ZENON's complaint about the award of the contract to Seprotech. The Tribunal inquired into the complaint on the basis of a "paper hearing".
[34] In my opinion, this argument is unfounded. The precise content of the duty of fairness is, of course, shaped by the legal and administrative contexts in which it is to be applied. Three contextual factors persuade me that the Tribunal's refusal to accept Seprotech's response to ZENON's submissions was not procedurally unfair since it did not deny Seprotech a reasonable opportunity to participate in the Tribunal's decision-making process.
[35] First, Seprotech was an intervener in the complaint made by ZENON and Peacock against PWGSC. Interveners do not generally have a right to reply to the submissions of a party made in response to the intervener, even when, as here, the outcome of the proceeding may directly affect the rights of the intervener.
[36] Second, time is important in contract procurement and the Tribunal must complete its task within a fairly tight schedule, normally 90 days: CITT Procurement Inquiry Regulations, SOR/93-602, section 12. The Tribunal received ZENON's complaint on July 15 and had to render its decision by October 15. ZENON's reply to Seprotech was received by the Tribunal on September 13 and Seprotech attempted to reply on October 7, only eight days before the Tribunal was due to render its decision. If the Tribunal had accepted this submission it would undoubtedly have had to give the parties an opportunity to respond and, perhaps, Seprotech would have requested another round. As the complainants before the Tribunal, ZENON and Peacock were always entitled to the last word.
[37] Third, it is relevant to determining whether the Tribunal's rejection of Seprotech's reply submission was a denial of its right to a fair opportunity to participate in the decision-making process to note that Seprotech had already made two submissions to the Tribunal and that counsel did not suggest that Seprotech's third intended submission rebutted new evidence or arguments adduced by ZENON in its reply.
Issue 4: The Remedy
[38] Finally, the applicants submit that the remedy awarded by the Tribunal consequent upon its conclusion that Seprotech was improperly awarded the contract should be set aside, because it either was a patently unreasonable exercise of discretion or was supported by no reasons.
[39] It will be recalled that the Tribunal recommended the termination of the contract and the re-evaluation of the remaining bids from ZENON and Peacock with a view to PWGSC's determining if they satisfied the "firm indication" requirement as interpreted by the Tribunal.
[40] I set out below the remedial powers conferred on the Tribunal by the Canadian International Trade Tribunal Act, R.S.C. 1985, c. 47 (4th Supp.).
| 30.15(2) Subject to the regulations, where the Tribunal determines that a complaint is valid, it may recommend such remedy as it considers appropriate, including any one or more of the following remedies: (a) that a new solicitation for the designated contract be issued; (b) that the bids be re-evaluated; (c) that the designated contract be terminated; (d) that the designated contract be awarded to the complainant; or (e) that the complainant be compensated by an amount specified by the Tribunal. (3) The Tribunal shall, in recommending an appropriate remedy under subsection (2), consider all the circumstances relevant to the procurement of the goods or services to which the designated contract relates, including (a) the seriousness of any deficiency in the procurement process found by the Tribunal;(b) the degree to which the complainant and all other interested parties were prejudiced; (c) the degree to which the integrity and efficiency of the competitive procurement system was prejudiced; (d) whether the parties acted in good faith; and (e) the extent to which the contract was performed. |
30.15(2) Sous réserve des règlements, le Tribunal peut, lorsqu'il donne gain de cause au plaignant, recommander que soient prises des mesures correctives, notamment les suivantes_: a) un nouvel appel d'offres; b) la réévaluation des soumissions présentées; c) la résiliation du contrat spécifique; d) l'attribution du contrat spécifique au plaignant; e) le versement d'une indemnité, don't il précise le montant, au plaignant. (3) Dans sa décision, le Tribunal tient compte de tous les facteurs qui interviennent dans le marché de fournitures ou services visé par le contrat spécifique, notamment des suivants_: a) la gravité des irrégularités qu'il a constatées dans la procédure des marchés publics; b) l'ampleur du préjudice causé au plaignant ou à tout autre intéressé; c) l'ampleur du préjudice causé à l'intégrité ou à l'efficacité du mécanisme d'adjudication; d) la bonne foi des parties; e) le degré d'exécution du contrat. |
[41] By providing no explanation of its choice of remedy the Tribunal failed to give adequate reasons for its decision. The omission effectively denied the applicants their right to judicial review of the remedial aspect of the Tribunal's decision. Hence, in my opinion, this part of the decision should be set aside.
[42] It is true that the only participant to raise the question of remedy in its submissions to the Tribunal was ZENON: it asked that the contract be terminated and that it be declared the only compliant bidder. Neither PWGSC nor Seprotech made submissions on this issue in the event that the Tribunal decided, as it did, to uphold ZENON's complaint.
[43] Nonetheless, the Act confers a very broad range of remedial powers upon the Tribunal. Termination is not an automatic remedy when a contract is held to have been improperly awarded to a non-compliant bidder. The Act specifically lists four factors that the Tribunal must consider, along with all the relevant circumstances, when fashioning an appropriate remedy. Without the benefit of reasons from the Tribunal, the Court in this case cannot meaningfully perform its function of ensuring that the Tribunal discharged its statutory duty of considering the relevant factors and otherwise exercised its discretion lawfully.
[44] The following considerations lead me to believe that termination of the contract and a limited re-evaluation of the remaining bids is not the only possible remedy that the Tribunal could have awarded in this case: the extent of Seprotech's non-compliance with an ambiguous provision in the RFP; the evidence before the Tribunal of Springcrest's willingness to supply the sea water pumps to Seprotech; the possibility that the bids of neither ZENON nor Peacock will be found to be compliant; and the uncertainty surrounding precisely which components specified in the hundreds of technical pages accompanying the RFP were subject to a written assurance of availability.
[45] Hence, the Tribunal must redetermine the appropriate remedy in this case and provide reasons for its decision. To this end, the Tribunal should invite the three remaining bidders and PWGSC to make submissions on the issue of remedy. In order to minimise further delay, the Tribunal may set a tight schedule, especially as the participants have already given considerable thought to the question.
[46] I would add only that nothing in these reasons should be taken to indicate what remedy the Tribunal ought to award after it has reconsidered the matter and provided reasons for its decision.
E. CONCLUSIONS
[47] For the reasons given above, I would grant the application for judicial review in part, set aside the Tribunal's decision to recommend termination of the contract and a limited re-evaluation of the remaining bids, and direct the Tribunal to exercise its remedial discretion in accordance with law and to provide reasons for its decision. Since success on this application is divided, I would not award costs.
"John M. Evans"
J.A.
"I agree
Gilles Létourneau J.A."
"I agree
Marc Nadon J.A."
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-612-02
STYLE OF CAUSE: Seprotech Systems Inc. v. Peacock Inc., Zenon Environmental Inc. and The Minister of Public Works and Government Services Canada
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: January 28, 2003
REASONS FOR JUDGMENT: Evans J.A.
CONCURRED IN BY: Létourneau J.A. and Nadon J.A.
APPEARANCES:
Mr. Gerald H. Stobo For the applicant
No one appearing For the respondent (Peacock Inc.)
Mr. Ronald D. Lunau For the respondent (Zenon)
Ms. Elizabeth Richards For the respondent (Minister of Public Works)
SOLICITORS OF RECORD:
Borden Ladner Gervais LLP For the applicant
Ottawa, Ontario
Stikeman Elliott For the respondent (Peacock Inc.)
Montreal, Québec
Gowling Lafleur Henderson LLP For the respondent (Zenon)
Ottawa, Ontario
Mr. Morris Rosenberg For the respondent (Minister of Public Works)
Deputy Attorney General of Canada
Ottawa, Ontario
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-632-02
STYLE OF CAUSE: The Minister of Public Works and Government Services Canada v. Peacock Inc., Zenon Environmental Inc. And Seprotech Systems Inc.
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: January 28, 2003
REASONS FOR JUDGMENT BY: Evans J.A.
CONCURRED IN BY: Létourneau J.A. and Nadon J.A.
DATED: February 11, 2003
APPEARANCES:
Ms. Elizabeth Richards For the applicant
No one appearing For the respondent (Peacock Inc.)
Mr. Ronald D. Lunau For the respondent (Zenon)
Mr. Gerald H. Stobo For the respondent (Seprotech)
SOLICITORS OF RECORD:
Mr. Morris Rosenberg For the applicant
Deputy Attorney General of Canada
Ottawa, Ontario
Stikeman Elliott For the respondent (Peacock Inc.)
Montreal, Québec
Gowling Lafleur Henderson LLP For the respondent (Zenon)
Ottawa, Ontario
Borden Ladner Gervais LLP For the respondent (Seprotech)
Ottawa, Ontario