This article is an extract from the 5th edition of Government Procurement.
In its February 2022 decision in Ministry of Highways for the Province of Saskatchewan v. West-Can Seal Coating Inc., the Saskatchewan Court of Queen’s Bench rejected the Saskatchewan government’s judicial review application after finding no reason to set aside an arbitration ruling that found the government in breach of the Canadian Free Trade Agreement.
Turning first to the arbitration in question, in a March 2021 decision in New West Partnership Bid Protest Mechanism Arbitration HWY-20126, Saskatchewan, an arbiter determined that the Saskatchewan provincial government breached the Canadian Free Trade Agreement by improperly evaluating past performance criteria and applying improper local labour requirements. The arbitration was conducted pursuant to the bid protest mechanism established by the four western Canadian provinces for the adjudication of trade treaty bid protests.
The arbitration dealt with the government’s award of a contract for highway micro surfacing. The contract was awarded based on a 110-point evaluation scale, in which bidders were assigned points in four categories, with the work zone traffic audit (“WZTA”) scored out of five points, contractor performance evaluation (“CPE”) scored out of 10 points, community benefits scored out of 25 points, and bid price scored out of the remaining 70 points.
A losing low bidder, West-Can Seal Coating Inc., (“West-Can”) initiated an arbitration process alleging that the government breached Chapter 5 of the Canadian Free Trade Agreement by, among other things, improperly assessing past performance and applying local preferences that unfairly favored the winning Saskatchewan bidder, Morsky Construction Limited (Morsky). The complainant asserted that the contract award reflected a long pattern of discriminatory procurement practices by the government that unfairly favoured local bidders.
West-Can alleged that government’s biased and discriminatory conduct in applying the work zone traffic audits and community benefits scores unfairly denied it a contract award. Those evaluation rules allocated points to bidders based on work zone traffic audit scores and contractor performance evaluation scores. Where past scores were unavailable, an industry average score was applied to bidders. West-Can alleged that it was discriminated against in the government’s application of the work zone safety audit scores since the government included an out-of-scope contract in its score, while Morsky’s score for a problematic in-scope contract was improperly excluded from the bid evaluations.
West-Can argued that when the government incorporated workplace safety scores into future bid evaluations in November 2018, it retroactively expanded the scope of prior contracts to those beginning in April 2017 that included a contract performed prior to the adoption of the new scoring system. The complainant argued that the government’s performance audit of that pre-November 2018 contract was flawed and that it would have contested the audit result had it known that those scores would be used against it in the future bid evaluations. However, once West-Can became aware of the retroactive application of that score to future bids, the government did not allow it to contest the problematic prior assessment, claiming that it was too late to do so, but still included that contract score in the new evaluation. West-Can also asserted that the government’s method for scoring past performance prior to November 2018 was materially different than the method used after that date, which further invalidated past performance scores performed prior to November 2018. West-Can asserted that the inclusion of that problematic prior score undermined what would otherwise be its perfect prior performance score for that category.
West-Can further alleged that the government failed to include a problematic prior contract in Morksy’s evaluation scoring. In fact, the record showed that the government had sued Morsky for the supply of faulty asphalt, which the contractor blamed on its asphalt supplier. That disputed contract was not included in Morsky’s past performance assessment. The government countered by arguing that the matter was still in litigation so that it would not be fair to include that contested contract in Morsky’s prior performance assessment.
Further, West-Can asserted that the government’s community benefits evaluation category constituted an improper local preference. As the arbiter noted, the government had “taken measures to support regional economic development and enhance quality of life across the province of Saskatchewan” since, as the government stated, the project in question was “located in an area that has experienced a dramatic drop in employment and economic activity” and an objective of the project was to generate local community benefits. Under this scheme, a contractor’s ability to offer those benefits would be assessed as part of the bidding process to determine a contractor’s commitment to “generate economic development in the region and maximize the on-site employment opportunities” for local persons.
The solicitation defined “local persons” as “an individual who has a permanent residence in Saskatchewan and is directly employed with the Contractor or an individual who has a permanent resident in Saskatchewan and is directly employed with a subcontractor providing services at the Project Site (as defined in the Contract).” The community benefits scoring scheme assigned a full 25 points to contractors who provided 100 percent local labour, while awarding no points to contractors who provided less than 60 percent local labour. Further, the solicitation stated that contractors who failed to meet the local labour quotas committed to in their bids would “face economic penalties, including a lump sum $25,000 deduction to the price paid under the contract” as well as additional deductions of up to 5 percent of the contract value for resulting impacts on their contractor performance evaluations.
West-Can asserted that the scoring scheme, which gave the full 25 points to contactors who used 100 percent local labour, while scoring contractors with less than 60 percent local labour no points, compelled the hiring of local labour to win bids. The government countered by arguing that the prohibitions against local preferences in the trade treaties applied to goods, services and suppliers and did not apply to workers and that, in any event, the complaint still scored full points in that evaluation category.
After considering the competing arguments, the arbiter ruled that West-Can was not treated fairly and equally and that the government had breached the procurement rules under the Canadian Free Trade Agreement.
Turning first to the workplace safety audits, the arbiter ruled that government’s retroactive inclusion of a pre-November 2018 contract in West-Can’s bid evaluation was unfair since the scoring process used prior to that date was substantially different than the process used under the new scoring scheme. The arbiter also found that the complaint was not provided proper notice that its prior score would be used in future bid evaluations and was denied a meaningful opportunity to contest that prior score. Further, the arbiter found that government’s treatment of the complainant in scoring that category was markedly different than the treatment the government afforded the local bidder Morsky. The arbiter ruled that this breached the Canadian Free Trade Agreement’s requirement to provide a fair, open and equal opportunities to competing bidders based on transparent evaluation criteria that are applied through impartial processes. The arbiter concluded that the West-Can’s prior work zone traffic audit score from a contract that pre-dated the new scoring scheme should not be included in the complainant’s bid score.
The arbiter also found that it was unreasonable for the government to ignore evidence of Morksy’s problematic past performance simply because the contract in question was subject to ongoing litigation, concluding that this contrary to the equal treatment rules under the Canadian Free Trade Agreement. In fact, as the arbiter noted, the government’s court documents claimed that Morsky breached its contractual obligations and the decision to exclude this evidence due to an ongoing lawsuit was flawed since it allowed contractors to avoid unfavourable scores by initiating litigation. The arbiter found that Morsky’s past performance score for the disputed contract should be included in the bid evaluations based on the assessment of the government’s engineers, failing which the CPE policy should be reworked to better ensure the timely and equitable assignment of scores:
This situation would appear to illustrate a problem with the CPE process. A contractor that may be in line for an unfavourable CPE evaluation could avoid that score by initiating litigation. If there are only two contractors using CPE scores and one is in province while the other is out of province, differential treatment would result. I urge the Ministry to carefully examine and consider issuing a CPE score to Morsky based on the best judgement of its professional engineers. Should the Ministry conclude that it is unable to issue a CPE score I recommend reworking the CPE policy to ensure equitable and timely assignment of CPE scores.
The arbiter also ruled that the government’s community benefits scheme breached the Canadian Free Trade Agreement local preference prohibitions by improperly penalizing non-local contractors. In summary, after finding the above-noted breaches the Canadian Free Trade Agreement, the arbiter ruled that the government should rectify its evaluation by: (i) removing West-Can’s contested work zone safety score; (ii) including Morky’s performance score for the litigated contract; and (iii) removing community benefits scoring and penalties from all future procurements. The arbiter also ruled that the government should revise its general approach to the above-noted practices to better ensure compliance with its trade treaty duties. While lost profit damages were not an available remedy under the arbitration process, the arbiter ordered costs against the government in the amount of $45 000.00 to compensate the complainant for its bid preparation costs and bid protest costs.
The Saskatchewan government brought an application to the Saskatchewan Court of Queen’s Bench seeking that the court either set aside the arbiter’s decision or order a new arbitration with a new arbiter. However, in its above-noted February 2022 decision in Ministry of Highways for the Province of Saskatchewan v. West-Can Seal Coating Inc., the court rejected the government’s application after finding no basis to set aside the arbiter’s decision.
