This article is an excerpt from Government Procurement, which is available for purchase.
In its March 2014 decision in Selex Sistemi Integrati S.p.A. v. Canada (Attorney General), the Federal Court dismissed an unsuccessful bidder’s application for judicial review after finding that its bid had been properly rejected for non-compliance. The case dealt with the procurement of integrated radar systems for use at Royal Canadian Air Force military bases. Selex Sistemi Integratia S.p.A. was one of five suppliers that was invited to bid for the contract after being shortlisted in a prior prequalification process. Selex was initially determined to be one of the two compliant bidders and was narrowly ranked first with a total score of 86.50, while the other qualified bidder, EADS Deutschland GmbH, scored 85.74.
However, during the bidding process Selex, and its sister companies who were also owned by the parent company Finmeccanica, underwent a corporate reorganization in which the subsidiaries were consolidated into a single new entity called Selex ES. Selex informed Public Works that it had been succeeded in its bid by the new entity. However, Public Works determined that the Selex bid was no longer compliant since, rather than being formally merged into the new legal entity, Selex had sold its assets to that entity with a view to formally winding down its own operations. Public Works ultimately awarded the contract to EADS, the next ranked bidder. Selex brought an application for judicial review, where it asked the court to terminate the contract awarded to its competitor and order Public Works to either award the contract to Selex or, at minimum, re-evaluate its bid.
The court determined that it should review the government’s interpretation of the relevant assignment clause that led to the bid rejection on a correctness standard, citing prior Federal Court of Appeal decisions as authority, where it was held that the government’s interpretation of bid solicitation documents should attract that higher standard of review. However, it ultimately held that the application of the stricter standard, rather than the more deferential reasonableness standard, had no impact on its ultimate conclusion. The court dismissed the application, finding that the decision to reject the Selex bid for non-compliance was appropriate given the nature of its corporate re-organization.
In support of its conclusion, the court quoted correspondence from Selex’s in-house counsel to counsel for Public Works in relation to the re-organization:
21 On February 15, 2013, Mr. Pineschi responded to Mr. Holmes’ questions, confirming that:
a. All of Selex’s assets and personnel had been transferred to Selex ES, but it had been decided, for “a mere technicality,” to keep Selex “only for the limited purposes to handle some administrative and legal proceedings. However,[they would] shortly proceed with its winding up”;
b. “Since there had been the sale of the whole business complex of [Selex], [they] have substantially the same effects as if [Selex] had merged with [Selex ES] (the only difference is that [Selex] remains as legal entity with no assets nor staff). As a matter of fact, from a legal point of view, [Selex ES] became the ‘natural’ and unique interlocutor of Public Works, as any and all assets, personnel and liabilities of [Selex] (including those relevant to the bid to the [RFP]) have been assigned to [Selex ES]”;
c. Selex’s bid for the contract was included in two appendices to the Sale of Business Complex Agreement (Appendices AD and AE);
d. Selex no longer had the ability to perform production activities or fulfil the obligations contemplated by the RFP as all its industrial and technical capabilities had been transferred to Selex ES.The court agreed with Public Works that the asset sale and wind down of Selex was materially different from a merger and that the new entity could therefore not succeed Selex in the bidding process. The court concluded that Public Works had no choice but to reject a bid submitted by what was at that point little more than a shell company:
44 All of the information and documents available to Public Works when it had decided to declare Selex’s bid non-compliant, notably the answers to Mr. Holmes’ questions and the December 13, 2013 Sale of Business Complex Agreement, confirmed that Selex had transferred or assigned its bid to Selex ES. The assignment or transfer was the result of an agreement between Selex and Selex ES, and not simply by operation of the law. The assignment or transfer had the practical effect of emptying Selex of virtually all of its assets. Meanwhile, Selex ES is a separate entity from Selex and it had not been pre-qualified as a potential vendor for the Radars nor did it continue the existence of Selex, as the latter still exists until it is finally wound up.
45 Although I agree with the respondent that the question as to whether a merger should have been considered compliant with the non-assignment clause is not relevant, I note that Selex and/or Finmeccanica were fully aware of the difference between a merger and a sale of assets. They made a business decision to merge Elsag and Galileo into Selex ES, but not to do so in the case of Selex. As is always the case, they must have had good reasons for proceeding in this fashion, although it is not my role to speculate as to what those reasons may have been. However, Selex failed to properly consider the consequences of that decision, as it related to the bid in question, before signing off on the corporate reorganization. As a result, Public Works was bound by the RFP to consider Selex’s bid non-compliant (The Queen in Right of Ontario v. Ron Engineering & Construction (Eastern) Ltd, [1981] 1 S.C.R. 111). The failure by Public Works to have proceeded in this way could very well be considered unfair toward the other bidders.
46 Although Public Works probably would have wished Selex’s bid to be compliant, as its price was substantively lower than that of EADS, it could not, in all fairness to EADS, find that to be so. That decision is not only reasonable, it is, in my opinion, the only one that could have been taken in the circumstances.
As this case illustrates, the rules of Contract A prohibit the material alternation of a bid after the bid submission deadline. In this situation, the legal entity that had originally prequalified and submitted the top ranked bid was no longer able to honour that bid. That original offer could not be altered after the bid deadline to allow a different legal entity that had acquired the bidder’s assets to step in and take the original bidder’s place in the bidding process.
