By: Paul Emanuelli

This article is an excerpt from the 2022 edition of The Art of Tendering: A Global Due Diligence Guide.

As illustrated by recent Canadian legal rulings, public purchasing institutions are facing an increasing level of risk and complexity in meeting the legal standards for defensible bid evaluations. In fact, many institutions underestimate the challenges inherent in their bid evaluation and award decisions until it is too late. This article explores some of those recently exposed risks so that government institutions can adapt their practices and avoid becoming the next case study.

All too often, public institutions underestimate the complexity of the government procurement process and are caught off guard when their evaluation and award decisions are legally challenged. However, in the aftermath of legal proceedings, the complexity and risks inherent in the evaluation process become all too apparent. For example, in its November 2020 decision in Canada Forgings Inc. v. Atomic Energy of Canada Limited, the Ontario Superior Court of Justice determined that the factual, technical, and legal issues raised in a challenge to a government tendering process were too complex for a jury trial. The dispute dealt with a bidding process for the refurbishment of the Bruce “A” CANDU 9 nuclear reactor. Atomic Energy of Canada Limited (AECL) received three bids but failed to accept any of those bids during the 180-day bid validity period and, after that period expired, bypassed those bids and decided to deal with a different supplier for its requirements.

One of the bypassed bidders, Canada Forgings Inc. (CanForge), brought a legal challenge claiming nearly $20 million in damages. As the Court stated, “given the amount claimed and the nature of the damages, both liability and damages will be significant issues at trial.” In fact, as the Court noted, due to the high level of damages claimed, both parties intended to call expert evidence at trial. While the plaintiff brought a motion for a jury trial, the Court rejected the motion since the complexity of the issues made a jury trial inappropriate. As the Court summarized:

I find that the CanForge SJ Factum provides insight into the many complex factual issues and, more importantly, the numerous and complex technical issues that will have to be addressed at trial. These include
  1. a) whether AECL, as a federal Crown corporation, has complied with the Financial Administration Act, R.S.C. 1985, c. F-11 (the “FAA”), and with its Code of Ethics and Business Conduct;
  2. b) whether “Contract A” relations were created when AECL received bids from three bidders, which is determined based on various factors, as identified in the Paul Emanuelli text, Government Procurement;
  3. c) an understanding of term-of-art tendering terms, performance terms and standards used in the Amended Tender Document referenced in this action;
  4. d) whether the conduct of AECL demonstrated that the tendering process continued beyond the 180 days set out in the tender document, including the implication of the commencement of a “Contract B”; and
  5. e) an assessment of whether the bids submitted to AECL were “technically” compliant and/or improperly rejected or evaluated.

As the Court further stated, “I have great difficulty accepting CanForge’s assertion that the evidence in this case is not technical and complex, and that the factual chain of events is straightforward.” The Court raised serious concerns “that even with proper instructions, the jury would not be able to fully appreciate and understand the many technical/legal issues that must be understood to achieve justice between the parties”. The Court therefore rejected a jury trial and ordered that the case be scheduled for a six-and-a-half-week trial to be heard by judge alone. As this case illustrates, government procurement bid evaluations can give rise to factual, technical, and legal issues that are too complex for laypersons to adjudicate even with the instructions of a judge. This ruling puts in plain view the challenges government institutions face in conducting defensible evaluation processes since project team members may need to serve as witnesses in defending any resulting legal challenge.

In fact, even specialized tribunals face challenges in adjudicating bid protests due to the complexity of the subject matter. For example, in its February 2021 decision in Heiltsuk Horizon Maritime Services Ltd. v. The Attorney General of Canada, Canada’s Federal Court of Appeal overruled the Canadian International Trade Tribunal after concluding that the Tribunal made significant errors in its adjudication of the bid protest challenge. The dispute involved a federal government Request for Proposals (RFP) for emergency towing vessels for the British Columbia coastline. The bid protest resulted in three Tribunal determinations, which in turn resulted in five judicial review applications to the Federal Court of Appeal.

The controversy turned on a mandatory technical evaluation criterion that set out the minimum towing power for the required ships. The second-placed losing bidder, Heiltsuk Horizon Maritime Services Ltd. (Heiltsuk), challenged the evaluation process used by the government to confirm the vessel towing capacity of the winning bidder, Atlantic Towing Limited (Atlantic).

The mandatory requirement in question called for the vessels to “exert a minimum continuous bollard pull of no less than 120 tonnes when all required engine driven consumers (shaft generators, etc.) are taken into account.” In lay terms, this appeared to mean 120 tonnes of free pulling power for towing purposes after taking the non-towing requirements of vessel operations into account. As the Court noted, the government added further complexity to the technical requirement in an addendum stating that, depending on the age of the proposed ship, bidders could prove their compliance by submitting a bollard pull certificate or, alternatively, through “specified bollard pull calculations”. As the addendum stated:

The Bidder must provide a certificate of compliance (independently verified) or bollard test output data (in accordance with MSC/Circ 884 section 11.1) less than 10 years old that demonstrates a minimum continuous bollard pull of no less than 120 tonnes when all required engine driven consumers (shaft generators, etc.) are taken into account. As per “Noble Denton Marine Services – Certification for Towing Vessel Approvability (DNVGL-SE0122), edition March, 2017”, in instances where a certificate of continuous bollard pull, less than 10 years old cannot be produced, then for tugs less than 10 years old, bollard pull may be estimated as 1 tonne/100 (certified) BHP of the main engines and for tugs over 10 years old, with a bollard pull certificate greater than 10 years old, Bollard Pull may be accepted as the greater of: — the certified value reduced by 1% per year of age since the BP test, or — 1 tonne/100 (certified) BHP of the main engines reduced by 1% per year of age greater than 10.

As the Court summarized, to meet the requirement, each of the bidders produced independently verified bollard pull certificates and, after a review of those certificates, all proposed vessels were found to be compliant with the mandatory requirement. The government evaluators identified Atlantic as the top-ranked responsive bidder and, in accordance with the terms of the RFP, proceeded with a Vessel Confirmation Assessment to verify whether the vessels met “the features, functionalities and capabilities” required in the RFP. At this stage of the process, Heiltsuk submitted a written objection to the government, asserting that Atlantic’s proposed vessels lacked the propulsion power required to satisfy the minimum 120-tonne bollard pull required. Notwithstanding these objections, the government proceeded to award the contract to Atlantic.

Heiltsuk then brought a formal bid protest to the Tribunal, where it challenged the award on the basis that Atlantic’s proposed vessels did not meet the 120-tonne bollard pull requirement when all other engine requirements (referred to as “engine driven consumers”) were accounted for. Heiltsuk sought an order voiding the award to Atlantic and asked that the contract be awarded to Heiltsuk instead as the best compliant bidder. The Tribunal determined that the government was not entitled to rely on a third-party certification of the technical requirements, particularly since that assessment had been performed in 2013, well before the challenged 2018 RFP. However, the Tribunal did not rule on the compliance of Atlantic’s bid and did not award the contract to Heiltsuk. Instead, the Tribunal issued a re-evaluation order, wherein it directed the government to reassess the compliance of all proposed vessels with the mandatory requirement.

In the interim, given the government’s current operational needs, the Tribunal allowed the award to Atlantic to stand until after the re-evaluation. The Tribunal also directed the government to rescind the award to Atlantic and to award to the next-ranked compliant bidder if Atlantic was found non-compliant in the re-evaluation. The Tribunal also awarded lost profits to Heiltsuk for the period that Atlantic performed the contract if the re-evaluation found that Atlantic was non-compliant.

Heiltsuk appealed the Tribunal’s re-evaluation order, asserting that Atlantic’s proposal should not have been re-evaluated but should have been ruled non-compliant. Further, Heiltsuk asserted that, as the sole compliant bidder, it should have been awarded the contract by the Tribunal. In the interim, the government struck a re-evaluation committee. That committee confirmed that Atlantic’s vessels met the technical requirement.

Heiltsuk then brought two new complaints to the Tribunal and challenged the validity of the government’s re-evaluation process. While the Tribunal determined that the re-evaluation was flawed, it also conceded that it lacked the necessary technical expertise to conduct the re-evaluation itself. It therefore ordered the government to conduct a second re-evaluation, and directed the government evaluators to assess the pulling power of the ships after deducting the power required from the engine for non-towing operations in emergency sea conditions that could include “cross currents, high winds, rough seas or confined or busy navigational corridors, along with requiring continuous and simultaneous use of winches, thrusters, dynamic positioning systems and/or other auxiliary equipment”. Heiltsuk also appealed this second ruling, maintaining that it should have been awarded the contract since Atlantic was non-compliant.

The government, along with Atlantic, also appealed the Tribunal’s second determination, claiming that the Tribunal exceeded its oversight jurisdiction over federal government procurement by imposing an improper interpretation of the mandatory evaluation requirement. As the Court summarized, the government and Atlantic asserted that the Tribunal exceeded its jurisdiction by “failing to accord deference to the re-evaluation committee” and by “misapprehending the relevant evidence.” After a complex legal analysis, the Court ultimately rejected the complainant’s case. In siding with the government and the winning bidder, the Court determined that the Tribunal had erred in its review of the government’s evaluation process.

In support of its ruling, the Court confirmed that the complainant was not entitled to a contract award arising out of the first Tribunal determination since the Tribunal never ruled that Atlantic’s bid was non-compliant. Rather, as the Court noted, the Tribunal found that the evaluation was flawed and should be repeated. Furthermore, the Court found that the Tribunal’s second determination was flawed since the Tribunal directed the re-evaluation panel to consider technical factors outside of the scope of the RFP when conducting a second re-evaluation. More specifically, the Court found that “the Tribunal introduced a concept of ‘functional’ bollard pull which was to be measured against a number of criteria unstated in the text of MR 12” and that “it reduced the role of bollard pull certificates to that of mere ‘starting points’ in the evaluation so that “the Tribunal distorted the meaning of the requirement to a point where “it bears little resemblance to what was published in the RFP.”

In overruling the Tribunal on the technical aspects of the evaluation, the Court determined that “bollard pull testing is not designed to provide a functional assessment of a vessel’s towing capability in specified harsh conditions in a specified geographical location, as suggested by the Tribunal” and that the “Tribunal has misinterpreted this in improperly elevating bollard pull to a measure of a vessel’s ability to handle real emergency situations.” Rather than allowing the evaluators to rely on the bollard pull certificates, as contemplated in the RFP, the Court found that the Tribunal “essentially demanded that evaluators create new standards regarding bollard pull determinations with no basis in industry practice.” Further, the Court concluded that requiring the government evaluators to “take into consideration such undisclosed and unanticipated criteria would undermine the integrity and efficiency of the competitive procurement system.”

Given the Tribunal’s misinterpretation of the challenged mandatory requirement, the Court concluded that the Tribunal’s assessment of the government’s first re-evaluation was fatally flawed, which “resulted in a failure to show appropriate deference to the evaluation team’s expertise” when conducting the re-evaluation:

The Tribunal acknowledged that it lacked the expertise to determine compliance with MR 12 and that “it will review a procurement process on a reasonableness standard, showing deference to the evaluators’ expertise and making recommendations only when a decision is unreasonable” (Decision II at para. 47). However, in substituting its own interpretation of MR 12 for that of the evaluators, the Tribunal failed to abide by this principle. As discussed above, the re-evaluation team arrived at a consensus and interpreted “required engine driven consumers” along the lines of how those are considered by classification societies such as DNV. Indeed, the language of MR 12’s assessment methodology suggests that MR 12 was informed by industry standards. I am simply not convinced that the evaluators failed to apply their expertise and experience to the task or ignored the language of MR 12.

The Court ultimately concluded that the government’s re-evaluation had addressed the procedural flaws identified in the Tribunal’s first determination. It therefore upheld the initial contract award and dismissed the complainant’s case. While the government’s initial evaluation and award decision was ultimately upheld, this case serves as a cautionary tale against using bid compliance criteria that are based on complex technical factors and unclear verification procedures since the use of complex criteria exposes an evaluation process to protracted legal proceedings.

In fact, instead of exposing the technical requirement to an evaluation challenge, the government could have relied on bidder representations regarding vessel towing capacity and then enforced the technical requirement during contract performance. The failure to meet that technical standard during contract performance could then result in contract termination. As a further deterrent against bidder misrepresentations, the failure to meet the technical requirement during contract performance could also result in the forfeiture of performance security and in the debarment of the contractor from future bidding opportunities due to prior misrepresentations. However, by reframing a technical performance standard into a bid compliance requirement, the government introduced avoidable complexity into its evaluation process that exposed its award decision to a protracted legal challenge.

By contrast, in its November 2020 decision in Stericycle ULC v. HealthPRO Procurement Services Inc., the Ontario Superior Court of Justice dismissed a tender compliance dispute after dismissing a losing bidder’s allegation that the purchasing institution awarded a contract to a non-compliant bidder. The Court ruled that the requirement in question was a post-award performance standard and was therefore not subject to a bid evaluation challenge.

The dispute dealt with a two-staged RFP process for the provision of hazardous and non-hazardous waste management services. HealthPRO Procurement Services Inc. (HealthPRO), a health sector group purchasing organization, ran a prequalification process. It then conducted an invitational second stage bidding process with the short-listed proponents and awarded a primary supplier contract to Daniels Sharpsmart Canada Limited (Daniels) and a secondary supplier contract to Stericycle ULC (Stericycle). Stericycle challenged the evaluation and award process, alleging, among other things, that HealthPRO engaged in bid repair when it awarded the primary supplier contract to Daniels.

As the Court noted, in its first stage prequalification submission, Daniels confirmed that it was in the process of commissioning a waste management facility in British Columbia that would be fully functional by the contract start date. Stericycle argued that the RFP required that the facility be operational at the time of bid submissions and maintained that Daniels should have been disqualified since it did not have an operational waste management facility in place at that time.

However, the Court disagreed with this interpretation of the RFP, stating that “the fact that Daniels did not have certain required permits and licences in place to perform the required services at the time of the bid is irrelevant.” As the Court concluded, the RFP terms did not require that permits or licences be in place at the time of bid submissions. Furthermore, the Court concluded that HealthPRO did not have an obligation to investigate and confirm that such permits were in place at the time of bid submission and that it was allowed to accept Daniels’ bid representations at face value without further investigation. As this case illustrates, purchasing institutions need to clearly define the requirements that need to be complied with at the bid submission deadline and distinguish those requirements from post-contract-award performance requirements since the validity of contract award decisions can turn on this distinction.

In addition to tender compliance challenges, government procurement evaluation decisions are also subject to challenge on the scoring process used to identify the top-ranked bidder. In fact, many of these scoring challenges involve disputes over the assessment of prior bidder experience.

For example, in its March 2021 determination in Brion Raffoul v. Department of Public Works and Government Services, the Canadian International Trade Tribunal rejected a bid protest filed by a losing bidder who alleged that the government relied on unnecessarily restrictive and biased prior experience criteria. The case dealt with a Request for Standing Offer (RFSO) issued by the Department of Public Works and Government Services Canada (PWGSC) on behalf of Agriculture and Agri-Food Canada (AAFC) for patent agent services. The complainant took issue with the RFSO’s mandatory evaluation criterion that required bidders to have successfully prosecuted one patent family, in which the patents were issued in Canada, the United States, and at least two other countries outside of North America, and where each patent was issued in the past ten years. The complainant alleged that the ten-year time limit and the geographical restrictions were unreasonable, arguing that the time limit did not recognize the reality of prosecuting a patent family, the timing of which is largely outside the control of the patent agent.

More specifically, the complainant asserted that it takes on average six and a half years for a Canadian patent to be granted and nearly ten years to obtain patents in the United States and the European Union and argued that clients rarely engage in all three prosecutions at the same time and often choose to apply for patents in just one other jurisdiction outside of Canada and the United States due to the high cost of the proceedings. Finally, the complainant asserted that the mandatory requirement did not reflect the skills or abilities of the patent agent, was arbitrary and unrelated to the government’s operational needs, and unfairly advantaged large firms with clients that can afford parallel or expedited prosecutions across multiple jurisdictions.

The Tribunal rejected these arguments, finding that the need to show recent experience in the relevant jurisdictions was a legitimate operational requirement. Furthermore, while these requirements may advantage certain suppliers over others, the Tribunal concluded that the trade agreements do not require government institutions to compromise legitimate operational needs to ensure that all suppliers are on an equal footing. As the Tribunal stated, “requirements are not discriminatory or unreasonable for the sole reason that they may be more onerous or burdensome for certain suppliers”.

While the challenge to the evaluation requirements was ultimately rejected, this case shows how suppliers are becoming increasingly active in asserting their right to challenge bid evaluation criteria. This case also serves as a reminder to public institutions that, when challenged, they bear the onus of proving that their evaluation criteria are rationally connected to the legitimate operational requirements and do not unnecessarily restrict competition. Meeting that onus is a complex exercise that calls on subject-matter experts to both define technical standards and defend the use of those standards when legally challenged.

Similarly, in its April 2021 decision in SL Ross Environmental Research Limited v. Department of Fisheries and Oceans, the Canadian International Trade Tribunal rejected a challenge based on allegations that the government had improperly scored the complainant’s prior experience. The dispute dealt with a Department of Fisheries and Oceans Request for Standing Offer (RFSO) for the provision of scientific and technical advisory services on matters related to environmental incidents, response measures, and emerging technologies. To be eligible for award, bidders had to meet a minimum technical score of 80 points out of 110 points. The complainant, SL Ross Environmental Research Limited (SL Ross), failed to meet that minimum score and then took issue with the scoring of its prior project experience. More specifically, the complainant challenged the determination the government evaluators had made that there was duplication in the projects submitted in the complainant’s bid. The Tribunal agreed with the evaluators, finding that there was duplication in the projects named in the complainant’s bid and finding that those projects could not be scored twice in the evaluation.

In coming to this determination, the Tribunal also rejected the complainant’s assertion that, based on its international reputation, it should have been given the benefit of the doubt by the government evaluators when they scored its prior experience. As the Tribunal concluded, the complainant’s reputation in the field “was not part of the evaluation criteria in the RFSO and that relying on such subjective information would have been unfair to other bidders.” In fact, the Tribunal noted that the complainant’s international reputation “would be an external factor not contemplated by the RFSO or in particular the rated technical criteria” and its consideration in the evaluation process would be contrary to the government’s obligations under the trade agreements. The complaint was therefore dismissed.

As these two recent cases illustrate, prior experience can be a contentious area in bid evaluations. In fact, over the years, these criteria have attracted a disproportionate number of legal challenges. Given these inherent risks, purchasing institutions should ensure that the prior experience criteria in their bid solicitation documents are accurately defined, tied to legitimate operational requirements, and supported by well-documented evaluations.

In summary, purchasing institutions should not underestimate the risk and complexity inherent in the bid evaluation process and should ensure that their project teams are adequately resourced to meet the standards of defensible evaluations.