This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
One of the core commitments established in domestic and international procurement treaties is the obligation on public bodies to openly compete the award of contracts. Unless the situation fits into one of the legitimate, treaty-recognized exceptions to open competition, bypassing open competition in situations where the contract value exceeds the applicable treaty threshold constitutes a breach of the procurement treaty. As evidenced by multiple successful challenges against sole-sourcing in Canadian International Trade Tribunal determinations, the Canadian federal government has a weak track record of establishing valid reasons for its direct awards.
By way of example, the 2011 UN Model Procurement Law, which was updated to align with the major international trade treaties, provides some general guidelines for situations that may justify direct contract awards. Those circumstances include:
- where the deliverables are only available from a single supplier or where the particular supplier has exclusive rights in respect of such deliverables and where no reasonable alternative exists;
- where unforeseen urgency or a catastrophic event makes tendering proceedings or other alternatives impractical;
- where for reasons of standardization or compatibility the public institution determines that it needs to procure additional deliverables from the original supplier; and
- where the procuring entity determines that other methods of procurement are not appropriate for protecting the essential security interests of the state.
In accordance with the trade treaty protocols operating at the federal level in Canada, prospective suppliers are provided notice by the federal government of an intended direct award through a publicly posted Advance Contract Award Notice. Suppliers who seek to challenge the federal government’s intended direct award can bring a challenge to the Tribunal.
The Tribunal’s long history of direct award determinations offers useful case studies for other public institutions when considering the appropriate use of the direct award exceptions. The body of case law clearly reflects the trade treaty bias in favour of open competition. In fact, apart from cases dealing with the use of exclusive intellectual property rights and with national security exceptions for certain military procurements, the Canadian government’s attempts to rely on treaty exceptions to defend direct contract awards have been almost completely unsuccessful. As stated by the Tribunal in its Re Cognos Inc. determination, “competition is the norm under the trade agreements, with limited tendering procedures being the exception. The onus is on the government institutions to establish that the decision to choose a limited tendering procedure is permitted under the applicable trade agreements in the particular circumstances of the case.”
To comply with the trade treaty transparency obligations, the government’s rationale for a direct award should be clearly documented. By way of example, in its February 2008 determination in CMI Interlangues Inc. v. Canada (Department of Public Works and Government Services), the Tribunal found that the government breached its trade treaty obligations by issuing an advance contract award notice for language training services with inadequate information. It upheld the complaint of the potential supplier who was denied the opportunity to compete.
Even in the area of exclusive proprietary rights, where Canada’s federal government has enjoyed some success in defending its direct award decisions, the Tribunal has found that the trade treaty exception only applies where other competitively available products cannot meet the technical requirements. For example, in the July 2007 case of Information Builders (Canada) Inc. v. Department of Public Works and Government Services, the Tribunal determined that the government failed to conduct an open competition. It ordered that the contract in question be put to tender. The case involved the acquisition of business intelligence software for use by the Department of Indian Affairs and Northern Development in remote First Nations communities. The government claimed that the uncertainty of communication links with those communities required the use of a “cubes” design. It directly awarded a contract to a supplier whose software complied with that specification. The Tribunal disagreed, finding that the government had mistakenly set out with a “predetermined solution rather than simply a required outcome.” It ordered the government to abandon its direct award and proceed with an open competition.
Similarly, in its June 2019 decision in Autopos Marine Inc. d.b.a. AutoNav v. Department of Public Works and Government Services, the Canadian International Trade Tribunal upheld a sole-source challenge against the direct purchase of an ice breaker steering gear system notwithstanding the government’s exclusive proprietary rights and urgency arguments.
The Tribunal rejected the government’s exclusive proprietary rights justification. As the Tribunal noted, even if the specified equipment was the only acceptable product from a technical standpoint, the government failed to prove that the selected supplier was the only supplier authorized to install that equipment.
The Tribunal also rejected the government’s assertions that the direct award was justified based on the urgency rationale, noting that it “has previously stated that this exception requires the government institution to show both that there was urgency preventing the use of open tendering procedures and that it was caused by unforeseeable events.” The Tribunal was not convinced that the urgency was unforeseeable since the existing ship steering system was over 35 years old. The Tribunal further asserted that while the recently failed contract to replace that system may have been unforeseen, the overall maintenance timeframe worked against an “unforeseen urgency” finding for the purposes of the sole-sourcing rules and the specific award.
In summary, the Tribunal concluded that the evidence on the record was insufficient to show that the limited tendering was permitted under the two specific grounds invoked by the government. Further, the Tribunal’s decision reiterated that specialized technical products do not justify direct awards when they can be sourced from multiple suppliers through open tendering. This case should highlight for public organizations that where the failure to engage in long-term planning creates artificial urgency due to a failed last-minute attempt at open tendering, those circumstances do not then permit a valid direct award under the urgency exemptions to open tendering.
As these cases illustrate, in order to comply with trade treaty duties, public institutions should ensure that their direct award decisions are subject to appropriate internal approvals and are clearly documented with rationales that properly fall within recognized treaty exceptions.
