This article is an excerpt from Government Procurement, which is available for purchase.
In its January 2014 determination in Knowledge Circle Learning Services Inc. v. Department of Health, the Canadian International Trade Tribunal found that the extension of standing offers beyond the originally contemplated term constituted an inappropriate sole source in contravention of the relevant trade treaties. In this case, the Department of Health extended a number of standing offer agreements as a stop-gap measure while it waited for the Department of Public Works and Government Services to establish a new national master standing offer for the required French language training services. The complainant was one of the original standing offer contractors but its contract was not extended. The Tribunal found that the extension of the standing offer for eighteen months beyond its valid expiry date constituted a new procurement that breached the trade treaties since the circumstances did not validly fall within the urgency and unforeseen circumstances exceptions under the trade treaties. The Tribunal rejected those sole source exceptions in the circumstances since the services were not required in an extreme urgency and since it was entirely foreseeable that the services would be required prior to the creation of a new national standing offer by Public Works.
As the Tribunal noted, the procurement in question was plagued with significant deficiencies:
52. The Tribunal agrees with Knowledge Circle that the case at hand was plagued with serious deficiencies and breached the applicable trade agreements in a number of respects. By attempting to improperly extend the SOAs in issue beyond their mandated expiry dates, Health Canada bypassed the required procurement process altogether. Competition, transparency and fairness were thus undermined and, Knowledge Circle was seriously prejudiced in that it was denied the opportunity to bid on the subsequent opportunities.
The Tribunal also noted that, “its behaviour shows a troubling degree of carelessness and disregard for its obligations under the relevant trade agreements.” While there is not guarantee of work under standing arrangements, The Tribunal recommended damages for the complainant’s lost opportunity to earn a profit, since the work in question had already been performed and ordering the termination of the sole-sourced contracts would at that point be meaningless. After the parties were unable to agree on the amount of compensation, the Tribunal released a follow-up determination in June 2014. The parties were unable to agree on the amount of compensation.
After being denied the opportunity to compete for what amounted to a total of $1,541,544 worth of work during the improper extension period, the complainant sought $555,516 in damages. This figure represented 36.04 percent of that total amount of untendered work, a percentage that reflected the proportion of work that had been awarded to the complainant in the last year of its standing offer. However, the Tribunal noted that the percentage of total work awarded to the complainant had fluctuated from 17.47 to 36.04 percent during the term of the standing offer from 2007 to 2011. It ultimately set the total amount of lost opportunity at $171,282.67, which represented an equal portion of the total work divided by the nine original standing offer suppliers who had performed that work prior to the improper sole source extension. Notwithstanding the government’s position that the maximum allowable profit margin for calculating lost profits should be 20 percent, the Tribunal accepted the complainant’s position that it had enjoyed a 45.2 percent profit margin on the work in question and therefore calculated lost profits on the lost opportunity at $77,419.77.
