By Paul Emanuelli

This article is an extract from the 5th edition of Government Procurement.

In its January 2021 determination in Marine International Dragage Inc. v. Canada (Department of Public Works and Government Services, the Canadian International Trade Tribunal awarded lost profits to the complainant after determining that the government allowed an unfair incumbent advantage during the challenged bidding process. The dispute dealt with an invitation to tender (ITT) issued by the Department of Public Works and Government Services for the removal of concrete structures located at the bottom of the Richelieu River in Lacolle, Quebec.

The complainant, M.I.D., alleged that the bidding process was marred by conflict of interest since the contract was unfairly awarded to the incumbent supplier, MVC, who was involved in inspecting the concrete structures that had to be removed under its prior contract and had provided a report on the required work that influenced the plans and specifications for the new work. The complainant asserted that this resulted in the incumbent being privy to privileged information about the contract requirements that was not available to other bidders, which rendered the new tendering process unfair.

More specifically, the complainant alleged that the incumbent had inspected the concrete structures that had to be removed under the new contract and had provided the government with a report under its prior contract in relation to that future work. The Tribunal agreed, noting that the Canadian Free Trade Agreement (CFTA) requires procurements to be fair and non-discriminatory and prohibits giving an unfair advantage to any bidder:

Articles 502(1) and 503(5)(g) of the CFTA provide that all procurement must be open and non-discriminatory — which implies that potential suppliers would bid on an equal basis — and prohibit the provision of information to one supplier so as to give that supplier an advantage over other suppliers:

Article 502: General Principles
  • Each Party shall provide open, transparent, and non-discriminatory access to covered procurement by its procuring entities.
. . .
Article 503: General Procurement Rules
. . .
  • Except as otherwise provided in this Chapter, including Article 513, the following is an illustrative list of practices that are considered to be inconsistent with Articles 502.1, 502.2, or 502.3:
. . .
  • providing information to one supplier in order to give that supplier an advantage over other suppliers; and

While the Tribunal acknowledged that incumbents may enjoy some inherent business advantages when they bid on retendered work, public institutions are required to level the playing field to the extent possible by ensuring that incumbents do not enjoy special access to information about the bidding opportunity that is not available to other bidders:

The Tribunal recognized that a procurement process is not necessarily discriminatory where a supplier, including an incumbent, has a certain business advantage that gives it a competitive edge with respect to a procurement. However, the Tribunal has also recognized that a breach of the trade agreements will occur when procuring entities use solicitation documents to create or compound an unfair advantage to an incumbent. For example, where, as a result of the terms of solicitation documents, an incumbent had access to information directly relevant to the procurement process that was not available to other bidders.

Further, while the tendering rules in question stated that bidders “may” be rejected if they were involved in the preparation of the bid solicitation or had access to information not available to other bidders, the Tribunal confirmed that the government was under a positive duty to reject the proposals of any bidders who are in a conflict of interest or who have an unfair advantage. On that basis, the government should have rejected the incumbent’s proposal in the circumstances:

Moreover, as PWGSC pointed out, the general conditions contained in clause GI17 (2012-07-16) Conflict of interest / Unfair advantage, which were incorporated by reference into the ITT, provide that:
  1. In order to protect the integrity of the procurement process, bidders are advised that Canada may reject a bid in the following circumstances:
  • if the Bidder, any of its subcontractors, any of their respective employees or former employees was involved in any manner in the preparation of the bid solicitation or in any situation of conflict of interest or appearance of conflict of interest;
  • if the Bidder, any of its subcontractors, any of their respective employees or former employees had access to information related to the bid solicitation that was not available to other bidders and that would, in Canada’s opinion, give or appear to give the Bidder an unfair advantage.
The Tribunal has in the past pointed out, in relation to a similar clause, that while the usage of the word “may” appears to confer a discretion upon PWGSC as to whether or not to reject bids in respect of which a conflict of interest or unfair advantage has been found to exist, there is an obligation at common law, on the part of a procuring entity, to consider whether such a conflict or unfair advantage exists and to act accordingly. Thus, the Tribunal found that such a clause serves to reaffirm PWGSC’s right to consider fundamental principles of fairness in rejecting a bid in such cases, and that PWGSC has a responsibility to preserve the integrity of the procurement system by rejecting the proposal of any bidder who is in a conflict of interest or who has an unfair advantage.
In short, the provisions of the CFTA and clause GI17 raise questions as to whether MVC participated in the preparation of the ITT, and whether PWGSC acted in a discriminatory manner towards certain suppliers or conferred an unfair advantage upon MVC, in particular by providing it with information that was not communicated to other suppliers.
In this case, the answers to these questions are closely intertwined. On the basis of the evidence, the Tribunal finds that various aspects of the procurement system resulted in MVC gaining an unfair competitive advantage, that is to say, an advantage beyond any natural competitive advantage it may have already had, in addition to providing it with access to information to which the other suppliers did not have. These findings are sufficient to conclude that the competitive procurement process failed to comply with the provisions of the CFTA.

In coming to its conclusion, the Tribunal rejected the government’s assertions that the incumbent was not involved in preparing the bid solicitation document and had simply provided a background report on the future requirements that was shared with other bidders. Rather, the Tribunal found that the incumbent had played a role in fine-tuning the scope of the new requirements and had potentially played a role in advising on the required budget. In fact, the Tribunal noted that the incumbent’s work under the existing contract expressly contemplated providing input that would inform the future contract requirements, including the method of performing that future work:

PWGSC maintains that MVC was not involved in the preparation of the bid solicitation within the meaning of clause GI17. PWGSC indicated that the tendering documents were entirely designed and prepared by PWGSC based on relevant sections of a sample specification. PWGSC adds that MVC’s report was only one element among the technical information provided to bidders, which also included technical specifications, a location plan, a table showing the details of the structures, as well as the typical details of the blocks, all provided by PWGSC, as well as a bathymetric survey prepared by the Canadian Hydrographic Service. PWGSC argues that the mere fact that the inspection report resulting from a previous contract with MVC was attached to the bid solicitation does not make it a participant in the “preparation of the bid solicitation” within the meaning of clause GI17.
PWGSC further alleges that it was not aware at the time the underwater inspection was carried out by MVC whether Transport Canada, for whom the inspection of the concrete structures was performed, would potentially issue an invitation to tender to proceed with the removal of the concrete structures. PWGSC adds that there was no communication between PWGSC and MVC regarding a potential invitation to tender for the removal of the structures during the time when MVC was in the process of completing its inspection report or when MVC’s final report was submitted.
The Tribunal finds that, while it did not go so far as to prepare the technical specifications for the bid solicitation, MVC’s involvement allowed PWGSC to precisely identify the scope of its need, describe the work to be carried out by the contractor and potentially helped PWGSC establish its budget for the work to be completed.
Moreover, the procurement arrangement concluded with MVC provided that:
If appropriate, the Department may need to define the most effective and cost-efficient means of acting to correct problems detected by the inspections. The supplier that conducts the inspection must provide all the information needed to enable the Department to clearly define the problems and the means to correct them. Often, inspection results will serve as a basis to prepare plans and specifications, impose load or usage restrictions, or assess bearing capacity and residual life. The accuracy and level of detail of information provided must allow this to be properly done.
[Emphasis added]
As for the specific contract for the inspection of the concrete structures located at the bottom of the Richelieu River, it called for MVC to, among other things, conduct a visual examination and detailed survey of the blocks, and to draft a “detailed technical report” [translation]. MVC was to include in that report all of the results of the observations made during the inspection accompanied by explanatory notes. The report was also to include “recommendations on the best method for the removal of the structures and all necessary information” [translation]. The contract provided that the report would be “annotated by the Departmental Representative and any corrections or additional explanations will have to be taken into consideration in the production of the final report” [translation].
These elements paint the picture of a situation in which the procuring entity, PWGSC, solicited the support of a private firm in order to design technical specifications which would be used in the issuing of the bid solicitation. Furthermore, the report prepared by MVC constituted a key and important — even essential — part of the ITT. The technical specifications attached to the ITT contained, aside from the report prepared by MVC, brief descriptions of the work to be carried out as well as generic instructions on health and safety, protection of the environment, payment, etc. Nevertheless, it was the report prepared by MVC that unequivocally established the details of the work to be carried out.

Even if the incumbent’s site inspection report did not unfairly influence the solicitation requirements, the Tribunal found that the government created an unfair advantage by allowing the incumbent to perform the pre-bid inspection, since this gave the incumbent advanced and more detailed access to information about the future work:

However, the Tribunal does not find it necessary for it to rule on the issue of whether MVC was involved in the preparation of the bid solicitation within the meaning of paragraph 1(a) of clause GI17, in such a way that the fact that PWGSC allowed MVC to submit a bid breached this component of clause in the circumstances of the case. This is because the Tribunal is of the view that, whatever the answer to this question, the access to the procurement failed to comply with the principle of non-discrimination, and MVC benefitted from an unfair advantage as a result of the underwater inspection it conducted coupled with the fact that PWGSC made use of some of the information that had been gathered by MVC and included in its inspection report.
In the Tribunal’s view, these procedural defects are sufficient to conclude that PWGSC breached the relevant provisions of the CFTA in this case. Indeed, it is clear from the evidence that MVC had access to highly relevant information that directly concerned the procurement process to which the other bidders, including M.I.D., did not have access. Moreover, the Tribunal is of the view that PWGSC’s decision not to disclose all of MVC’s findings and recommendations following the inspection unfairly compounded the inherent competitive advantage that it enjoyed as a result of its prior involvement as a consultant.

Noting that the government never shared the underwater video footage collected by the incumbent with the other bidders, and that the version of the incumbent’s site report that was ultimately shared with the other bidders redacted the incumbent’s recommendations for future work, the Tribunal found that government unfairly compounded the existing incumbent advantage:

In this regard, the Tribunal notes that MVC’s report indicates that it had produced video recordings during its inspections of the concrete structures in the Richelieu River and that the video recordings of all of the structures inspected were available and were electronically appended to its report.21 PWGSC indicated that it had decided not to make the video recordings available to the bidders due to the purported poor visibility in those videos which was attributable to the large quantity of sediments that were stirred up in the water. PWGSC adds that if M.I.D. or another bidder had felt the need to obtain a copy of the video recordings, PWGSC would have gladly provided it to them.
The Tribunal cannot make a determination as to the quality of the video recordings but it notes that the report points out that “[t]he videos are very useful for visualizing the condition of the structures, the riverbed, and especially to confirm the irregular shapes of the structures” [translation].22 This statement is in line with M.I.D.’s submissions, namely, that the potential suppliers had the necessary expertise and competencies to adequately assimilate the information in the video recordings produced MVC. It also contradicts PWGSC’s conclusion, set out in its GIR that the videos would be of no use to the potential suppliers. Furthermore, the Tribunal does not find, as PWGSC does, that M.I.D. can be faulted for not having requested access to the video recordings for the purposes of the preparing its bid. It was PWGSC’s responsibility, in order to respect the core principles of non-discrimination and transparency in the procurement process, to disclose those video recordings with the tendering documents or to make them available and clearly notify all of the potential suppliers of that availability.
Furthermore, as noted above, the version of MVC’s report, included as an attachment to the ITT, contained information that was redacted, namely the description of the staff that participated in the underwater inspection and MVC’s recommendations. Those recommendations included a proposal for a work method for the removal of the concrete structures, a timeline for the work, as well as an assessment of the removal costs.
PWGSC states that it had asked MVC to draw up recommendations in its technical inspection report so that Transport Canada, the ultimate beneficiary of the report, would have the most complete information on the condition of the structures as well as the logistics and estimate of the costs associated with their removal. As in its recommendations, MVC proposed a method of work, a timeline, as well as an assessment of anticipated costs. PWGSC maintains that it redacted this portion of the report to avoid proposing a non-approved method to the bidders and to leave them free reign in proposing the method of removal that they felt was most suitable.
The Tribunal finds that the information that was redacted from the report helped contribute to the creation of an inappropriate distinction between MVC and the other potential suppliers by conferring an advantage upon MVC. The information contained in MVC’s report as to the method of removal, timeline, and removal costs, was relevant to potential suppliers as it would have likely allowed them (as it did MVC) to estimate more easily their costs for carrying out the required work. Furthermore, this information would have enabled the other bidders to gain knowledge of the work plans already proposed by MVC when it was acting in its capacity as a consultant. Given that MVC had this information based on the contract it had previously been awarded, and that the information was redacted from the version of its report appended to the ITT, MVC found itself with an advantage over the other potential suppliers. Added to these advantages is the fact that it was the only potential supplier that was able to visit the site.
MVC therefore found itself in a privileged position to prepare a bid in response to the ITT, having access to information that the other suppliers did not have access to. In such circumstances, PWGSC had an obligation to either exclude MVC from the tendering process or to make sure it took measures that would place all of the potential suppliers on an equal footing, which it did not do.

The Tribunal ultimately determined that the government breached its CFTA fair competition duties by allowing, at minimum, the appearance of an unfair advantage through its failure to disclose material information in the possession of the incumbent about the required work to other bidders:

Having decided to allow MVC to participate in the tendering process, it was up to PWGSC not to continue — or worse, compound — the lack of equal opportunity given to potential suppliers. Rather, PWGSC had to ensure that every potential supplier had a fair shot at the procurement. At a minimum, the Tribunal would have expected PWGSC to have made available the entire report prepared by MVC to all of the potential suppliers, even if this perhaps entailed the addition of a note indicating that the supplier was free to propose a method for removing the concrete blocks different from the one proposed by MVC. The Tribunal would also have expected PWGSC to have provided access to the video recordings produced by MVC. These measures could have allowed the various suppliers to engage in a fair competition to bid on the ITT.
Rather than conducting itself this way, PWGSC left MVC in an unfairly privileged position when it failed to disclose all of the information gathered by MVC in the course of its performance of the underwater inspection contract, including the video recordings and the recommendations provided by MVC as to the method of removal, estimation of costs and the likely timeline for the completion of the work. That information would have made it easier for the other bidders to estimate the costs of the project, determine the best method for removing the blocks and thus submit a more competitive bid. All things considered, the fact that MVC had access to all of that information provided it with an unfair advantage over the other suppliers.
For the foregoing reasons, the Tribunal finds that PWGSC completed a procurement process in a manner that resulted in discrimination between potential suppliers, contrary to section 502.1 of the CFTA. Furthermore, the facts in this case are analogous to a situation wherein PWGSC would provide information to a potential supplier in such a manner as to confer on that supplier an advantage over other suppliers, which is contrary to section 503.5(g) of the CFTA.
Moreover, the fact that PWGSC allowed MVC to submit a bid when it had access to information related to the bid solicitation which was not available to the other suppliers constitutes a breach of paragraph 1(b) of clause GI17, and therefore a contravention of the terms of the ITT, and as such, a violation of section 515(5) of the CFTA. This provision reads as follows:
515: Treatment of Tenders and Award of Contracts
. . .
Evaluation and Award of Contract
. . .
  • Unless a procuring entity determines that it is not in the public interest to award a contract, the procuring entity shall award the contract to the supplier that the procuring entity has determined to be capable of fulfilling the terms of the contract and that, based solely on the evaluation criteria specified in the tender notices and tender documentation, has submitted:
  • the most advantageous tender; or
*        if price is the sole criterion, the lowest price.

As this case illustrates, giving certain bidders, including incumbents, advanced access to information and influence over the scoping of future requirements can create an unfair advantage and breach applicable trade treaty fair competition rules.