This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its April 2014 determination in Alcohol Countermeasure Systems Corp. v. Royal Canadian Mounted Police, the Canadian International Trade Tribunal found that the Royal Canadian Mounted Police (RCMP) breached its open and fair competition duties under the trade treaties when it failed to provide historical volume usage information to competing bidders and created an unfair advantage for the incumbent supplier. The dispute involved a Request for Standing Offer (RFSO) issued by the RCMP for the supply of ethyl alcohol to detachments across Canada. The complainant challenged the process, alleging that the pricing structure unfairly favoured the incumbent by requiring bidders to include freight charges in their financial offers without specifying the location and volume of required shipments. As the Tribunal noted:
ACS complained that the pricing mechanism of the RFSO unfairly benefitted the incumbent supplier (and ultimate successful bidder). Specifically, ACS alleged that the RFSO gave the incumbent an unfair advantage because it required bidders to include all freight charges in their financial offers but failed to specify the distribution of shipments to the various RCMP detachments across Canada. Given that the incumbent had historical knowledge of the RCMP’s needs, it was therefore uniquely positioned to predict future requirements and, thus, the freight charges to be factored into the total bid price. ACS explained that, due to the weight of ethyl alcohol standards, shipping charges could contribute up to 20 percent of the total price and that multiple shipments to remote locations could have a very important impact on total costs.
The RCMP argued that bidders were on a level playing field in determining the cost of the shipping since the location and quantities were equally unknown to all bidders at the time of bidding:
The RCMP argued that all bidders were on a level playing field in determining the shipment distribution variable. In particular, all bidders, including the incumbent, were in the same position of having to make an “educated guess” about future shipping quantities and frequency per RCMP detachment, and about the associated freight costs. The RCMP did not deny that the incumbent had acquired information regarding historical usage of ethyl alcohol standards that was not provided to other bidders. Similarly, it did not deny that the incumbent was aware of the transition to the dry gas standards, which appears to have been mentioned for the first time in the GIR. However, the RCMP did state that historical usage information for ethyl alcohol standards and information regarding the transition would be “useless”, and even potentially misleading, when bidders were making predictions for future usage of ethyl alcohol standards.
The Tribunal did not accept the RCMP’s position, since, as the complainant maintained, historical usage information was material to predicting future usage across the various RCMP detachments, particularly since that information would indicate which RCMP detachments had already started migrating to new dry gas standards for ethyl alcohol:
As ACS rightly pointed out, historical usage information remained a relevant factor for predicting future usage, especially for those detachments that had not yet started or were not very advanced in the transition to dry gas standards. In addition to the extent that remote detachments were already advanced in the transition, the Tribunal accepts ACS’ argument that knowledge of this information could have impacted greatly on forecasted future freight costs and bidders’ cost structures.
Accordingly, the Tribunal finds that the pricing mechanism of the RFSO inherently advantaged the incumbent, as it would have been the only potential supplier privy to such information relevant to the RCMP’s requirements. In that sense, the degree to which the incumbent was advantaged is, in the Tribunal’s view, over and above any natural business advantage acquired by the incumbent as a result of its previous experience, because it stems from the very terms of the RFSO themselves.
The Tribunal recognizes that the RCMP may not have been in a position to establish its future needs with certainty in the context of the transition to dry gas standards. Nevertheless, the RCMP was fully obligated under the trade agreements to formulate the RFSO in a way that would not discriminate between bidders. At the very least, the RCMP was obligated to provide as much information as was possible when setting the terms of the RFSO, including the fact that the transition was underway, so as to help all bidders prepare responsive and competitive bids and so as to alleviate any information disparity vis-à-vis the incumbent.
While the Tribunal acknowledged that all potential suppliers have to assume an element of risk when preparing bids, the procuring entity is under a trade treaty duty to disclose the material contract information over which it has control. In this case the historical usage information withheld by the RCMP would have assisted bidders in making projections on future use and more accurately calculating the cost of shipping the required goods. The failure to provide this information to competing bidders gave the incumbent, who was privy to this information, an unfair advantage contrary to the trade treaties. As a remedy, the Tribunal ordered that the contract awarded pursuant to the unfair tendering process be cancelled and retendered with the required information provided to all prospective bidders.
