This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
While directly awarded contracts have long been a source of controversy in government procurement, another lesser known form of improper sole-sourcing involves the post-award expansion of previously tendered contracts. As the following Canadian International Trade Tribunal cases illustrate, the expansion of contract scope during the contract administration phase of the procurement cycle can put a public entity in breach of its open procurement obligations.
By way of example, in its 2008 determination in Bell Mobility v. Canada (Department of Public Works and Government Services), the Tribunal determined that the government’s contract amendments constituted an improper sole-source that breached the applicable trade treaty procurement rules. The dispute revolved around the federal government’s amendment of two mobile products and services contracts. The complainant alleged that the amendments improperly expanded the scope of the originally competed contracts and precluded competition. The Tribunal agreed. It found that adding a 1GB service for heavy users to the 30MB service plan that was scoped out in the original Request for Proposals (RFP) constituted a substantial change which was not permitted under the “service enhancement” clause in the contract. The Tribunal determined that the amendment constituted a new, non-competed procurement that breached the Agreement on Internal Trade. While the Tribunal declined to award lost profits to the complainant due to the small number of additional users that would be using the enhanced 1 GB service, the case serves as a useful reminder that post-award out-of-scope acquisitions can constitute improper sole-sourcing in contravention of open procurement rules.
Similarly, in its 2008 determination in Colley Motorships Ltd. v. Canada (Department of Public Works and Government Services), the Tribunal awarded the complainant lost profits and ordered the government to compete future work after finding that a post-award contract amendment constituted an improper sole-source. The case involved a contract amendment which expanded the scope of an existing personal household goods relocation services contract to include the provision of private motor vehicle relocation services. The complainant, an existing provider of private motor vehicle relocation services, challenged the contract amendment. The government acknowledged that the complaint had merit and asked the Tribunal to recommend reasonable compensation. The Tribunal awarded the complainant one-third of its lost profits.
Conversely, in its 2010 determination in Microsoft Canada Co. v. Canada (Department of Public Works and Government Services), the Tribunal rejected a sole-source challenge launched by Microsoft Canada. The case dealt with the acquisition of a new unified portal software solution by Health Canada under an existing contract with Sierra Systems Group. Microsoft claimed that the acquisition fell outside of the scope of the previously tendered contract and was therefore an improper direct award. After engaging in a detailed analysis of the newly procured software and of the software licensing and maintenance terms in the original contract, the Tribunal determined that the acquisition properly fell within the scope of the contract. While in this instance the sole-source challenge proved unsuccessful, this case illustrates how the failure to properly scope contracts to take post-award changes into account can result in a sole-source challenge and can potentially fetter the proper downstream acquisition of services and technologies from incumbent suppliers. As this case illustrates, institutions should carefully craft their tendered contracts to ensure that they are able to properly procure successor technologies and services.
Finally, in its 2011 determination in AdVenture Marketing Solutions Inc. v. Canada (Department of Public Works and Government Services), the Tribunal found that the government’s post-award contract amendment constituted an improper sole-source and contravened the applicable trade treaties. It also found that the treaty duties regarding post-award scope changes were stricter than the equivalent common law duties. The case dealt with the acquisition of USB drives for the Department of National Defence (DND). The complainant alleged that the DND made significant improper changes to the mandatory specifications after the contract was awarded to a competing supplier. The Tribunal agreed, finding that this post-award amendment constituted a new procurement and that suppliers had the right to challenge these post-award changes under the trade treaties. In coming to its conclusion, the Tribunal rejected the government’s argument that post-award contract administration decisions are generally not challengeable by losing bidders. The Tribunal distinguished the court-based common law duties under the law of tenders that tend to regulate the bidding process from tender submission to contact award from the broader treaty-based duties that compel the public entity to use open tendering for its acquisitions. The Tribunal awarded the complainant lost profits due to the treaty breach.
With a view to complying with their open tendering obligations, all public institutions should establish internal governance rules for the use of direct contract awards. To that end, these Canadian International Trade Tribunal determinations dealing with post-award scope changes provide useful guidance for adhering to open procurement rules during the contract management phase of the procurement cycle.
