This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its April 2018 determination in Hawboldt Industries v. Department of Public Works and Government Services, the Canadian International Trade Tribunal ruled that the government’s premature contract award announcement resulted in a breach of its confidentiality duties. The dispute dealt with a Request for Proposals (RFP) issued on behalf of the Department of Defence by the Department of Public Works and Government Services, noted below as PWGSC, for 16 replacement electro-hydraulic marine cranes for the Royal Canadian Navy’s Halifax Class ships, with an option to buy an additional 14 cranes. The government announced the contract award, including the contract price, to competing bidders, but then discovered that it had to cancel the award after some of the losing bidders raised concerns about errors in the evaluation process. The initially selected bidder brought a legal action, asserting that the government breached its confidentiality duties by disclosing its winning price to its competitors and, in so doing, prejudiced the selected bidder’s competitive position during the re-tendering process.
The Tribunal summarized the government’s trade treaty confidentiality duties under the World Trade Organization’s Government Procurement Agreement (referred to in the decision as AGP) and the North American Free Trade Agreement (NAFTA), as further codified in the Canadian government’s Supply Manual, and concluded that the government had breached its confidentiality duties by prematurely announcing the contract award results:
Article XV(1) of the AGP and Article 1014(3) of NAFTA specifically require the government to keep bidders’ informtation in confidence. The Supply Manual is not binding on PWGSC or the Tribunal for purposes of determining compliance with the trade agreements, but it is instructive that PWGSC itself interprets the confidentiality provision of the trade agreements as prohibiting disclosure of bid price information prior to contract award.
The Tribunal’s case law recognizes the trade agreements impose a duty on the government to protect confidential information. In 1091847 Ontario Ltd., the Tribunal explained that “the obligation of procuring entities to provide pertinent information to a losing bidder must be balanced with its obligation to protect the confidentiality of commercially sensitive information, including the financial details of the successful bid.” In Lanthier Bakery Ltd., the Tribunal opined as follows on PWGSC’s disclosure of a complainant’s pricing before a standing offer was signed (without ruling on the matter as the ground was time-barred):
…The Tribunal is concerned that the improper communication of a bidder’s confidential information to a competitor may have considerable consequences on the conditions of competition in the context of any upcoming RFSO designed to meet the same needs and could call into question the integrity of the procurement process.
Had the Tribunal found Lanthier’s complaint valid, the Tribunal would have considered the disclosure of Lanthier’s pricing when determining the appropriate remedy…..In any event, it is incumbent upon PWGSC to ensure that any future procurement processes are conducted fairly, or it may be the subject of another complaint.
PWGSC’s defence (that it had to cancel the RFP and that it did not intend to prejudice Hawboldt) is relevant only when addressing the issues of prejudice and remedy, not when ascertaining whether breaches of the AGP and NAFTA occurred when Hawboldt’s prices were disclosed. PWGSC argues that the breach is immaterial because the only thing preventing contract award was a requisition amendment that was ultimately granted. However, there is no language in the trade agreements excusing inadvertent or immaterial breaches of confidentiality. Rather, Article XV(1) of the AGP expressly states that government institutions “shall receive, open and treat all tenders under procedures that guarantee the fairness and impartiality of the procurement process, and the confidentiality of tenders” [emphasis added]. Article XVII(2), as described below, uses similarly mandatory language unqualified by intention or consequence.
Not only did PWGSC fail to guarantee the confidentiality of tenders, it violated its own procedures by preliminarily awarding the contract to Hawboldt and then advising unsuccessful bidders of Hawboldt’s pricing before it had authorization to do either.
Therefore, the Tribunal finds this ground of complaint is valid.
The Tribunal held that bidder information remains sensitive and subject to high levels of protection even after contract award in order to protect future competition against a successful challenge and subsequent cancellation and re-tendering:
The language of the relevant trade agreement provisions is mandatory, providing that the government institution “shall” not disclose confidential information: it is irrelevant whether the disclosure is inadvertent. The language also establishes a low threshold – any disclosure that “might prejudice fair competition between suppliers” – requiring proof of only some probability of harm.
Competition is harmed by prematurely releasing bid pricing information before a contract award is authorized. Indeed, the time between bid submission and contract award is the period during which confidentiality procedures are perhaps most needed. Before bid closing, government institutions will not have much, if any, confidential pricing information in their possession, so the risk of improper disclosure is low. After bid closing, such information will not be relevant as regards the recently closed competition because bidders’ prices will already be filed. However, bid pricing information filed in a proposal will be relevant as regards any possible retender. The trade agreements regulate the extent to which government institutions may disclose such information for precisely that reason. They, and the Tribunal’s own legislation and regulations, contemplate a process in which bidders will object to procurements at any stage, including post-bid but pre-award. These objections may, if valid, result in retenders, as indeed occurred here. When government institutions do not implement and follow measures to safeguard bid pricing information during this period, they risk prejudicing competition in retenders.
While the government argued that it changed the evaluation weightings in its re-tendered contract, the Tribunal determined that this was insufficient to alleviate the prejudice suffered by the complainant, whose competitive position was compromised since its competitors knew its bid price, but the complainant did not know their competitors’ pricing:
All of PWGSC’s arguments go to the scope and duration of the prejudice to fair competition – again, these are points that are relevant to remedy, but not to the issue of the existence of a breach of the trade agreements. None of these arguments rebut the fact that competition for the retendered solicitation has in fact been harmed. Hawboldt’s competitors now know the exact price it bid. They also know that it had the lowest compliant bid price. Hawboldt, however, has no notion of its competitors’ prices. The only way for PWGSC to successfully rebut a presumption of prejudice in such a scenario would be to show that the retender will have no pricing component. Simply reducing the pricing component from 100% to 80% may diminish to some degree the magnitude, or potential of prejudice, but it does not eliminate the prejudice that was caused.
The Tribunal also stressed that the trade treaty requirement to post contract award amounts remained subject to confidentiality obligations where disclosure might prejudice future competition:
PWGSC argues that the provisions of NAFTA require it to publish the value of a contract, but this too is beside the point. Article 1015(7) of NAFTA requires only that a procuring entity shall publish, inter alia, the value of the contract “[n]o later than 72 days after the award of a contract”. This provision did not require PWGSC to publish the contract award value in the regret letters and before it had received authorization to award the contract. Furthermore, Article 1015(8), which immediately follows, expressly provides that a procuring entity “may withhold certain information on the award of a contract where disclosure of the information:….(c) might prejudice fair competition between suppliers.”
In considering whether to grant a remedy, the Tribunal stated that the government should avoid automatically posting contract award prices in all instances without first considering the potential prejudice to future competitions. The Tribunal further noted that it had already warned the government that these mechanical disclosures risked breaching the government’s confidentiality duties and exposing the government to damages awards:
The Tribunal has previously issued warnings in regard to behaviours similar if not identical to the one scrutinized here, and believes that the disclosure of confidential pricing information before definitive contract award constitutes an indisputable and serious deficiency in the procurement process.
The degree of prejudice to Hawboldt is significant for the reasons already provided – namely, that the disclosure seriously reduces Hawboldt’s chances of winning a retender or, at the least, makes it more likely that even if it does win it will do so at a reduced profit level. At worst, the situation may be viewed by the bidder as so untenable that it would refrain from submitting a bid for the retendered opportunity.
The evidence shows that there is a systemic practice of releasing pricing information by rote without proper considerations of the appropriate time for its communication. In cases such as this one, the prejudice that it causes to the integrity and efficiency of the procurement system is serious and long-standing. It undermines the competitiveness of retenders and severely curtails the scope of practical remedies available to the Tribunal.
As Lengkeek and Conair demonstrate, this has happened before. On both occasions, the Tribunal made it clear that this practice was problematic and could result in a compensation recommendation. The evidence discloses that PWGSC violated its own procedures. Furthermore, PWGSC’s internal emails recognize that this is a recurring problem, where a director writes (in response to the other director’s comment excerpted above):
In addition, on the final point, I will be working with my team to review and likely stop the practice of sharing contract values in regret letters. It has now in a few cases resulted in issues when forced to retender as one parties price has been disclosed. As best I can tell there is no requirement as to why we do so before any resulting contract is awarded.
In the context of this case, a compensation recommendation is warranted.
Given the above, the Tribunal found that the complainant was entitled to damages for an undisclosed percentage of its lost profits.
As this case illustrates, public institutions must carefully navigate the cross-currents of their transparency obligations and confidentiality duties. These due diligence duties should include avoiding the premature disclosure of pricing information prior to the final award of a contract and to the expiry of any applicable bid protest timeframes. In some instances, these duties should also include the redaction of contract award values to protect future competition.
