By: Paul Emanuelli
This is an excerpt from The Art of Tendering: A Due Diligence Guide, which is available for purchase.
It is a broadly established rule under the trade treaties that public institutions should avoid imposing unnecessarily restrictive requirements in their solicitations that could undermine open competition. Public institutions should be prepared to defend the standards they impose in a solicitation process by showing that they are legitimate operational requirements that do not impose unnecessary burdens on bidders or create unnecessary advantages for some bidders.
This first installment of a two-part series summarizes Canadian rulings dealing with unnecessarily restrictive requirements, with the second installment looking more broadly at global case law dealing with the same issues.
These trade-treaty-based rules have long been recognized within Canada and enforced at the federal level. For example, in its June 1992 determination in Re Marathon Management Co., Canada’s Procurement Review Board found that the government had employed unnecessarily restrictive specifications and ordered that the solicitation be cancelled, corrected and reissued. The case involved the acquisition of hunting knives for the Department of National Defence. The complainant alleged that it was the low bidder and that the contract had been improperly awarded to a competing tender that was three times more expensive. The Board criticized the government for running an open competition after having pre-determined its preferred outcome and having configured its specifications to support that outcome. The Board also noted that the evaluation criteria did not articulate how equivalent products would be evaluated. It ordered the government to cancel its process and reissue its tender call with revised and neutral specifications.
In its May 2000 determination in Re Storagetek Canada Inc., the Canadian International Trade Tribunal found that the government’s specifications were unnecessarily restrictive. The case involved a Request for Proposal for a virtual tape system for the Royal Canadian Mounted Police. The Tribunal found that the specifications could have been stated more transparently based on neutral performance requirements. The Tribunal ordered that the specifications be revised to conform with applicable trade treaties and that the two existing bidders be allowed to resubmit their proposals for that aspect of the procurement.
Similarly, in its August 2005 determination in Re MTS Allstream Inc., the Canadian International Trade Tribunal considered the issue of incumbent advantage and biased specifications. The case involved a federal government tender call for telecommunications services in the National Capital Area. The complainants alleged that the government had established requirements that precluded any bidders, other than the incumbent, from submitting a compliant proposal.
More specifically, the complainants challenged the government’s requirement of a mandatory dialing plan that required approximately 177,000 directory numbers to be transitioned to the new supplier’s network within an unreasonably short timeframe. The solicitation was initially issued in February 2005 and required this transition to be complete by December of the same year. The complainants alleged that this was one of several requirements that biased the procurement in favour of the incumbent. In its analysis, the Tribunal was careful to distinguish between legitimate requirements that favoured a natural incumbent advantage and requirements that unfairly biased the competitive process by establishing standards that were impossible to meet by other bidders. Given the incumbent’s technological entrenchment, the Tribunal found that the situation fell within the latter category. For example, the Tribunal found that the requirement to maintain the existing dialing plan at all times during the transition biased the technical specifications.
On the second ground of complaint, the complainants alleged that the aggressive transition timeframe also created an unfair incumbent advantage. After engaging in an analysis of the complexity of the requirement and the government’s prescribed timeframe, the Tribunal agreed that the implementation period also prevented fair competition.
The Tribunal then concluded that the third ground of complaint, which took issue over the proposed location for technical testing, was also valid. After finding that there were multiple factors giving rise to improper incumbent advantage, the Tribunal ordered the government to cancel and reissue the RFP or, in the alternative, compensate the complainants for their lost opportunity.
Further, in its November 2006 determination in Canadian Beaver Information Technology Inc. v. Statistics Canada, the Canadian International Trade Tribunal considered whether the government had used unnecessarily restrictive specifications in a software training RFP. The specifications in question required that bidders be Microsoft Certified Partners for Learning Solutions (“MCPLS”). The complainant challenged the brand-specific requirement, arguing that it reduced competition in contravention of the applicable trade treaties. The Tribunal agreed, finding that the specifications unjustifiably excluded certain suppliers from competing. The Tribunal ordered the government to terminate the competition and issue a new RFP that replaced the offending specifications with vendor-neutral requirements. The Tribunal also awarded the complaint its complaint filing costs.
Similarly, in its May 2010 determination in Halkin Tool Limited v. Department of Public Works and Government Services, the Canadian International Trade Tribunal determined that the government used biased specifications in a hydraulic press brake Request for Proposals. The Tribunal ordered the government to cancel its procurement process and redraft its RFP using specifications that complied with the applicable treaty rules. In its determination, the Tribunal considered the technical details of the challenged specification and ultimately determined that they breached the relevant requirements by referring to a specific design or type, rather than referring to generic functionalities.
In light of the above, the Tribunal determined that “not framing requirements in accordance with the applicable trade agreements represents a serious deficiency in the procurement process.” As this case illustrates, the consideration of biased specifications will often be a complex assessment of facts requiring a close understanding of the relevant technical details. In these situations, qualified technical subject matters experts should be responsible for preparing defensible neutral specifications.
Conversely, in its two related January 2012 determinations in Almon Equipment Ltd. v. Canada (Department of Public Works and Government Services), the Canadian International Trade Tribunal rejected an unsuccessful bidder’s unfair advantage complaints. In the first complaint, which involved a Department of National Defence procurement for aircraft de-icing glycol recovery services at Canadian Forces Base Trenton, the complainant claimed that the past experience requirements unfairly favoured the incumbent. In the second complaint, which involved aircraft de-icing, de-snowing and anti-icing services at the same air force base, the complainant alleged that the government had posted the opportunity for an insufficient time and had relied on biased specifications.
With respect to the first complaint, the complainant alleged that the past experience requirements intentionally excluded it and other companies from competing and were therefore an overly restrictive and biased restraint of trade. However, the Department of National Defence maintained that the past experience criteria constituted legitimate operational requirements since challenging weather conditions did not allow contractors to get “on the job training” in order to perform the work.
The Tribunal determined that the past experience criteria fell within the meaning of “legitimate operational requirements” and dismissed the complaint. As this determination illustrates, incorporating strict past experience criteria does not constitute a breach of the trade treaty open competition rules if those standards can be justified as legitimate operational requirements. That said, this determination also illustrates the scrutiny that can be placed on past experience requirements and underscores the importance of properly balancing operational needs with open competition duties.
In the second complaint, the complainant alleged that the government required an unreasonably short response time for bid submissions and that the solicitation included biased performance specifications that were overly restrictive and constituted a restraint of trade. However, the Tribunal rejected these assertions, finding that the government’s vehicle requirements were not unreasonable given the nature of the services in question. The Tribunal also rejected the complainant’s arguments regarding the length of the bidding period, finding that the 30-day period was sufficient, particularly given the complainant’s past knowledge and experience in providing these services, which should have allowed it to anticipate that the solicitation would be forthcoming.
The Tribunal therefore rejected the complaint and awarded costs against the complainant. The complainant appealed both determinations, but they were subsequently upheld by the Federal Court of Appeal in its December 2012 decision in Almon Equipment Ltd. v. Canada (Attorney General) in which the court found that the Tribunal’s decisions were reasonable. The complainant’s appeal was therefore dismissed. As these decisions illustrate, bidders bear the onus of proving allegations of biased specifications and unfair incumbent advantage when they seek to challenge government procurement processes on these grounds and government institutions can defend themselves against restrictive requirement claims by establishing that they are legitimate operational requirements.
Further, in its February 2015 decision in Airbus Helicopters Canada Ltd. v. Canada (Attorney General), the Federal Court of Canada ultimately rejected the legal challenge of a supplier who alleged that the government’s specifications were biased in favour of a competing supplier. The case dealt with a federal government tender call for a $172 million light-lift helicopter purchase. The applicant, Airbus Helicopter Canada Ltd., brought a judicial review application after it engaged in pre-bid consultations with the government but then refused to bid due to what it alleged were biased specifications. As the Court noted, the case was unique when compared to most other judicial review challenges in that the complainant never actually submitted a bid in the challenged process. The Court ultimately concluded that the applicant did have standing to bring the lawsuit since the government had engaged in pre-bid consultations regarding its requirements.
The Court found that the government was under a duty to develop fair and unbiased specifications, and also found that the government’s market outreach created legitimate expectations that all consulted suppliers would be treated fairly during the consultation process. While the Court determined that the government’s specification- setting decision was subject to a more deferential reason ableness standard, it also concluded that the consultation process leading up to the creation those specifications was subject to a more stringent correctness standard. However, notwithstanding the right to challenge the specification-setting decision and the process that led to that decision, the Court ultimately held that the complainant failed to make its case. With respect to the Minister of Public Works and Government Services’ technical decision on the helicopter specifications, the Court found the favouritism alleged by the applicant was never proven.
However, in its November 2016 determination in Springcrest Inc. v. Department of Public Works and Government Services, a dispute over a frigate pump RFP, the Canadian International Trade Tribunal issued a redraft order after finding that the Department of National Defence had imposed unfair timing requirements for alternate product certifications. The Tribunal found that the timing requirements were unfair since they required the testing of alternate products prior to bid closing. It therefore ordered the Department to redraft the solicitation to remove the testing requirement or to permit more time to obtain the required certifications.
Finally, in its October 2019 decision in The Commissioner of Competition v. Vancouver Airport Authority, Canada’s Competition Tribunal found that the Vancouver Airport Authority (VAA) did not breach competition rules when it limited the number of catering companies eligible to bid on airline catering contracts. The Tribunal found that the decision to limit the number of companies was made for the valid business reasons of maintaining two viable operators for competition, since opening competition to other operators for only part of the overall work (galley delivery but not catering) could undermine competition and disrupt service to airlines if an incumbent left the market due to the entry of another supplier.
Much of the decision turned on the definition of the relevant marketplace. While the Commissioner of Competition argued that the market in question was for galley delivery, meaning the delivery of third-party food products onto the airplanes, the Tribunal determined that the market also included catering services where the supplier prepared and delivered the food for international flights.
The Tribunal agreed with the Airport Authority that the inclusion of more suppliers for only galley services could undermine the viability of the current operators that also provided catering services, which would be highly disruptive to the services provided for international flights that relied on those catering services. The Tribunal therefore concluded that the limitation of competition was justified based on legitimate operational requirements.
As this case illustrates, in addition to being subject to potential trade treaty challenge, contracting procedures that limit competition may also be subject to anti-competition actions initiated by authorities responsible for enforcing general competition laws. In either instance, the scoping of contractual requirements, and their impact on competition, remains a critical concern. To the extent that contract scoping decisions have the effect of limiting competition, purchasing institutions should ensure that those decisions are supportable based on legitimate operational requirements.
As these Canadian cases illustrate, purchasing institutions should be prepared to defend their contract requirements and evaluation criteria against allegations that they are engaging in unnecessarily restrictive tendering practices.
