This complaint concerns a procurement for facsimile machine paper to be supplied in rolls 8 1/2 inches wide by 328 feet (100 meters) long, for the Privy Council Office (PCO). The Department of Supply and Services (DSS) was seeking to set up an arrangement known as a Regional Individual Standing Offer (RISO) under which the winning competitor would be issued a standing offer to supply the specified fax paper on certain agreed conditions including price, and in amounts to be called up from time to time in orders (or call-ups) that would be given directly to the supplier by the customer department (PCO). There would be no obligation to give any orders - but it was anticipated that there would be call-ups totalling about 480 boxes (of 6 rolls each) over the life of the RISO, the value of which was estimated to be $57,456. This, among other things, prompted DSS to treat the procurement as coming under the Free Trade Agreement (FTA). The procurement was advertised through the publication of a Notice of Proposed Procurement (NPP) in the 2 April 1990 issue of the Government Business Opportunities (GBO) booklet. It was listed therein under the "Office Equipment and Supplies" section and coded "F-1" - meaning that it was a Free Trade solicitation and would be subject to open bidding.

The fax paper in question was to be used in a Lanier fax machine, Model 210, in respect of which PCO reported having had some trouble in the past when attempting to use fax paper not supplied by the Lanier company itself. It was agreed that the product to be specified was "Lanier facsimile Paper type 220" - but that substitutes would be considered.

This competition drew 22 bids by the time it closed on 14 May 1990 and on 31 May 1990 the RISO was issued to 99M Corporation (99M) of Markham, Ontario. They were the second lowest bidder, but they won out after the low bidder was eliminated as non-responsive for quoting on rolls that were only half the length required.

The complaint in this case was received by the Board on 9 August 1990 from Earl C. McDermid Limited, of Downsview, Ontario, who had been the fourth low bidder. The complainant alleges that 99M Corporation offered non-eligible goods and that its bid was "not subject to..." a 10% increase factor applied to the bid price of non-eligible goods of foreign origin, for evaluation purposes "... and should have been." With regard to the first part of the complaint, the supply of non-eligible goods is not, in fact, prohibited by the FTA. The key issue is how the bids are treated for evaluation purposes, which is the second point.

There is, however, a preliminary question as to when the complainant learned of this failure to apply the penalty factor because they are required, under the Procurement Review Board Regulations (the Regulations), to file their complaint not later than 10 days after they knew or should reasonably have known of the basis of their complaint.

In this case, there had been considerable correspondence between McDermid and DSS and their Access-to-Information Section since 31 May 1990, relating to McDermid's dissatisfaction with the way this and another procurement were conducted. None of it, however, puts the complaint on the basis now before the Board.

In the view of the Board, the necessary knowledge to formulate the basis of the complaint now before it was supplied in a letter dated 30 July 1990 sent to the complainant by the Minister of Supply and Services in response to a letter of 29 June 1990, addressed to the department, expressing dissatisfaction with two particular procurement actions, one of them being the procurement in question here.

The Minister's letter contained some detail about the two solicitations and in connection with one of them (not the one at issue here), the Minister's letter made the following observation:

"I should explain that the procurement rules of origin for requirements subject to the FTA stipulate that the product to be delivered to the government must originate in Canada or the United States. The bid price for products that are not of domestic origin is subject to a 10 per cent increase factor for evaluation purposes."

That letter further volunteered the following information in respect of the solicitation which is at issue here:

"The second requirement you refer to, also subject to the FTA, was awarded to the lowest compliant bidder, which was the 99M Corporation of Markham, Ontario. I would like to assure you that the product offered by this company met the technical requirement and was acceptable to the customer department."

It went on to state:

"Officials of my department have carefully examined the issues you have raised with respect to the bid evaluation process and resultant decision on both of these requirements. On the basis of this review, I am satisfied that the procurement process was carried out in a fair and equitable manner and that the lowest compliant bid was accepted in each case, in accordance with the competitive principles of my department's procurement system."

With the foregoing information and a clear denial of relief in hand, McDermid filed a complaint with the Board on 10 August 1990, which met the time and other requirements for filing (Sections 21 and 23 of the Regulations).

It should be noted that, over a month later, 99M wrote two letters to DSS - the first on 23 August apologizing for the misrepresentations in its bid and for the inconvenience caused to McDermid - and the second on 24 August unilaterally withdrawing from the standing offer.

Turning now to the substance of the complaint itself.

The Investigation

The allegations of this complaint, the government response to those allegations, and the complainant's comments on the government's response were investigated by means of interviews and the examination of documents.

A number of individuals were interviewed in person and/or by telephone to confirm various statements made and/or contained in the documentation. These include: Ms. Julia Brunette, DSS (Contracting Officer); Mr. Marcel Roy, DSS (Contracting Officer); Mr. Brian Carroll, DSS (Section Chief); Mr. R. Pageau, PCO (Requisitioning Officer); Mr. Pierre Monette, PCO (Telecommunications Officer); Mr. Alan Quinn, PCO (Chief, Materiel Management Section); Mr. Earl C. McDermid, Earl C. McDermid Limited, Downsview, Ontario (President); Mr. Thomas Clarke, McDermid (Purchasing Manager); Mr. Garth Cookshaw, DSS (Office of the Corporate Secretary, PRB Complaint Coordinator); and Mr. Peter Moyes (President, 99M Corporation).

The report of this investigation, made to the Board by its investigative staff, contains a number of appendices relating to material and documents deemed relevant by them as part of the basis of that report. Particular reference is not made to all of these supporting documents in this determination, but they are available to the parties, as may be required, and, subject to the provisions of the Access to Information Act, to any other person.

Because the investigation produced sufficient information to enable the Board, in its opinion, to resolve the issues raised in this complaint, it was determined that no formal hearing was required in the present case. The Board, in reaching its conclusions, has considered the report of its investigative staff and has made its findings and determinations on the basis of the facts disclosed therein, the relevant portions of which are mentioned in this determination.

The Procurement

The Request for Standing Offer [1] (see I.R. Appendix 5) dated April 2, 1990 with a closing date of May 14, 1990 prepared by DSS, Capital Region Supply Centre (CRSC), included, among other things:

a) boxes on the first page of the RFP:

Country of Foreign Content Value of Foreign Content
Pays d'origine des éléments étrangers Valeur des éléments
étrangers
$ CDN
"

b) notes to suppliers as follows:

-"SUBSTITUTES WILL BE CONSIDERED. HOWEVER THE SUPPLIER WILL BE HELD RESPONSIBLE FOR ANY MAINTENANCE COST ASSOCIATED WITH DAMAGE TO EQUIPMENT RESULTING FROM THE USE OF THE SUBSTITUTE ITEM."

-"`EQUIVALENT SUBSTITUTES' FOR THE STORES SPECIFIED WILL BE CONSIDERED; PROVIDED YOU DESIGNATE THE TRADE REFERENCE OF THE STORES OFFERED, STRIKING OUT THE TRADE REFERENCE SPECIFIED AND THE WORDS "OR EQUAL" AND YOU FURNISH WITH YOUR TENDER COMPLETE SPECIFICATIONS AND DESCRIPTIVE LITERATURE FOR SUCH EQUIVALENT STORES."

-"FAILURE TO PROVIDE SUFFICIENT DESCRIPTIVE LITERATURE WITH WHICH TO EVALUATE YOUR BID AGAINST REQUIRED SPECIFICATIONS WILL RENDER THE BID NON-RESPONSIVE."

-"TO BE USED ON A LANIER FACSIMILE MODEL 210"

c) the statement of requirement:

-"REQUIREMENT:

REQUEST FOR STANDING OFFER FOR THE SUPPLY OF FACSIMILE PAPER SIZE 8 1/2" X 328' ROLLS FOR A PERIOD OF TWO YEARS ON AN "AS AND WHEN ORDERED" BASIS."

d) the Statement of Eligible Goods clause:

"STATEMENT OF ELIGIBLE GOODS:

The Bidder represents and warrants that the Statement of Eligible Goods attached to this bid is accurate and complete and satisfies the definition of eligible goods set out in that statement.

The Bidder acknowledges that the Minister relies upon such representation and warranty to enter into any contract resulting from this bid.

Bids for eligible goods and bids for products of Canadian Origin may be given preference over other bids in accordance with the procedures for implementing the Canada-U.S. Free Trade Agreement respecting government procurement, published annually in the Canada Gazette.

Such representation and warranty may be verified in such manner as the Minister may reasonably require."

e) a Statement of Eligible Goods form which specifies the following:

"Products that are not identified below will be treated as non-eligible goods".

f) item 2. of the Instructions set out, in part, on DSS form 9403-6 on the back of the face page of the RFSO states:

"...Offers will remain open for acceptance for a period of not less than sixty days from closing date of this solicitation, unless otherwise indicated herein by SSC."

According to DSS, forty-one requests for bid packages were received in response to the NPP. Prior to closing, a request for clarification was received from one potential supplier as to how many rolls were in a box. The clarification ["each box contains 6 rolls of 100 meters"] was communicated by facsimile on May 9, 1990 to all suppliers who had requested a bid package. At the time of closing, twenty-two proposals had been duly received by DSS. A tabulation of prices, consisting of the unit price multiplied by the estimated quantity plus the application of a 10 percent evaluation factor as described below, was performed by DSS (see I.R. Appendix 6).

The investigation revealed that eight firms submitted a Statement of Eligible Goods with their proposals, twelve did not submit any Statement, and two returned the Statement of Eligible Goods form blank with their offers. One firm submitted descriptive literature on the product it was offering. In addition, this last firm, along with two others, provided brief information on their products in the `Stores Certification' clause. The rest of the bidders provided the brand name and manufacturer's name of the product they were offering. The evaluation was based on the information submitted by the suppliers.

The complaint essentially revolves around the issue of how the FTA deals with eligible goods and national treatment. The FTA states:

"...With respect to all measures regarding government procurement covered by this Chapter, each Party shall accord to eligible goods treatment no less favourable than the most favourable treatment accorded to its own goods..."

"... Eligible goods means unmanufactured materials mined or produced in the territory of either Party and manufactured materials manufactured in the territory of either Party if the cost of the goods originating outside the territories of the Parties and used in such materials is less than 50 percent of the cost of all the goods used in such materials..."

"Each Party shall, for its procurements covered by this Chapter...use decision criteria in the...evaluation of bids...that ...are clearly specified in advance..."

These provisions have been implemented through the DSS Supply Policy Manual, Directive 3005 which also states national treatment will be accorded to products of domestic origin and designated products of rationalized firms during the evaluation of bids:

" Bid Evaluation

13. a) Products of domestic origin, designated products from rationalized firms (see SPM Directive 3051), and eligible goods will be accorded national treatment. The bid price for all other products will be increased by a factor of 10 percent for evaluation purposes.

b) The 10 percent evaluation factor does not apply to procurements handled by DSS supply offices located outside of Canada and the U.S.

c) If the evaluation results in a tie, the bid price for eligible goods will be preferred.

d) Where products are not identified in the Statement of Eligible Goods ( Annex A ) they will be treated as non-eligible goods of foreign origin.

e) For multi-item bids, the 10 percent evaluation factor does not apply to the total bid, but only to those items that are treated as non-eligible goods."

The investigation of this evaluation revealed the following:

- it appears that all brand names were accepted as being equivalent products to Lanier;

- one bid had the 10 percent factor applied even though the declaration in its Statement of Eligible Goods form was for eligible goods;

- one bid had the 10 percent factor applied and this firm had not supplied a Statement of Eligible Goods form;

- thirteen bids did not have the 10 percent factor applied although their respective Statement of Eligible Goods forms were either not included (11) or left blank (2);

- of the remaining seven bids that contained a completed Statement of Eligible Goods form (not all of which were completed correctly), five received national treatment, i.e. no penalty was applied, and two had the 10 percent factor applied.

As part of its regular procurement actions, DSS includes standard clauses in its solicitations. Among them is a request for foreign content value in Canadian dollars and country of origin as it relates to the items proposed. The purpose of this is to allow the application of another policy having to do with premiums for Canadian content. This clause is inappropriate in this case because, under the FTA, another regime applies. In the current case, however, sixteen suppliers provided or partially provided information on foreign content on the first page of their proposals in response to this clause. In some cases, this information was used in the bid evaluation. In addition, as opposed to applying the 10 percent factor to the total value of the item (DSS SPM Directive 3005, paragraph 13.a) (see I.R. Appendix 7) the 10 percent factor was applied only to the declared foreign content value of the bids.

The Investigation Report establishes that the 99M bid included a "Statement of Eligible Goods" that characterized the goods offered as being Eligible Goods, and that the country of origin was Canada. The section of the RFSO requesting value of foreign content was marked as "".

As already noted, the winner of this competition, 99M Corporation, was awarded the RISO on 31 May 1990 after the Contracting Officer obtained oral confirmation from the company that the size and compatibility requirements of the product covered in the RFSO would be respected.

The Board finds that DSS was entitled to accept and act upon declarations such as the Statement of Eligible Goods on the reasonable assumption that they were being dealt with fairly by bidders who fill these forms out and submit them. The bidder, by submitting its signed tender with the Statement of Eligible Goods form attached, was representing and warranting its accuracy and completeness and was acknowledging that the Department relies on such warranty and representation to enter into any resulting contract with the bidder. As noted previously, on August 23, 99M apologized for the misrepresentations in their bid.

The Government Institution Report acknowledges that the declarations in the Statement of Eligible Goods form were accepted as declared. It also states that after receiving notice of the complaint in question, the accuracy of the Statement of Eligible Goods was checked with the supplier, 99M, who "advised the product was in fact 100% foreign" (i.e. non-eligible). DSS calculated, on that basis, that this would have raised their bid (for evaluation purposes) from $23,040 to $25,344 [2] ... but, if that had been known at the time of evaluation, it would have made no difference in the ranking of the 99M bid as it would have remained the lowest responsive bid at that time.

In the result, and upon a consideration of the bare point made in the complaint and the investigation surrounding it, the awardee's bid did not have the 10 percent evaluation factor added to it during evaluation. In the Government Institution Report, DSS concurs.

Further, the Board is bound to observe that one of its findings as a result of the investigation is that there is a great deal of confusion over the meaning of a number of terms including "eligible goods"; "foreign content"; "products of domestic origin"; "own goods"; etc., as well as when and how to apply the 10 percent evaluation factor.

The Board also observes that bidders are alerted to these issues by a note in standard clause t543 which is inserted in solicitations that are used in procurements coming under the FTA. That note reads in part, as follows:

"Bids for eligible goods and bids for products of Canadian origin may be given preference over other bids in accordance with the procedures for implementing the Canada-U.S. Free Trade Agreement respecting government procurement, published annually in the Canada Gazette."

The procedures in question are now published in the GBO, and insofar as this procurement is concerned, a copy of them was published in the 31 January 1990 issue of that booklet. They are silent on the issues of the evaluation of bids for products of domestic origin and designated products of rationalized firms as well as for non-eligible goods of foreign origin. These procedures have recently been re-published in the 28 September 1990 issue of GBO, again remaining silent on these issues.

It is a fact that DSS had publicized the above-mentioned evaluation procedure in the issue of The Supplier, No. 6, dated March 1989. This communication device, used at the time of the introduction of the Free Trade Agreement, however, does not constitute an official notice of such procedures. In fact, the official publication of procedures in the Canada Gazette Part I of January 21, 1989, shortly after the FTA was implemented, also omitted a reference to the evaluation factor.

Since the GBO is now the official place to which a bidder should be directed for information, the Board considers that the provisions of Article 1305: c)iii) of the FTA requiring that the decision criteria used in the evaluation of bids be "clearly specified in advance" are not being met. In this context, it is important that DSS revise and clarify these published procedures so as to make the policies and procedures in respect of national treatment and evaluation more transparent to the supplier community. As well, pursuant to paragraph 19b) of the PRB Regulations, the Board will recommend that steps be taken to provide clear guidance to contracting officers in order to ensure equal and consistent application of these rules for the evaluation of bids.

Nevertheless, even given the above, it is the Board's opinion that none of these factors was fatal to the issuance of the standing offer to 99M at the time.

However, this procurement does not end with the issuance of the RISO to 99M Corporation.

In fact, by 4 July, the client department had made its first call-up for a supply of fax paper from 99M, received it and found it unsatisfactory as it was the wrong length for use in their fax machine. They complained of this to the supplier, who told them they could supply the right length -- but at an increased price. The customer (PCO) then advised the DSS contracting officer, on July 4, 1990, of this development - but added that PCO had decided not to order any more paper against this RISO. Instead, they had decided to use another DSS standing offer arrangement, the existence of which they had recently become aware. They did keep and pay for this order but used it with another machine. It should be noted, however, over the next several weeks, DSS officials prepared a letter for the Minister's signature to McDermid assuring the company that the product offered by 99M "met the technical requirement and was acceptable to the customer department".

The other standing offer was a National Master Standing Offer (NMSO) that had been entered into by DSS for the supply of facsimile machines and related paper supplies. The terms of that NMSO included the supply of rolls of Lanier paper at the right size - but at a price of $78.00 a box (vs. the $48.00 a box promised by 99M under the RISO).

The position at this point was that the supplier, 99M, was technically in breach of contract for refusing to supply in accordance with the RISO, and the procurement had become incomplete - requiring either enforcement action to complete the contract, or continuation of the procurement process to bring about a successful procurement.

The government did not, however, treat this as a contract enforcement matter but, rather, a continuation of this procurement action, and it is for this reason that the Board will deal with the second alternative, namely, the continuation of this action.

On July 4, 1990, as noted above, DSS had been informed by its customer department that they would not be using the RISO because of the failure of the supplier to supply according to the terms of the standing offer. This left them with the possibility of going back to the next lowest bidder whose bid, at that time, was still open for acceptance and was, incidentally, significantly lower than the prices in the NMSO. Indeed, there were ten other bids that had prices which were lower. In this regard, all offers for the RISO contained the undertaking that they would remain open for acceptance for a period of not less than sixty days from the closing date of the solicitation unless otherwise indicated in the RFSO. It was not otherwise indicated in the RFSO, so bid prices were valid at least until 14 July, and could have been used to complete the procurement action.

PCO, however, chose to meet its needs under the NMSO. This the Board considers to be an unsatisfactory way to treat the other bidders in this competition. They had been obliged to keep their bid prices open for at least 60 days for several reasons, including this eventuality - to enable DSS to select the next best offer if the one first selected did not provide a satisfactory solution to the procurement requirement.

In the result, the Board also finds that the government did not comply with all the requirements of Section 17 of the Act in that it failed to provide all potential suppliers an equal opportunity to be responsive to the requirements of the procuring entity in the tendering and bidding phase.

Having determined that the procurement does not comply with the requirements of Section 17 of the Act on two counts, the Board will recommend that, assuming that the requirement still exists, the RISO be awarded to the next lowest responsive bidder if, on enquiry, that bidder is willing to extend the validity of its bid price to the present time and, if not, continue this process with the other bidders up to the point where the prices offered last May and which "are still open for acceptance" are considered by the government to no longer represent fair value to the Crown.

The Board recognizes that the passage of time and possible changes in market conditions may render this proposed remedy impossible to achieve, and if that proves to be the case, then the Board recommends that the government issue a new solicitation for this requirement.

While the complainant prevails in one of the two issues brought before the Board, the actions of the government were not fatal to this award and 99M would have remained the lowest responsive bidder at the time of the issuance of the RISO. Subsequent events have shown that 99M was not, anymore, the lowest responsive bidder, but even here the complainant's bid, on its face, is not the next lowest and therefore it is not clear that it would be entitled to the award of the RISO. This will be determined through the exercise of the process which the Board has recommended. Therefore, the Board will not consider the payment of bid preparation costs. The Board will, however, award reasonable costs of filing and proceeding with the complaint.

DETERMINATION

The Board has determined that this procurement by the Department of Supply and Services does not comply with all the requirements referred to in Section 17 of the Canada-United States Free Trade Agreement Implementation Act in that: a) it did not use decision criteria in the evaluation of bids that were clearly specified in advance; and b) it failed to provide all potential suppliers an equal opportunity to be responsive to the requirements of the procuring entity in the tendering and bidding phase.

Accordingly, in considering an appropriate remedy, the Board recommends that, assuming that the requirement still exists, the RISO be awarded to the next lowest responsive bidder if, on enquiry, that bidder is willing to extend the validity of its bid price to the present time and, if not, continue this process with the other bidders up to the point where the prices offered last May are considered by the government to no longer represent fair value to the Crown.

If, as a practical matter, the government finds it is not feasible to carry out this recommendation, then the Board recommends that the government issue a new solicitation for this requirement.

Since the investigation established that one of the bases of the complaint is borne out by the facts, the Board awards the complainant reasonable costs for filing and proceeding with the complaint.

The Board also recommends, pursuant to Section 19(b) of the Procurement Review Board Regulations that the Department of Supply and Services:

1) review, clarify and correct, as appropriate, its Supply Policy Manual Directive 3005 and its solicitation documents, in particular as they relate to eligible goods, foreign content, and bid evaluation procedures, and

2) revise and clarify the published procedures in respect of the same matters for the benefit of the supplier community and the improvement of transparency in the procurement process.

Gerald A. Berger
_________________________
Gerald A. Berger
Chairman
Procurement Review Board of Canada

1. In this solicitation, the terms Request for Proposal - RFP, and Request for Standing Offer - RFSO, are used interchangeably.

2. It should be noted that the RISO was issued for usage up to an expenditure of $57,456 which represented the requisition value which was obtained by multiplying 480 boxes times $119.70.

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Initial publication: August 27, 1997

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