This complaint, filed on 20 August 1990, concerns a solicitation by the Department of Supply and Services (DSS) for a Regional Individual Standing Offer (RISO) to supply, on an "as and when required basis", over a period of about 8 months, bagged softwood shavings to be used by their client, the Equitation Section of the Royal Canadian Mounted Police (RCMP).

The solicitation produced only one tender - by Repco Data Inc. (the complainant) - which offered a price judged by DSS's client to be too high -in comparison to what they had recently been paying. On that basis, DSS re-issued the solicitation, this time to only two selected tenderers: the complainant and the previous supplier.

The complainant is objecting to this second solicitation - feeling that it was "irregular and unethical" to re-tender the same requirement, and he also objects that it was unfair of DSS to communicate his bid price to the RCMP - whom he fears may have communicated it to the other suggested supplier - which could prejudice his participation in the second competition.

As a matter of fact, Repco Data was the only bidder on the second solicitation too -- and at the same price as before. But the RCMP have refused to buy at the offered price and have informed DSS that, until the questions surrounding this procurement have been settled, they will instead buy small quantities of wood shavings - as required - and at values within their "Local Purchase Order" authorization of $2,500 (which doesn't require them to procure through DSS). They intend to use the other supplier whom they had suggested DSS invite on the second solicitation (which DSS did), but who bid on neither that solicitation nor the earlier one.

When this complaint was filed with the Board, it was discovered that the RISO had not yet been awarded, and it was therefore possible to exercise the Board's authority under Section 16(1)(b) of the Free Trade Agreement Implementation (FTAI) Act to issue an order to postpone awarding the contract pending the termination of the investigation by the Board. This order was made on 24 August 1990, following the giving of appropriate notice of its intention to do so. No objection thereto has been raised by DSS.

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: Mrs. W. Nunn, DSS (Contracting Officer); Ms. S. Roy, DSS (Contracting Officer's Supervisor); Mr. J. LaBonté, DSS (Section Chief); Mr. D. McAninch, DSS (Acting Director) Policy Review and Implementation Branch; S/Sergeant J.E. Dunn, RCMP (Riding Master) Equitation Section; Inspector J.G.L. Boivin, RCMP (Officer-in-Charge); Mr. J. Phillips, RCMP (Stable Supervisor); Mr. R. Leblanc, Robert Leblanc, Ottawa, Ontario (the previous supplier).

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 solicitation in this case began with the publication in the Government Business Opportunities (GBO) booklet of a Notice of Proposed Procurement (NPP) on 3 June 1990. The estimated value of the RISO had been $45,000, which, among other things, brought it within the Free Trade range, and the NPP was coded "F-1" meaning that the tendering procedure was "open" (as opposed to "selective" tendering from source lists). The closing date was set for 23 July 1990 (see I.R. Appendix 1).

The evaluation criteria in the bidding documentation for this solicitation made it clear that the government would normally award the contract on the basis of the lowest price offered.

The investigation discloses that the NPP drew three requests for bid packages but, at the time of closing, only one offer - that of the complainant - had been received. It also revealed that the previous supplier of these goods, a company called B.L. Shavings, now known as Robert Leblanc (Leblanc), did not request a bid package.

A week later, on July 31, 1990, the contracting officer informed the RCMP that the price quoted represented a substantial increase over the previous price paid. On August 1, 1990, the customer department sent a facsimile to DSS stating:

"PROPOSED INCREASE OF --------- [amount deleted] A BAG/SHAVINGS IS UNACCEPTABLE THIS POINT.

B.L. SHAVINGS (OTTAWA) QUOTED SAME PRICE AS LAST YEAR ...

MONTREAL & CALGARY QUOTES DO NOT APPEAR TO REPRESENT FAIR VALUE TO THE CROWN."

(see I.R. Appendix 8)

The reference to a BL Shavings "quote" above refers to discussions between Robert Leblanc, DSS and the RCMP, when Leblanc is said to have made an informal quote. It is unclear exactly whether this discussion took place before or after bid closing, but since Leblanc never submitted a bid in that solicitation, nothing turns on this point, and in the view the Board takes of that incident, further pursuit of it was not necessary.

The reference to a Calgary quote was found to have been made in error. A Calgary firm did request a bid package, but did not submit a tender.

The rule that is applicable under the FTA to the situation that was thus presented to the contracting authority, is that set out in the GATT Code, Article V, Section 15(f) and (g) (which have been incorporated into the FTA), reading as follows:

"(f) unless in the public interest an entity decides not to issue the contract, the entity shall make the award to the tenderer who has been determined to be fully capable of undertaking the contract and whose tender, whether for domestic or foreign products, is either the lowest tender or the tender which in terms of the specific evaluation criteria set forth in the notices or tender documentation is determined to be the most advantageous.

(g) if it appears from evaluation that no one tender is obviously the most advantageous in terms of the specific evaluation criteria set forth in the notices or tender documentation, the entity shall, in any subsequent negotiations, give equal consideration and treatment to all tenders within the competitive range".

The issue here is whether or not it is in the public interest to decide against issuing the contract, and the GATT provisions implicitly acknowledge that there may be negotiations when no one tenderer is obviously the most advantageous. Although there is only one tender in this case, that appears to be the situation in hand.

DSS has issued a policy directive (SPM 3004) dealing with procedures when conducting procurements under the FTA. It does not deal directly with this point - but another SPM directive having general application to all DSS procurements does touch directly on the point. It is SPM 3002 and its applicability is not expressly excluded by the FTA directive. Paragraph 24 of this Directive reads as follows:

"one responsive bid 24. When only one responsive bid is received in response to a competitive bid solicitation, the contracting authority may, if it considers that the Crown is obtaining fair value, award the contract to the single responsive bidder. Under such circumstances, further price support such as price breakdown or price certification is not required; however, the non-competitive contract approval level must be used. Should the contracting authority consider the single responsive bid not to provide fair value to the Crown, then it should negotiate with the potential supplier to obtain fair value. If unsuccessful in this respect, reissuing the bid solicitation should be considered. The following provides guidelines for determining the fairness of the single responsive bid price:

a) In the case of acquisition of commercial products/services (refer to SPM Directive 4013 for definition), the single responsive bid may lend itself to evaluation in terms of either recent prices paid, current price lists or catalogues, or recent prices paid by others, such as other governments, Crown corporations, hospitals, universities and large private sector corporations or companies.

b) In the case of acquisition of non-commercial products/services, the "going price" concept in a) above is not applicable, unless an identical or a substantially similar requirement was previously acquired. In such an event, the previous price on an inflation-adjusted basis can serve as a reference price for comparing the present bid.

c) In certain instances, the price of the single responsive bid may be compared with that of other non-responsive bids, depending on the reasons for declaring the other bids non-responsive.

d) Before opting for the price negotiation route, efforts should be made to obtain price support from the single responsive bidder.

e) The additional time and effort required for price negotiations should also be considered in making the decision whether to enter into price negotiations.

f) A brief justification of any of the above-mentioned decisions should be placed on file and also summarized in the contract request."

Only one offer had been received which did not, according to the RCMP and DSS, represent fair value to the Crown. The investigation revealed that no attempt was made by DSS to contact the potential supplier to seek price support or to engage in negotiations. On August 2, 1990, upon consulting with the Acting Director Policy Review and Implementation Branch of DSS, a decision was made by DSS to re-tender the requirement in the manner set out above to the complainant and the previous supplier.

The rationale to re-tender the requirement is based on the following:

"Only one proposal has been received and it doesn't represent a fair value to the Crown...".

The rationale to re-tender the requirement using a tender list, is as follows:

"... we [DSS] already went out FTA and we're not changing the requirement." (see I.R. Appendix 10)

This Request for Standing Offer (RFSO) was not advertised in the GBO, and it gave no indication that it was superseding an earlier solicitation that had been cancelled.

GATT Code Article V-4 applies to all GATT and FTA solicitations. It reads as follows:

"4. entities shall publish a notice of each proposed procurement in the appropriate publication listed in Annex II. Such notice shall constitute an invitation to participate in either open or selective tendering procedures."

SPM Directive 3004 (which is specifically applicable to FTA contracts) reads, at paragraph 22, as follows:

"amendment of 22. If it becomes necessary to amend any information

the NPP provided in the NPP (after publication but before the time set in the NPP for the bid opening), the NPP amendment shall be published, and given the same circulation as the original bid documentation upon which the NPP amendment is based. When a bid solicitation is cancelled and reissued, a new NPP shall be published."

SPM Directive 3151 deals with the case of re-issuing a bid solicitation. This directive is also referred to by DSS in its Government Institution Report (G.I.R.), and it reads, in part, as follows:

"BACKGROUND 3. It is relatively easy to decide if a bid solicitation should be amended before its due date or if it should be cancelled before or after the due date; however, the subject of re-issuing a bid solicitation is a complex one and may be quite controversial, involving as it does the questions of equitable opportunities to suppliers, fair value for the taxpayer, customer service and ethics in purchasing. The decision to re-issue a bid solicitation (or not to re-issue as the case may be) may subject the Department to severe criticism and therefore requires considerable judgment and a thorough analysis of all the circumstances surrounding each individual case.

re-issuing a 5. Re-issuing a bid solicitation is permissible where:

bid solicitation

a) ...

b) all bids are non-responsive or do not represent fair value;

c) ...

...

12. Whenever a solicitation is issued to replace an earlier one, insert the following as the first statement on the re-issued solicitation;"

THIS CANCELS AND SUPERSEDES PREVIOUS INVITATION TO TENDER NO ... DATE ... WHICH WAS DUE AT .....P.M., ON .....

(Note: replace Invitation to Tender with Request for Proposal or Request for Quotation, as applicable)."

About August 13, 1990, the complainant called the contracting officer to enquire why DSS was re-tendering the requirement. According to the contracting officer, the complainant was told that the bid information had been submitted to the customer department, that the RCMP felt it did not represent fair value to the Crown and that the second solicitation was the occasion for Repco to revise its price. The complainant requested the name and telephone number of the contracting officer's supervisor. No communication occurred between the supervisor and the complainant, although each asserts that they called and left a message for the other.

On August 20, 1990, the complainant signed its offer in response to the second solicitation. The price offered was the same as the first solicitation (see I.R. Appendix 12). Again, only one bid was received and DSS made no attempt to negotiate with the potential supplier. After bid closing, on August 24, 1990, the supervisor informed the RCMP that a complaint had been filed with the Board and communicated the result of the re-tender. The customer department reiterated that the price quoted did not represent fair value to the Crown. It informed DSS that the RCMP would buy the shavings through local purchase orders from its traditional supplier, Leblanc (see I.R. Appendix 13).

An internal memorandum on the DSS file reflects the fact that the purchasing branch sought internal advice from officials concerned with policy application, and received the advice that negotiations with the sole bidder would have been appropriate in the first solicitation and recommending that they be undertaken now, since second solicitation had produced the same result.

On August 31, 1990, in relation to the receipt of a single proposal on the second solicitation, the RCMP transmitted a message to DSS stating:

"Proposal too high and does not fall within our budget. It is requested that you retender and include our recommended suppliers in order to obtain a more competitive bid." (see I.R. Appendix 15)

On September 5, 1990, the contracting officer's supervisor called the previous supplier to find out why it did not quote on the second solicitation (see I.R. Appendix 16). The supplier indicated that it had never received the RFSO. After verification of address, it was determined that DSS had, apparently, used the wrong mailing address although it was, in fact, the address Leblanc supplied in a notice sent a year earlier to the Capital Region Supply Centre (the DSS branch that was handling this procurement) advising of a change of name and address of the business. According to DSS, the supplier mentioned during that same conversation that it would sell the shavings at the price quoted on the previous RISO, but they never did submit a written bid.

The Governmental Institution Report

The Government Institution report sets out DSS's view of the sequence of events during the procurement in question. It includes an executive summary providing the government's position, the supporting rationale and recommendation (see I.R. Appendix 17). The rationale states:

"In accordance with Supply Policy Manual 3151..., a bid solicitation was re-issued."

Paragraph 5.b) of Directive 3151 states:

"5. Re-issuing a bid solicitation is permissible where:

...

b) all bids are non-responsive or do not represent fair value;" (see I.R. Appendix 18)

According to DSS:

"the re-tender was an alternate way for Repco Data Inc. to submit a lower price."

Also included is a reference to SPM Directive 3002 stating:

"when only one responsive bid is received on a competitive bid solicitation, should the contracting authority consider the single responsive bid not to provide fair value to the Crown, then it should negotiate with the potential supplier to obtain fair value. If unsuccessful in this respect, re-issuing the bid solicitation should be considered."

The summary is silent on the rationale for not negotiating with the sole bidder of the first solicitation. DSS recommends a third competitive bid solicitation be issued and should the outcome be that only one bid is received, an "attempt will be made to directly regulate a more acceptable price in accordance with SPM 3002."

The Complainant's Comments on the Governmental Institution Report

The complainant's comments on the DSS report were filed with the Board on September 20, 1990 (see I.R. Appendix 19). In its comments, the complainant raised the issue of "favoratism (sic) and special consideration to (its) competitor". To support this statement, the complainant claims that:

"Supply and Services never attempted to negotiate with Repco Data Inc., instead they tried their best to negotiate with a party that had not even bid. We were never informed until after the second bid that the price was considered high, and they never told us how high and what price was required. There were no negotiations at all. However, according to the `Executive Summary' another `suggested source' was contacted and would `provide true competition', naturally since they knew what price to quote."

To corroborate the above, the complainant also refers to the sequence of events table attached to the G.I.R., particularly the events of July 31 and September 5, 1990 which record contacts between the RCMP, DSS and the previous supplier.

DISCUSSION

The First Solicitation

Upon this recitation of events, the Board finds that up to the point of evaluating the single bid received on the first solicitation, the procedures were all carried out correctly. After that point, however, it considers that an error occurred that led to a second solicitation being made without a proper foundation having been laid for it, and that thereafter other procedural errors were made that effectively vitiate the second solicitation.

The first error concerns the failure to obtain price support or to negotiate with the complainant to try to obtain fair value. It may perhaps be argued that the contracting officer, faced with a bid representing a substantial increase over earlier prices, was entitled to decide if this represented fair value or not. It is apparent that both DSS and the customer department felt that it did not. The Board takes no position in this matter, but, in these circumstances, DSS should not make a decision having an effect on the bidder's rights, without having properly established grounds for so doing. But the file does not reflect anything beyond a couple of bare assertions that the price offered did not represent fair value. Moreover, set against this position are several provisions of the GATT Code and the DSS SPM that serve as clear warnings that the cancellation and re-issue of a solicitation on grounds such as these is a serious matter, capable of being controversial, involving such ramifications as fairness to suppliers, fair value to taxpayers, good customer service and ethics in purchasing requiring "... considerable judgement and a through analysis of all the circumstances surrounding each individual case".

The GATT Code provision quoted earlier contemplates the likelihood of negotiations in a case like this. The DSS SPM Directive on bid solicitation (3002.24 quoted earlier) suggests that price support for the bid be obtained (this was not done) and that "should the contracting authority consider the single responsive bid not to provide fair value to the Crown, then it should negotiate with the potential supplier to obtain fair value" (this was not done). The Directive goes on to suggest several guidelines that are to be used for determining the fairness of the single responsive bid (these were not followed).

Finally, both SPM 3002 and 3151 (quoted above) suggest that re-issue of the solicitation may be considered after establishing that the bid doesn't represent fair value and where negotiations are unsuccessful in establishing it.

The Board considers therefore that the appropriate procedures intended to lead to the establishment of fair value to the Crown were not followed, and it finds that this failure resulted in an inadequate foundation being laid for the second solicitation.

The Second Solicitation

The Board considers that its findings in regard to the first solicitation are sufficient to dispose of the issue raised in this complaint. However, its mandate under Sections 17 and 19 of the Act to consider whether the procurement as a whole was conducted in compliance with the FTA prompts an observation with respect to the second solicitation that cannot be overlooked, and that the Board considers of sufficient importance to mention since, even by itself, it is sufficient to vitiate the procurement.

This important defect in the second solicitation was that it was not given notice of, by NPP, as required under the FTA and the several SPM Directives applicable to the situation.

The general requirement of the GATT Code (Article V.4 quoted above) is that a notice of each procurement shall be published. SPM 3004.22 (quoted above), which is specifically applicable to FTA procurements, states clearly that "when a bid solicitation is cancelled and re-issued a new NPP shall be published." SPM Directive 3151 (quoted above) a general directive relating to re-issued solicitations, requires that new solicitation to contain a notice that it cancels and supersedes the first. This appears to apply whether or not the solicitation is conducted by open tendering (as was required in this case), or selectively (as was apparently done in this case).

None of these requirements was met, and the Board finds that the second solicitation did not therefore comply with the requirements of the FTA or the other procedural requirements set out in the government's Supply Policy Manual.

Accordingly, the Board finds that in both these solicitations the government failed to meet the requirements of Article 1305 of the FTA in that:

(a) in the first solicitation, they did not use decision criteria in the evaluation of bids that best met the requirements set out in the tender documentation, by not determining, in accordance with departmental directives and the GATT Code, if the single responsive bid offered fair value before rejecting it, and

(b) in the second solicitation they did not provide all potential suppliers an equal opportunity to be responsive to the requirements of the procuring entity in the tendering and bidding phase, by not publishing any NPP.

Since the Stop Award Order of 24 August 1990 has essentially stopped proceedings, it is now literally possible to recommend that the government return to the first solicitation and carry out the prescribed procedures, that is, a negotiation to try to reach a price that the government could consider represents fair value and is thus in the public interest, and proceed from that point in accordance with SPM directives.

In relation to the point raised by the complainant, that the disclosure of its price to the customer department "could have been accidentally given to our competitors", the investigation turned up no evidence that it was. That would have been a relevant matter if it had been necessary to consider the outcome of the second solicitation. However, the Board has found against the second solicitation on other grounds and it is not necessary to pursue the matter further, given the results of the investigation already mentioned.

Finally, since the Board has found that the procurement did not comply with the requirements of Section 17 of the Act, the Board will award the complainant its reasonable costs relating to filing and proceeding with this complaint. Since there is no certainty that the complainant will become entitled to an award of the RISO, there will be no order as to costs relating to the preparation of its bid.

Turning now to the Board's formal determination,

DETERMINATION

The Board has determined on the basis of its investigation that this procurement by the Department of Supply and Services did not comply with the requirements referred to in Section 17 of the Free Trade Agreement Implementation Act in that:

(b) in the second solicitation, they did not provide all potential suppliers an equal opportunity to be responsive to the requirements of the procuring entity in the tendering and bidding phase, by not publishing any NPP.

The Board recommends that the Department of Supply and Services undertake a negotiation with the complainant, Repco Data Inc., to determine what is fair value to the Crown for the goods required in its original solicitation, and proceed with the procurement in accordance with established procedures in light of the results obtained.

The Board has decided to award the complainant its reasonable costs relating to the filing and proceeding with this complaint.

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

[Table of Contents]

Initial publication: August 27, 1997

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