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Procurement
Determinations
ZENIX ENGINEERING LTD.
v.
DEFENCE CONSTRUCTION CANADA
File No. PR-2006-035
Determination issued
Friday, April 20, 2007
Reasons issued
Thursday, May 3, 2007
TABLE OF CONTENTS
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IN THE MATTER OF a complaint filed by Zenix Engineering Ltd. under subsection 30.11(1) of the Canadian International Trade Tribunal Act, R.S.C. 1985 (4th Supp.), c. 47;
AND FURTHER TO a decision to conduct an inquiry into the complaint under subsection 30.13(1) of the Canadian International Trade Tribunal Act.
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BETWEEN |
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ZENIX ENGINEERING LTD. |
Complainant |
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AND |
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DEFENCE CONSTRUCTION CANADA |
Government Institution |
DETERMINATION OF THE TRIBUNAL
Pursuant to subsection 30.14(2) of the Canadian International Trade Tribunal Act, the Canadian International Trade Tribunal determines that the complaint is valid.
Pursuant to subsections 30.15(2) and (3) of the Canadian International Trade Tribunal Act, the Canadian International Trade Tribunal recommends that Defence Construction Canada, on behalf of the Department of National Defence, compensate Zenix Engineering Ltd. by an amount equal to the profit that it would reasonably have earned had it won, as the top-ranked bidder, this procurement.
Using this as the basis, the Canadian International Trade Tribunal recommends that the parties develop a joint proposal for compensation to be presented to the Canadian International Trade Tribunal within 30 days of the date of the publication of this determination. Should the parties be unable to agree on the amount of compensation, Zenix Engineering Ltd. shall file with the Canadian International Trade Tribunal, within 40 days of the date of the publication of this determination, a submission on the issue of compensation. Defence Construction Canada will then have 7 working days after the receipt of Zenix Engineering Ltd.’s submission to file a response. Zenix Engineering Ltd. will then have 5 working days after the receipt of Defence Construction Canada’s reply submission to file any additional comments.
Pursuant to section 30.16 of the Canadian International Trade Tribunal Act, the Canadian International Trade Tribunal awards Zenix Engineering Ltd. its reasonable costs incurred in preparing and proceeding with the complaint, which costs are to be paid by Defence Construction Canada. The Canadian International Trade Tribunal’s preliminary indication of the level of complexity for this complaint case is Level 2, and its preliminary indication of the amount of the cost award is $2,400. If any party disagrees with the preliminary indication of the level of complexity or the preliminary indication of the amount of the cost award, it may make submissions to the Canadian International Trade Tribunal, as contemplated by the Guideline for Fixing Costs in Procurement Complaint Proceedings. The Canadian International Trade Tribunal reserves jurisdiction to establish the final amount of the award.
Serge Fréchette
Serge Fréchette
Presiding Member
Hélène Nadeau
Hélène Nadeau
Secretary
The statement of reasons will be issued at a later date.
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Tribunal Member: |
Serge Fréchette, Presiding Member |
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Director: |
Marie-France Dagenais |
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Senior Investigator: |
Josée St-Amand |
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Counsel for the Tribunal: |
Eric Wildhaber |
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Complainant: |
Zenix Engineering Ltd. |
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Counsel for the Complainant: |
Paul D. Conlin |
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Jason P. T. McKenzie |
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Government Institution: |
Defence Construction Canada |
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Counsel for the Government Institution: |
David M. Attwater |
Please address all communication to:
The Secretary
Canadian International Trade Tribunal
Standard Life Centre
333 Laurier Avenue West
15th Floor
Ottawa, Ontario
K1A 0G7
Telephone: 613-993-3595
Fax: 613-990-2439
E-mail: secretary@citt-tcce.gc.ca
STATEMENT OF REASONS
COMPLAINT
1. On December 7, 2006, Zenix Engineering Ltd. (Zenix) filed a complaint with the Canadian International Trade Tribunal (the Tribunal) under subsection 30.11(1) of the Canadian International Trade Tribunal Act. 1 The complaint concerned a procurement (Solicitation No. IE070336) by Defence Construction Canada (DCC) on behalf of the Department of National Defence (DND) for a Request for Abbreviated Proposal (RFAP) for modular quarters life-safety assessment and remediation analysis.
2. Zenix alleged that DCC did not enter into negotiations with it, as stipulated in paragraph 3.3 of the RFAP, even though it was the proponent with the highest overall score.
3. On December 15, 2006, the Tribunal informed the parties that the complaint had been accepted for inquiry, as it met the requirements of subsection 30.11(2) of the CITT Act and the conditions set out in subsection 7(1) of the Canadian International Trade Tribunal Procurement Inquiry Regulations. 2
4. On December 18, 2006, DCC requested a one-week extension of time to file the Government Institution Report (GIR). The Tribunal granted this request on December 19, 2006.
5. On December 22, 2006, DCC filed a motion requesting that the Tribunal dismiss Zenix’s complaint on the grounds that the Tribunal lacked jurisdiction to consider it. Zenix filed comments on DCC’s motion on December 22 and 27, 2006. In a letter to the parties dated January 5, 2007, the Tribunal concluded that DND was the designated government institution and that the complaint was filed on time. Accordingly, the Tribunal dismissed the motion filed by DCC. Furthermore, the Tribunal extended the date for the filing of the GIR to January 23, 2007.
6. On January 8, 2007, DCC asked the Tribunal to advise the parties of its finding regarding the classification of the subject services, which the Tribunal did in a letter to the parties dated January 12, 2007.
7. On January 23, 2007, DCC submitted a GIR. On January 26, 2007, Zenix requested an extension of time to file its comments on the GIR. The Tribunal granted this request and set February 8, 2007, as the new filing date.
8. On February 2, 2007, Zenix filed a motion for the production of certain documents from DCC and, in light of this motion, requested that the Tribunal set another deadline for the filing of its comments on the GIR, from February 8 to February 16, 2007. DCC filed its comments on Zenix’s motion on February 6, 2007, and Zenix’s reply comments were filed on February 7, 2007. On February 14, 2007, the Tribunal issued an order for the production of certain documents requested by Zenix and gave DCC until February 16, 2007, to produce them. The Tribunal also advised the parties that Zenix would have until February 21, 2007, to file its comments on the GIR, which it did. On February 26, 2007, DCC filed further submissions claiming that Zenix’s comments on the GIR raised new arguments. The Tribunal disagreed and, on February 28, 2007, advised DCC that its submissions of February 26, 2007, would not be accepted on the record.
9. Given that there was sufficient information on the record to determine the validity of the complaint, the Tribunal decided that a hearing was not required and, pursuant to paragraph 25(c) of the Canadian International Trade Tribunal Rules, 3 disposed of the complaint on the basis of the written information on the record.
PROCUREMENT PROCESS
10. The RFAP that is the subject of the complaint was posted on MERX 4 on July 13, 2006. The closing date for the receipt of bids was August 17, 2006.
11. The RFAP stated that DCC, on behalf of DND, required the provision of consultant services for modular quarters life-safety assessment and remediation analysis for various locations across Canada.
12. The selection process of the RFAP included an evaluation of a bidder’s technical proposal and financial offer of services. The maximum score was 100, with 90 points available for the technical evaluation and 10 points available for the financial evaluation. Paragraph 3.2 of the RFAP provided that only bidders “. . . whose technical submissions have obtained a technical score within 10 points of the highest ranked technical submission . . .” would have their financial offer of services evaluated. Bids whose financial proposals were not opened were still considered compliant. Five proposals were received; the financial offer of services of only two bidders were opened and evaluated. The selection process also provided that DCC would enter into negotiations with the bidder whose proposal had the “highest overall score”, based on the evaluation of its technical proposal and financial offer of services.
13. The RFAP reads as follows:
. . .
3.3 Results of Evaluation / Contract Award
The RFAP technical scores, as well as the Offer of Services scores (calculated as per paragraph 6 of the RFAP), are added to determine the relative ranking of proponents. The Proponent with the highest overall score will be selected to negotiate a contract with DCC. Negotiations will include an agreement on a maximum amount for services authorized by DCC. In the event that these negotiations fail, DCC will enter into negotiations with the next-ranked Proponent. The services offered by the Proponent shall be in accordance with this RFAP document.
. . .
14. On August 30, 2006, Zenix was informed by telephone that its proposal had received the highest overall score. By correspondence dated November 2, 2006, DCC advised that it was terminating its negotiations with Zenix and would enter into negotiations with the second-ranked bidder. On November 3, 2006, Zenix wrote to DCC requesting that this decision be reviewed. On November 23, 2006, DCC indicated to Zenix that its earlier decision was final. On November 29, 2006, the contract was awarded to Morrison Hershfield.
15. On December 7, 2006, Zenix filed its complaint with the Tribunal.
JURISDICTIONAL ISSUE
Government Institution
16. DCC argued that the Tribunal has no jurisdiction over the complaint because the government institution responsible for this procurement is DCC, a federal entity that is not covered under Annex 502.1A of the Agreement on Internal Trade. 5 DCC submitted that it was the government institution that awarded the designated contract for purposes of section 30.11 of the CITT Act and not DND.
17. Zenix argued that a principal and agent relationship existed between DCC and DND and that, as such, the Tribunal must conclude that DND was the government institution for purposes of this procurement.
18. The Tribunal notes that DND is a federal entity listed in Annex 502.1A of the AIT and Annex 1001.1a-1 of the North American Free Trade Agreement. 6 The RFAP states very specifically that the solicitation is made by DCC “on behalf of the Department of National Defence”. It is made clear directly and indirectly in various instances throughout the RFAP that DCC is acting as the contracting agent for DND and that DND is the federal entity which is the ultimate beneficiary of the services for which proposals are sought. The RFAP shows that operational requirements and completion dates for the project were determined by DND, that budget limitations had been prescribed by DND and that supplementary funds could only be authorized by DND. 7 In many instances in the RFAP, DND’s representative to the contract is described as being the “Project Manager”, and DCC’s representative is only described as the “Contracting Officer”. The Tribunal believes that these facts provide a solid indication as to the true nature of the role performed by DCC in the context of the RFAP, namely, that of a contracting agent for DND, the ultimate beneficiary of the procurement. 8 As such, the Tribunal concludes that DND is the government institution with respect to this procurement.
Services Covered
19. According to Article 518 of the AIT, the definition of “services” reads as follows:
. . . means all services including printing, but does not include those services excluded by Annex 502.1B.
20. Annex 502.1B to the AIT reads as follows:
. . .
1. All services are covered except the following:
(a) services that may, under the applicable laws of the Party issuing the tender, only be provided by the following licensed professionals: medical doctors, dentists, nurses, pharmacists, veterinarians, engineers, land surveyors, architects, accountants, lawyers and notaries.
. . .
[Footnote omitted]
21. Annex 1001.1b-2 to NAFTA provides as follows:
. . .
1. This Chapter applies to all services that are procured by the entities listed in Annex 1001.1a-1 and Annex 1001.1a-2 . . . .
22. Note 1 of Annex 1001.1b-2 to NAFTA provides the following:
All services, with reference to those goods purchased by the Department of National Defence . . . which are not identified as subject to coverage by this chapter (Annex 1001.1b-1), will be exempt from the disciplines of the Chapter.
23. DCC argued that the RFAP is for the procurement of architect and engineering services that must be provided by licensed professionals and that, as such, those services are therefore specifically excluded from the coverage of the AIT under Annex 502.1B. DCC also argued that the services in issue could only be covered by NAFTA if the goods, “with reference to” which such services pertain, are covered by NAFTA. In this regard, DCC cited Section B and Note 1 of Annex 1001.1b-2 and Annex 1001.1b-1 to NAFTA. DCC argued that the services in the RFAP pertain to real property and that, since “. . . [r]eal property does not constitute a good, and is not listed in Section B to the Annex 1001.1b-1 . . .”, 9 these services are not subject to coverage by NAFTA when purchased by DND.
24. Zenix argued that the RFAP covers a variety of consulting and inspection services that are not of the purview of licensed engineers. It further submitted that, since the licensing of engineers in Canada is a provincial matter, the Government of Canada, in issuing a tender, cannot restrict the provision of engineering services to licensed professionals and that, therefore, the services in the RFAP are properly subject to the requirements of the AIT.
25. The Tribunal examined the arguments advanced by DCC relative to paragraph 1(a) of Annex 502.1B to the AIT excluding from the disciplines of that agreement those services “. . . that may . . . only be provided by . . . licensed . . . engineers . . .” [emphasis added]. The Tribunal is of the opinion, however, that the RFAP did not mandate that the services in issue necessarily had to be provided by licensed engineers. The Tribunal remarks that no evidence on file could lead the Tribunal to conclude that they were of the exclusive purview of such professionals. Rather, the submissions made by Zenix’s principal, himself a professional engineer, were to the effect that the services in issue are not of the exclusive domain of the engineering profession. 10
26. Instead, as previously stated in its letter of January 12, 2007, the Tribunal reads paragraph 2.2.1 11 of the RFAP as simply requiring that any proposed resources be licensed or certified or otherwise authorized to provide certain professional services (or eligible for such licensing, certification or other authorization) to the extent that such certification is necessary in the provinces or territories in which a project is located. Consequently, if professional certification is not required to perform certain services because a province or a Territory has not regulated them as such, as the Tribunal has found here, then paragraph 2.2.1 of the RFAP is inoperative. Furthermore, the Tribunal found no provision in the RFAP that could have explicitly or implicitly indicated that the client department required licensed professionals only to deliver the services in issue or intended to limit their supply in such a manner.
27. In actual fact, by having concluded that Zenix’s bid was responsive, the Tribunal notes that the evaluators appear to have interpreted the RFAP and paragraph 2.2.1 in the manner in which they were intended to be interpreted. Indeed, it appears to the Tribunal that the evaluators correctly read the RFAP in accordance with the requirements that it contained. Nowhere is there evidence that the evaluators understood the RFAP as requiring that the services that were being sought needed to be provided by licensed professionals. In effect, the evaluators retained Zenix notwithstanding the fact that not all the members of its consultant team were licensed engineers. Also, nowhere in the RFAP was it required that any of the services in issue be rendered under the supervision of licensed engineers.
28. The Tribunal notes that the Notice of Proposed Procurement listed the services being procured as “Other Architect and Engineering Services” and “Inspection Services”. The AIT covers all services except those that are specifically excluded. The Tribunal notes that Annex 502.1b of the AIT does not exclude inspection services and that the RFAP would therefore be covered by the AIT on that basis alone, even if the services in issue could be classified as such. In addition, the Party issuing the tender is Canada, which has no applicable laws relative to services that may only be provided by licensed professional engineers. For these reasons, the Tribunal concluded that the services in issue in the RFAP are covered by the AIT.
29. With respect to whether the services in issue are covered by NAFTA, the Tribunal is not convinced that these services can, in part or in whole, be accurately described as “Other Architect and Engineering Services”. Rather, the Tribunal is of the view that the services being procured are more properly described as “Special Studies and Analysis – (not R&D)”, which are defined at Appendix 1001.1b-2-B of NAFTA as follows: “Procurement of special studies and analyses are organized, analytic assessments that provide insights for understanding complex issues or improving policy development or decision making. Output obtained in such acquisitions is a formal, structured document including data or other information that form the basis for conclusions or recommendations.” Indeed, the services in issue in this matter squarely fit in this definition.
30. In addition, it must be noted that such services are not “with reference to” any goods purchased by DND “which are not identified as subject to coverage” in the list of goods of Annex 1001.1b-1 of NAFTA. Indeed, the services in issue are simply services, in and of themselves, which are wholly unrelated to any “goods purchased by” DND whatsoever. Accordingly, Note 1 to Section B of Annex 1001.1b-2 of NAFTA is not applicable. Moreover, the particular type of “Special Studies and Analysis” in issue are not excluded under Section B of Annex 1001.1b-2 of NAFTA. 12 Consequently, the services in issue are subject to the disciplines of Chapter Ten of NAFTA.
POSITION OF THE PARTIES AND TRIBUNAL ANALYSIS
31. Subsection 30.14(1) of the CITT Act requires that, in conducting an inquiry, the Tribunal limit its considerations to the subject matter of the complaint. Furthermore, at the conclusion of the inquiry, the Tribunal must determine whether the complaint is valid on the basis of whether the procedures and other requirements prescribed in respect of the designated contract have been observed. Section 11 of the Regulations further provides that the Tribunal is required to determine whether the procurement was conducted in accordance with the applicable trade agreements, which, in this instance, are the AIT and NAFTA.
32. Article 506(6) of the AIT provides the following:
In evaluating tenders, a Party may take into account not only the submitted price but also quality, quantity, delivery, servicing, the capacity of the supplier to meet the requirements of the procurement and any other criteria directly related to the procurement that are consistent with Article 504. The tender documents shall clearly identify the requirements of the procurement, the criteria that will be used in the evaluation of bids and the methods of weighting and evaluating the criteria.
33. Article 1015(4)(d) of NAFTA reads as follows:
awards shall be made in accordance with the criteria and essential requirements specified in the tender documentation.
34. In the complaint, Zenix alleged that, even thought it obtained the highest overall score based on the technical proposal and the financial offer of services components, it “. . . was not provided a fair opportunity to negotiate with DCC and DND”. 13
35. In that respect, Zenix argued that, even though discussions took place after it was informed that it had ranked as the proponent having achieved the highest score, these discussions were more in the nature of an exchange of information and had never reached the status of actual negotiations. Zenix alleged that it was not provided with the budget amount and its limitation until November 23, 2006, when it was informed by DCC that its decision to negotiate with the second-ranked bidder was final. Furthermore, Zenix alleged that, during the exchange of e-mails that occurred between it and DCC, it was never informed that it had to perform the work within a specific budget. Zenix argued that the RFAP did not contain a set budget, but only the following words: “The estimated fee value is in the order of magnitude of $135 000.00”. Zenix submitted that it was never given the opportunity to perform the work within the available budget.
36. Zenix submitted that DCC did not undertake “good faith negotiations” with a view to reaching an agreement. Rather, Zenix argued that DCC requested certain information, but then never provided any feedback on the adequacy of the information that was provided, and then unilaterally ended the discussions. Zenix argued that the prerequisite for DCC to enter into negotiations with the second-highest-rated proponent, under the terms of paragraph 3.3 of the RFAP, was the failure of the negotiations, which never materialized. As a result, Zenix submitted that DCC failed to conduct the procurement in accordance with the terms of the RFAP.
37. In response, DCC argued that the selection process in the RFAP provided that it would enter into negotiations with the bidder whose proposal had the “highest overall score” based on an evaluation of its technical proposal and financial offer of services. It further argued that negotiations are used to determine whether “. . . an agreement on a maximum amount for services authorized by DCC . . .” could be reached. According to DCC, negotiations with Zenix failed, as the parties could not agree on a ceiling price for the work, so DCC entered into negotiations with the bidder submitting the second-highest overall score, as provided in the RFAP.
38. DCC submitted that it engaged in negotiations with Zenix in good faith by, for example, providing Zenix with a full and fair opportunity to adjust its proposed ceiling price to within DND’s budget. Furthermore, it argued that the facts reveal that DCC and DND were flexible as to the maximum ceiling price that DND could pay Zenix and that, while Zenix also showed some flexibility as to its proposed ceiling price, it was not sufficient to bridge the financial divide between the parties. DCC also argued that it terminated the negotiations because it had reasonably concluded that the parties were at an impasse. Regarding the budget limit, DCC submitted that Zenix knew that the contract had an estimated value of $135,000 and was aware of this fact even before it submitted its proposal. Furthermore, DCC submitted that, at the outset of the negotiations, Zenix was informed that its ceiling price “. . . was not within the available budget . . . .” 14
39. Article 506(6) of the AIT sets out the conditions under which bid evaluations must be performed and the considerations that a contracting authority can take into account when assessing bids submitted in response to an RFP. In that respect, it states that “. . . a Party may take into account not only the submitted price but also quality, quantity, delivery, servicing, the capacity of the supplier to meet the requirements of the procurement and any other criteria directly related to the procurement that are consistent with Article 504 . . . .” It also provides that the tender documents “. . . shall clearly identify the requirements of the procurement, the criteria that will be used in the evaluation of bids and the methods of weighting and evaluating the criteria.”
40. Paragraph 3.3 of the RFAP identified very clearly the process that was to be followed once the proponent with the highest overall score had been identified. Indeed, paragraph 3.3 established that a negotiation was to take place with such a proponent with a view to reaching an agreement on the terms of the contract, including an agreement on a maximum amount for services authorized by DCC. According to paragraph 3.3, it was only upon the failure of such negotiations that DCC would enter into negotiations with the next ranked proponent.
41. It was not contested that Zenix was the proponent that had achieved the highest overall score with respect to the technical offer of services component. Thus, in light of the circumstances of this case, the Tribunal must determine whether DCC entered into negotiations with Zenix within the meaning of paragraph 3.3 of the RFAP. In other words, the Tribunal must determine whether these negotiations had reached the point where they could have been considered has having failed, which would have allowed DCC to enter into negotiations with the second-ranked proponent. If DCC did not enter into negotiations with Zenix within the meaning of paragraph 3.3 or if the negotiations cannot be considered to have reached a point where they may have been said to have failed, it will mean that DCC had not respected the criteria and the methods of weighting and evaluating the criteria that should have been used in the evaluation of Zenix’s bid.
42. Zenix argued that negotiations did not take place. The Tribunal disagrees. Indeed, Zenix was informed, by telephone on August 30, 2006, that its proposal had received the highest overall score and, as stated by DCC, had been selected for negotiations. 15 It is clear from the language of paragraph 3.3 of the RFAP that what was to follow the bid evaluation stage was a negotiation stage in order to reach an agreement in respect of the terms and conditions of the contract, including “. . . an agreement on a maximum amount for services authorized by DCC . . . .” Therefore, the Tribunal believes that Zenix should have known that the so-called “discussions”, which involved various exchanges of information and requests for clarification, were part of such negotiations, as clearly stated in the RFAP. The Tribunal is of the view that the evidence demonstrates that these discussions, exchanges of information and requests for clarification all related to items that were central to the conclusion of a contract. A particular item was price. Efforts were made by both parties to revisit the financial aspects of the requirement and to discuss redundancies for the properties to be analyzed. In the Tribunal’s view, this constituted a negotiation.
43. Since the Tribunal is of the view that negotiations took place between the parties, the remaining question is whether or not they did in fact fail. In the Tribunal’s opinion, for a negotiation to take place, particularly one that is suppose to include an “. . . agreement on a maximum amount for services . . .”, there would have had to be a clear exchange of information as to the exact amount of that maximum amount for services. Although the Tribunal acknowledges that Zenix was aware that its proposal exceeded the estimated value of $135,000, 16 the evidence shows that the “Maximum Upset Amount” allowable within DND’s budget for the procurement had never been clearly communicated to Zenix until November 23, 2006, 17 which is approximately some 21 days after Zenix had been informed that DCC was entering into negotiations with the second-ranked proponent.
44. The evidence demonstrates that an initial price for services was submitted by Zenix. The evidence also indicates that Zenix modified its price offer shortly after the start of the negotiations as a result of an exchange of information regarding certain redundancies under the proposed contract. As a result of those discussions, the evidence shows that the initial difference between the estimated value of the contract and the initial price submitted by Zenix was significantly reduced. Further discussions took place concerning the inclusion of certain elements of cost in the second price submitted by Zenix, but the evidence then shows nothing significant happening after that point, except for inquiries from Zenix as to the status of the proposed contract. Finally, on November 2, 2006, DCC informed Zenix that it was initiating negotiations with the second-ranked proponent.
45. According to paragraph 3.3 of RFAP, the negotiations were to include “. . . an agreement on a maximum amount for services authorized by DCC . . . .” The Tribunal is of the view that DCC never clearly communicated to Zenix what constituted the maximum budgeted amount authorized by DND. The Tribunal is of the view that, if the negotiation were to lead to an agreement on a maximum amount for services authorized, it was reasonable to expect that either DCC or DND would have had to identify, during the course of the negotiations, the monetary limit of DND’s budget authority. It also seems logical in that context that, because there were no items of discord between parties other than price, the appropriate time for communicating the nature of any budget limitations would have been when the negotiations had reached an impasse on price. In the case at hand, DND never asked Zenix to meet a price, nor were any budget limitations ever communicated to Zenix.
46. The meaning of the term “negotiation” is not defined in the RFAP. The Tribunal considered the dictionary definition of the verb “to negotiate” found in the Canadian Oxford Dictionary 18 in which it is defined as “. . . to confer with others in order to reach a compromise or agreement . . . .” The Tribunal is of the view that negotiations involve a dynamic whereby parties exchange offers and counteroffers until a point where they reach either an agreement in respect of the object of the negotiations or a point where they conclude that have not reached an agreement. The concept of negotiation implies a communication between parties as to the items that are essential to reaching a compromise or an agreement. Negotiations are conducted within the limits that the parties set between themselves. In the case at hand, those limits, to the extent that they existed, were found in paragraph 3.3 of the RFAP. The only limit imposed on the negotiations in paragraph 3.3 was in respect of the moment where it could be determined that the negotiations had failed. According to the terms of that paragraph, it would only have been at that moment that DCC would have been authorized to enter into negotiations with the next ranked proponent.
47. There is nothing in the language of paragraph 3.3 of the RFAP that could directly or indirectly be construed as indicating that the negotiations would be conducted in a manner that is different from what can generally be understood to take place in the context of a commercial negotiation. Nothing in that paragraph indicated that, contrary to what would normally be expected in the context of a negotiation, DCC could unilaterally determine when the negotiations had reach the point of failure.
48. Unfortunately, this is what happened when DCC unilaterally terminated negotiations with Zenix and began negotiations with the next ranked proponent. 19 Contrary to what would have been reasonable to expect under the terms of paragraph 3.3 of the RFAP, DCC unreasonably decided that its negotiations with Zenix had reached an impasse on the issue of price, such that it meant that the negotiations had failed. DCC reached that conclusion before ever communicating to Zenix what constituted the maximum budgeted amount authorized by DND—the very object of the negotiations. Zenix was never given the opportunity to react to DCC’s conclusion on this very precise issue, i.e. having reached the point where they could not agree on price contrary to what could have reasonably been expected under the terms of paragraph 3.3.
49. In that context, the Tribunal is of the view that the criteria for evaluating Zenix’s proposal and the methods of weighting and evaluating the criteria contained in paragraph 3.3 of the RFAP required DCC to clearly indicate to Zenix that, in its view, the negotiation had reached an impasse on the maximum amount for services to be provided and on the opportunity to meet a price imposed by DND’s budget limitations. The Tribunal believes that it is only after communicating this information to Zenix and having sought a final response from Zenix in this regard that DCC could have reached the conclusion that the negotiations had failed.
50. Thus, the Tribunal concludes that DCC acted contrary to paragraph 3.3 of the RFAP by unilaterally concluding that the negotiations had failed and by entering into negotiations with the second-ranked proponent. In acting in that manner, DCC violated Article 506(6) of the AIT and Article 1015(4)(d) of NAFTA, in that it did not respect the criteria and the methods of weighting and evaluating the criteria prescribed in the RFAP.
REMEDY
51. Having found the complaint to be valid, the Tribunal must now recommend a suitable means of redressing the resultant harm caused to Zenix.
52. In this connection, the Tribunal is directed by subsections 30.15(3) and (4) of the CITT Act, which read as follows:
(3) The Tribunal shall, in recommending an appropriate remedy under subsection (2), consider all the circumstances relevant to the procurement of the goods or services to which the designated contract relates, including
(a) the seriousness of any deficiency in the procurement process found by the Tribunal;
(b) the degree to which the complainant and all other interested parties were prejudiced;
(c) the degree to which the integrity and efficiency of the competitive procurement system was prejudiced;
(d) whether the parties acted in good faith; and
(e) the extent to which the contract was performed.
(4) Subject to the regulations, the Tribunal may award to the complainant the reasonable costs incurred by the complainant in preparing a response to the solicitation for the designated contract.
53. The Tribunal is of the view that, if negotiations had indeed been properly conducted, Zenix would have been awarded the contract, as it was the proponent with the highest overall score. By unilaterally terminating the negotiations, DCC prejudiced the integrity and efficiency of the competitive procurement system, one of the key principles on which government contracts are to be awarded in accordance with the conditions set out in the tender documents. However, the evidence concerning the ground of complaint considered by the Tribunal does not indicate that DCC acted in bad faith.
54. In light of the seriousness of the breach that was made, a significant remedy is warranted. As such, the Tribunal recommends that Zenix be compensated by an amount equal to its lost profit.
Costs
55. In accordance with the Tribunal’s Guideline for Fixing Costs in Procurement Complaint Proceedings (the Guideline), the Tribunal awards Zenix its reasonable costs incurred in preparing and proceeding with the complaint.
56. The Guideline contemplates classification of the level of complexity of complaint cases based on three criteria: the complexity of the procurement; the complexity of the complaint; and the complexity of the complaint proceedings. The complexity of the procurement was medium, in that it involved a complex process of negotiations. The complexity of the complaint was medium, in that it dealt with a concept that was not defined in the procurement documents. Finally, the complexity of the complaint proceedings was medium, as two motions were filed, and the legislated time frame for the complaint proceedings was extended to 135 days. However, there was no intervener, and there was no need for a public hearing. Accordingly, the Tribunal is of the preliminary view that this complaint case has an overall complexity level corresponding to the medium level of complexity referred to in Appendix A of the Guideline (Level 2). As contemplated by the Guideline, the Tribunal’s preliminary indication of the amount of the cost award is $2,400. The Tribunal reserves jurisdiction to establish the final amount of the award.
DETERMINATION OF THE TRIBUNAL
57. Pursuant to subsection 30.14(2) of the CITT Act, the Tribunal determines that the complaint is valid.
58. Pursuant to subsections 30.15(2) and (3) of the CITT Act, the Tribunal recommends that DCC, on behalf of DND, compensate Zenix by an amount equal to the profit that it would reasonably have earned had it won, as the top-ranked bidder, this procurement.
59. Using this as the basis, the Tribunal recommends that the parties develop a joint proposal for compensation to be presented to the Tribunal within 30 days of the date of the publication of this determination. Should the parties be unable to agree on the amount of compensation, Zenix shall file with the Tribunal, within 40 days of the date of the publication of this determination, a submission on the issue of compensation. DCC will then have 7 working days after the receipt of Zenix’s submission to file a response. Zenix will then have 5 working days after the receipt of DCC’s reply submission to file any additional comments.
60. Pursuant to section 30.16 of the CITT Act, the Tribunal awards Zenix its reasonable costs incurred in preparing and proceeding with the complaint, which costs are to be paid by DCC. The Tribunal’s preliminary indication of the level of complexity for this complaint case is Level 2, and its preliminary indication of the amount of the cost award is $2,400. If any party disagrees with the preliminary indication of the level of complexity or the preliminary indication of the amount of the cost award, it may make submissions to the Tribunal, as contemplated by the Guideline. The Tribunal reserves jurisdiction to establish the final amount of the award.
1 . R.S.C. 1985 (4th Supp.), c. 47 [CITT Act].
2 . S.O.R./93-602 [Regulations].
3 . S.O.R./91-499.
4 . Canada’s electronic tendering service.
5 . 18 July 1994, C. Gaz. 1995.I.1323, online: Internal Trade Secretariat <http://www.ait-aci.ca/index_en/ait.htm> [AIT].
6 . North American Free Trade Agreement Between the Government of Canada, the Government of the United Mexican States and the Government of the United States of America, 17 December 1992, 1994 Can. T.S. No. 2 (entered into force 1 January 1994) [NAFTA].
7 . GIR, para. 105.
8 . See Re Complaint Filed by Symtron Systems Inc. (6 May 1997), PR-96-030 (CITT) at 3, aff’d [1999] 2 F.C. 514 at 537-39; see, also, Re Complaint Filed by Good Vibrations Engineering Ltd. (20 July 2004), PR-2004-020 (CITT).
9 . GIR, para. 78.
10 . Zenix’s letter dated December 27, 2006.
11 . Paragraph 2.2.1 of the RFAP reads as follows: “Consultant Team members and Key Personnel shall be, or eligible to be licensed, certified or otherwise authorized to provide the necessary professional services to the full extent that may be required by provincial or territorial law in the Provinces or Territories in which the project is located.”
12 . The Tribunal notes that, even if the services in issue could be qualified as “Architect and Engineering Services”, they would not fall under either of the two categories of excluded services of that type found under heading C of Section B of Annex 1001.1b-2 of NAFTA and would therefore be covered by Chapter Ten of NAFTA. Moreover, in the Tribunal’s view, such a finding would not alter its conclusions as to the applicability of the AIT, since it remains a fact that no laws of the Party issuing the tender, namely, Canada, regulate services that may only be provided by licensed professional engineers.
13 . Complaint at 6.
14 . GIR, paras. 91-95.
15 . GIR, paras. 17-18.
16 . Complaint at 7.
17 . Complaint at 7 and Tab 16.
18 . Second ed., s.v. “negotiate”.
19 . Reply to the GIR, para. 27.
