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Jun 2009 Angry Suppliers Get Expanded Remedies

Recessionary times push vendors, bidders, and contract managers alike. The number of bidders on each procurement rises dramatically, and everyone vigilantly watches each contract award. Any conflict of interest or unfairness in contract award leads to a serious dispute. Whether you work in the private or public sector, the pressures on contract managers are ramping up.

 

 PR-2008-017, A Complaint by Bluedrop Performance Learning Inc.

creates a powerful precedent for most contract awards in Canada (www.citt.gc.ca/procure/determin/pr2i017_e.asp). From the perspective of an angry supplier, this case explores a shocking conflict of interest situation and highlights key facts that trigger a victory for the supplier.

 

 More dramatically, this case describes expanded remedies that include termination of the incumbent contract, loss of an option to extend the incumbent term, and damages to the supplier for "loss of experience."

 

The Contract Award

In May 2008, Acron Capability Engineering Inc. was awarded a one-year training technology contract by Public Works and Government Services Canada (PWGSC). The contract paid Acron the sum of $1,611,958.00 for the year, with an option to extend for two additional one-year periods. Bluedrop Performance Learning Inc. was the second-lowest bidder, at $1,906,377.80.

 Based on the following facts, Bluedrop found the contract award grossly unfair, and it complained to the Canadian International Trade Tribunal (CITT):

PWGSC had issued two Requests for Proposal (RFPs), called RFP-1 and RFP-2.

A commanding officer at Canadian Forces Base (CFB) Gagetown had left military service after RFP-1 and joined Acron as its Vice-President of Strategic Initiatives.  

The former commanding officer's subordinates had had a direct role in drafting RFP-1, and he provided technical advice and an overview of the RFP-1 project.

The former commanding officer participated in a bidders' conference relating to RFP-1, as the Department of National Defence (DND) technical authority. He would have been the designated technical authority for any contract awarded from RFP-1.

Shortly after the former commanding officer's departure from the DND, RFP-1 was allowed to expire, without a contract having been awarded.

RFP-2, which was issued on January 31, 2008, was essentially a re-tendering of the DND's RFP-1 requirement.

Decision by the CITT

The CITT found that three obligations were unsatisfied. In short, the government should have disqualified Acron's bid proposal. This failure to disqualify Acron violated the terms of RFP-2, the common-law requirements of fairness, and the relevant trade agreements.

 

As a consequence of this failure by PWGSC, Bluedrop was wrongfully deprived of a contract to which it was entitled. While the CITT did not say that the events were an "outright orchestration of a particular result ... ," it did conclude that an "unfair advantage had been conferred upon a particular bidder, which could only serve to compromise the integrity of the procurement system."

Expanded Remedies for Conflict of Interest/Unfair Advantage

The expanded remedies included termination of the incumbent contract, loss of the option to extend the term, and damages for "loss of experience." The CITT decision provided that:

if possible, given operational needs, the incumbent vendor (Acron) was to lose the contract, and a new contract was to be awarded to Bluedrop. If that happened, Bluedrop had to be paid for loss of profits up to the date that it received the contract,

if the Acron contract was not terminated (for operational reasons), then Bluedrop had to be paid loss of profits for the entire term of the Acron contract, and the government was not allowed to exercise the option to extend the contract,

if the training requirements were subsequently re-tendered, then the government had to compensate Bluedrop for the "loss of the experience that Bluedrop would have gained and the related efficiencies that it would have realized in the course of performing the contracted work by adding an amount of $58,883.90 to the above recommendation," and 

finally, the CITT placed strict timing requirements on the federal government to negotiate the final compensation payment to Bluedrop: the parties had just 30 days to mutually agree on compensation. [Emphases added.]

Bluedrop received the contract from November 17, 2008 to March 31, 2009 and was paid $130,324.69 for the profit it would have earned if it had properly been awarded the contract on May 16, 2008.

Lesson for Contract Managers

This CITT ruling provides strong ammunition for vendor remedies. The Tribunal specifically refers to the common-law duty of fairness - the same obligation that applies to most contract awards in Canada.

 

This decision also provides sample calculations for vendors who claim damages for loss of experience and loss of profits.

 

Reprinted from The Legal Edge Issue 85, May - June 2009