NECI

When are Unacceptable Operational Risks Acceptable? – YBTJ #98

Eowynn — Tue, 01 May 2012 20:45:41 +0000

When is it acceptable under the trade agreements for a government entity to include trademark or other intellectual-property (IP) descriptors in its technical specifications for a procurement? And what jurisdiction does the Canadian International Trade Tribunal (CITT) hold to review a challenge to a procurement process that is launched by a company that did not participate in the procurement?

Test your understanding of these important procurement principles with the following fact pattern.

Enterasys Networks Canada launched a CITT challenge to three separate federal government solicitation processes for computer networking equipment – in particular, certain switches to be installed within an existing computer network. These procurement processes resulted in contract awards that clearly fell within the definition of “designated contracts” under section 30.1 of the Canadian International Trade Tribunal Act, and they were subject to the provisions of the North American Free Trade Agreement (NAFTA). On the prequalified bidders list, however, Enterasys did not submit a bid for any of the three procurements it challenged.

At the heart of the Enterasys complaint was the federal government’s use of trademark information to describe its requirements for the switches, in violation of Article 1007(3) of NAFTA, which provides that:

“each Party shall ensure that the technical specifications prescribed by its entities do not require or refer to a particular trademark or name, patent, design or type, specific origin or producer or supplier unless there is no sufficiently precise or intelligible way of otherwise describing the procurement requirements and provided that, in such cases, words such as ‘or equivalent’ are included in the tender document.”

The procurement processes challenged by Enterasys had specified the desired equipment by brand name or equivalent. Enterasys alleged that there was a sufficiently precise or intelligible way of describing the procurement requirements other than by brand name, so Public Works and Government Services Canada (PWGSC) was not entitled to specify its requirements by brand name. PWGSC argued the contrary.

The CITT upheld the Enterasys complaints as valid, and recommended partial compensation to Enterasys.

The federal government appealed the rulings. The first ground of appeal was that the CITT did not have jurisdiction to hear any challenge by Enterasys, because the company had not submitted a bid and, due to the timelines, could not have submitted one.

The second ground of the federal government’s appeal was that the Tribunal came to the incorrect conclusion on the issue of whether it was acceptable to specify a brand name by reference to trademark, under the circumstances. PWGSC had submitted evidence to the CITT that the use of a trademark in relation to the procurements in question was necessary to avoid an unacceptable operational risk because of product compatibility requirements.

Was Enterasys a “bidder or prospective bidder on a designated contract,” within the definition contained in the Act?

If so, and if the CITT did have jurisdiction, should the Tribunal’s substantiation of the Enterasys complaints have been upheld? To put it another way, does Article 1007(3) of NAFTA go so far as to require organizations to take unacceptable operational risks, in the interests of open and transparent competition? Which of these competing interests prevailed?

View the answer

Answer

First, the Federal Court of Appeal had to decide the preliminary issue of whether or not CITT had jurisdiction.

The Court accepted the Tribunal’s interpretation of section 30 of the Act, that it had statutory authority to hear complaints from a person who was eligible to bid (as Enterasys clearly was), but who was precluded from doing so by an aspect of the procurement process that is objectionable under the relevant trade agreement. In this case, that was NAFTA (the more contentious aspect of the Enterasys complaint).

Having accepted this interpretation, and after examining the written reasons provided in the CITT rulings, the Court concluded that nothing in the federal government requirements precluded Enterasys from submitting a bid. The CITT’s written reasons clearly showed that Enterasys had not established that additional information from PWGSC was required in order to permit bidders to submit responsive tenders for compliant equivalent bids.

Having found that PWGSC’s action did not preclude Enterasys from submitting a bid and possibly being awarded a contract, the Federal Court of Appeal concluded that the CITT had no jurisdiction to determine the complaints launched by Enterasys.

The Court of Appeal therefore quashed the Tribunal’s determinations and returned the matter to the CITT with a direction that the complaints by Enterasys be dismissed.

Interestingly, that was not the end of the matter. Although not necessary for resolving the applications, the Court of Appeal went on to consider the issue of whether it was acceptable for these government solicitations to describe the products to be procured by brand name/trademark.

The Court of Appeal found that, at the CITT hearings, PWGSC had provided “cogent and uncontradicted evidence” explaining the practical reasons for specifying brand names when procuring these products for installation within an existing computer network. In particular, PWGSC provided evidence that, when switches are to be installed and integrated into existing networks, whose integrity and reliability are essential to the host department or agency, failure of those switches to properly integrate into those networks could compromise those networks.

In declining to accept this evidence, the CITT had held that “practical/operational and/or general systemic considerations, such as the ones taken into account by PWGSC do not fall within the scope of the language set out in Article 1007(3), which provides for the use of brand name.” Accordingly, the CITT concluded that PWGSC’s conduct regarding these procurements was inconsistent with Article 1007(3).

In the judgment, the Federal Court of Appeal judge stated:

“I do not accept the proposition implicit in the decision of the majority that NAFTA Article 1007(3) necessarily requires the federal government to take unacceptable operational risks. It follows that the Tribunal, in determining whether a particular procurement may use a brand name specification, cannot disregard or discount as irrelevant evidence submitted by PWGSC in support of its position that the use of brand names in relation to a particular procurement was necessary to avoid an unacceptable operational risk.”

Having found that the CITT lacked jurisdiction to hear the Enterasys complaints, the Federal Court of Appeal allowed the Crown’s applications for judicial review, quashed the determination of the Tribunal, and referred the Enterasys complaints back to the Tribunal with the direction that they be dismissed for want of jurisdiction.

The Court did further comment that, had it concluded that the CITT had jurisdiction to determine the complaints, it would have concluded that the CITT determination in relation to the interpretation and application of Article 1007(3) was unreasonable.

This judgment is very helpful for all public-sector procurement professionals, as it clarifies many of the issues around Article 1007(3). Although what will constitute “cogent and uncontradicted evidence of unacceptable operational risks” will vary from procurement to procurement, we now have a clear judicial pronouncement that such evidence should be directly relevant in future Tribunal and court challenges.

There may be an argument that the Federal Court of Appeal has overstepped its own jurisdiction by re-interpreting the NAFTA provision, which ONLY allows for description by brand name if there is “no sufficiently precise or intelligible way of otherwise describing the procurement requirements.” Such a challenge, however, would have to be initiated by a NAFTA Investor against a NAFTA Party under the agreement provisions.

The Legal Edge – Issue 98

Eowynn — Mon, 30 Apr 2012 22:39:35 +0000

In this issue:

Substantial Compliance Revisited
University of Alberta Transforms RFPs from Reactive to Proactive
Familiar Plot Line, Different Twist
Frequently Asked Questions
Sustainability: Valid Business Objective, or Disguised “Local Preference”?
Preserving Flexibility at Coast Mountain Bus Company
The Small Print
Win 100 Issues of The Legal Edge!
When are Unacceptable Operational Risks Acceptable? – You be the Judge
Answer to You be the Judge: Enterasys Networks Canada v. Department of Public Works and Government Services Canada

CLICK HERE to view issue 98

April 2, 2012: NECI Announces RFP Drafting eSeminar Series

Eowynn — Mon, 02 Apr 2012 19:01:33 +0000

Join procurement law experts Mike Large, LLM, and Maureen Sullivan, LLB and President of NECI, for a 3-part eSeminar series discussing best practices for RFP drafting. These 1-hour eSeminars can be taken together, because they compliment one another, or selectively as no one session is required in order to understand the next. All 3 eSeminars have been approved for CPD credits with the Law Society of BC and are eligible towards professional development credits for most professional procurement designation programs.

Gerry Wilson, Annapolis Valley Regional School Board PSPP Graduate

Eowynn — Thu, 08 Mar 2012 17:42:37 +0000

Gerry Wilson completed the Public Sector Procurement Program (PSPP) in June 2011.

We spoke with Gerry about his participation in February, 2012.

Gerry’s department is responsible for all procurement of goods and services for the Annapolis Valley Regional School Board. This includes everything from stationary to large-dollar renovation projects. He has been with the school board for 8 years and before that, worked for the Department of National Defence in purchasing.

The PSPP appealed to Gerry as it allows staff in his organization to get training that is particularly relevant to those working in Atlantic Canada. The program includes localized content which was previously lacking in other available offerings. Gerry feels that provincially, and across the Atlantic Provinces, this program allows standardization and brings consistency. He was also attracted by the Canadian content and the focus on public sector policies and procedures as they differ from private sector.

Gerry finds the material and course delivery format spot on – the program touches everything and does it right. It includes online, in-class, and resource material that culminate in a very effective program. The instructors are informed, and have the added expertise of legal backgrounds and procurement experience – a huge asset. He really enjoyed the introductory online modules in PSPP 101: Introduction to Public Sector Procurement and once used to the technology, found PSPP 301: Procurement Practice – Putting it all Together fun and engaging. Gerry thought the program was well designed and was impressed that even on the first run; there were no bugs to work out.

Throughout the program, Gerry found opportunities to re-emphasize what his organization is doing is right, look at different techniques and try out new methods and models. Every session he was able to pick up something new from networking with instructors and classmates. Even after the courses, many classmates have stayed in touch, transferring reference material and asking/answering questions. Personally, Gerry has gone back and referred to the reference manual many times.

Overall, Gerry rates the program at 10 out of 10 with this comment to summarize:

“10 and I tell you I don’t give out 10 very often. It’s an awesome program!”

The Legal Edge – Issue 97

Eowynn — Tue, 28 Feb 2012 19:08:10 +0000

In this issue:

Poor Evaluation Process Costs Federal Government More Than $100,000
Checklist: 18 Things to Do to Manage Copyright Now
Winter Trips … and Falls
Are Restrictive Covenants Enforceable After Wrongful Dismissal?
Frequently Asked Questions
Balancing Optimum Service Levels in Your Service Level Agreements
Market Sounding for Interactive Whiteboards in Newfoundland
When is a Discretion Clause Not Discretionary?– You be the Judge
Win 100 Issues of The Legal Edge!

CLICK HERE to view issue 97