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Canada Free Trade Agreement Implications

FREQUENTLY ASKED QUESTIONS

CFTA Implications

by Lise Patry, B.A.Sc., LLB, ICD.D

Will the Canadian Free Trade Agreement that came into effect July 1 impact my ability to engage with GPOs?

Thanks for this interesting question. It will come as good news to many that in fact the CFTA provisions clarify rules around the use of buying groups

Under the AIT, we only see a reference to buying groups in the Annexes applicable to Crown corporations and MASH sector entities. Covered entities wishing to purchase through buying groups must ensure the activities of the buying groups are carried out in a “manner consistent with this Annex”.

In the CFTA, the buying group provisions apply to all covered entities and additional rules have been added. Covered entities purchasing through buying groups:

  • no longer have to ensure the procurement is consistent with the CFTA if they have little or no control over the procurement process; and
  • must publish a notice of participation with the buying group at least annually on their tendering website. The notice must direct potential suppliers to the buying group tender notices website if it is different than the tendering website used by the covered entity.

Lise Patry, an instructor with NECI, is a lawyer and former business executive with a strong background in technology and more than 20 years of business and legal experience in the public and private sectors. As principal of Patry Law, in addition to general law, she offers virtual counsel services and specialized expertise in contracts, licensing, government procurement and corporate governance. She can be reached in Ottawa at (613) 730-5959 or [email protected]. This article originally appeared as a series of blog posts in September 2016 at patrylaw.ca. It has been adapted and is used by permission.

Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case. For any particular legal problem, seek advice directly from your lawyer or in-house counsel. All dates, contact information and website addresses were current at the time of original publication.

National Education Consulting Inc.

Phone: (250) 370-0041     Toll Free: (888) 990-7267

[email protected]

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BC AGLG Flags Management of Vendor Performance

The Auditor General for Local Government in BC has published a series of booklets designed to help improve government performance and complement its performance audit reports.   Although specifically targeted to local government in BC, these booklets provide a wealth of information, templates and suggestions that can help guide any Canadian public sector organization.

In a January 2016 publication the AGLG highlights vendor performance management as one of three topics to improve achieving value for money in operational procurement. It discusses key elements of a vendor performance management framework, best practices in managing vendor performance and includes a number of templates that can be adapted for use by any organization. The full document can be accessed at https://www.aglg.ca/app/uploads/sites/26/2017/04/Perspectives-T1-T1-PDF.pdf.

This important report complements PSPP 203 – Managing and Evaluating Contract Performance – and augments many of the examples and templates we cover in that course. As an organization that works with public sector right across the country, we see repeated examples of major procurement and contract mishaps related to incomplete or inadequate vendor performance evaluation. Users and business clients become frustrated when the procurement department ‘continues to engage the poor performers’. Yet the procurement department is not provided with enough (or any) information about performance issues to solve this problem. Outstanding vendors see the less than stellar performers continue to be awarded contracts, so they are de-motivated to keep up their own performance standards. All contract performance then slips to the lowest common denominator, further frustrating the users and eroding value for money from government spending. And as we know, terminating a contractor without adequate performance documentation can lead to expensive and protracted lawsuits, unwanted publicity and consumption of valuable resources that could best be directed elsewhere.

If any of this is starting to sound familiar, you or your staff may want to join us online, starting June 26, for a cross-country cohort in <PSPP 203>. (link to 203 reg for june 26 session)   Spanning four weeks, this course takes approximately 3 hours of time per week, and delves into many detailed examples, illustrations and best practices related to this important aspect of the procurement and contract management cycle. The analogy that we often use is that if the RFX process is the ‘wedding’, then the contract management process is the ‘marriage’ – that’s where the hard work really takes place! Determining how performance will be measured and managed must be thought about in the planning stage, carefully described in the RFX and resulting contract, and then implemented as contract performance unfolds.

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Pump Procurement Prompts Protest – You Be the Judge

On March 15, 2015, PWGS issued a solicitation for multiple frigate pumps on behalf of the Department of National Defence, with a closing date of May 15, 2015. Springcrest Inc. submitted its bid by the deadline and was informed in August that the bid was responsive, but that PWGS had decided to cancel the solicitation and re-issue it with modifications.

On May 17, 2016, PWGS again issued a solicitation on behalf of the DND for the pumps, and included a modification requiring that the pumps be shock tested prior to bid submissions. The original deadline was set for June 27, but was eventually amended to September 30, 2016. On May 26, Springcrest submitted an objection to PWGS asking that the modified requirement be removed, since it was impossible for any manufacturer to meet that requirement. Upon the next extension of the deadline, that requirement was not removed.

In July, Springcrest then asked PWGS if the original equipment manufacturer (“OEM”) was also required to provide certification of shock testing on its pumps. Four days later, the PWGS issued an amendment to the solicitation stating that if the OEM offered a motor different from the original pump, then the OEM must provide shock testing certification; if the motor was the same, the OEM did not have to meet this requirement.

On that same day, Springcrest made a formal complaint to the CITT on two issues: (1) the terms of the RFP were biased in favour of the original equipment manufacturer; and (2) the timing of events in the solicitation process made it impossible for suppliers of equivalent products to meet the process’ requirements. Specifically, there was insufficient time given to bidders to obtain a shock testing certification, meaning that only OEM suppliers with prior certification could apply. Springcrest further submitted that standard industry practice is to perform a shock test on the first pump a manufacturer produces, meaning that it would take a manufacturer approximately a year to be in a position to provide this certificate. When Springcrest filed its complaint, there were only 62 days between bid issuance and the deadline.

Springcrest further argued that if OEM suppliers were not required to provide shock testing certification, the terms of the solicitation were discriminatory as they precluded, in effect, non-OEM suppliers from bidding. The requirement, according to Springcrest, was also contrary to industry standard and previous DND practice: generally, shock testing is done after contracts are awarded rather than before a bid deadline date. Springcrest also submitted that no pumps were currently available that could meet the specification, as the manufacturer of the motors used in the original pump assemblies was no longer in business, and that no company currently owns the rights to make them.

PWGS submitted that requiring shock testing certification at bid closing was not discriminatory because it was part of the government’s legitimate operation. Further, the pumps were urgently needed by the DND in order to service the Halifax class frigates of the Royal Canadian Navy, which does not currently have sufficient working spare pumps in order to fill their demand. Thus the certification was required in order to procure pumps without further delay, as allowing bidders to get the certification after would delay the Navy getting the pumps by several months. PWGS also submitted that generally governments do require this certification at bid closing, despite what Springcrest had submitted. PWGS did submit evidence agreeing with Springcrest’s assertion that it could take a company a year to get shock testing certification.

This agreement was governed by the Agreement on Internal Trade (AIT) and by the Canadian International Trade Tribunal Procurement Inquiry Regulations (Regulations). The Tribunal also consulted Article 1007 of NAFTA and Article X of the AGP, which provide that technical specifications should not be drafted in certain prescribed ways that favour a particular supplier or suppliers. Do you think Springcrest’s complaints are valid? If yes, what remedy would you grant, with reference to subsection 30.15(3) of the CITT Act?

Answer

In Springcrest Inc v Department of PWGSC PR-2016-021 the CITT ruled the complaint was valid, recommended that the DPWGS cancel the existing solicitation and issue a new one, and awarded Springcrest its costs.

First, the Tribunal considered whether Springcrest’s assertion that the amended solicitation was discriminatory, and accepted that the DND had legitimate operational requirements leading to them seeking the pumps without further delay, such as that caused by shock testing certification. Moreover, Springcrest’s evidence did not indicate that PWGS deliberately sought to be discriminatory in excluding suppliers of equivalent products, or of favouring the OEM supplier. Rather, the evidence suggests this was inadvertent. Thus the CITT ruled that this ground of complaint was invalid.

The Tribunal next considered Springcrest’s second complaint, which was that the timing of the events in the process made it impossible for non–OEM suppliers to meet the amended bid’s requirements. Both parties agreed that it could take up to a year to manufacture pumps and have them be shock tested. Thus the CITT found that the timing did have the effect of discriminating against non–OEM manufacturers and that PWGS should have allowed for more time, in the interests of fair competition. Accordingly, this ground of complaint was found to be valid.

Springcrest requested a remedy either of amending the solicitation to remove the shock testing certification requirement, or of re-issuing the solicitation without that requirement. Since the bid period had closed by the time of the CITT ruling, Springcrest’s first suggestion for a remedy was not feasible. The CITT thus ruled that PWGS must cancel the existing solicitation and issue a new one which either removes the contested requirement or allow suppliers sufficient time to provide shock testing certificates before bid closing. Springcrest was also awarded its costs.

Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case. For any particular legal problem, seek advice directly from your lawyer or in-house counsel. All dates, contact information and website addresses were current at the time of original publication.

National Education Consulting Inc.

Phone: (250) 370-0041     Toll Free: (888) 990-7267

[email protected]

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Dodging Defensible Documents Decried

While Canadian procurement is rooted in our unique legal structure, we are among many jurisdictions in the world that ascribe to fair, open and transparent competitive procurement processes. As we know, organizations that follow these guidelines tend to get better value and attract more sophisticated respondents while fully demonstrating the unbiased nature of their contract award decisions. In the public sector this translates into demonstrating effective stewardship of public funds, which in turn bolsters taxpayer confidence.

A recent decision out of the UK highlights the international attention to fairness in procurement. Energysolutions EU Ltd. v Nuclear Decommissioning Authority [2016] EWHC 1988 (TCC) outlines a myriad of fairness complaints lodged by an unsuccessful bidder to a procurement for the decommissioning of 12 different nuclear facilities in the UK. Among other arguments, the claimant Energysolutions (‘ES’) alleged:

  • Acceptance of a non-compliant bid from Cavendish Fluor Partnership (‘CPF’), the entity who was ultimately awarded the contract;
  • Manipulation of the evaluation process to ensure CPF success;
  • Seeking clarification differently with respect to some bidders;
  • Providing inaccurate or incomplete information to ES during debriefing; and
  • Deliberately limiting the permanent records of the evaluation process to thwart any potential challengers to the process.

The complaint was not filed within the time limit for suspending the contract award decision, which meant that ES was limited to only a claim for damages. They estimated their losses to be £100 million (roughly CDN$165 million).

As one of the largest contracts ever tendered by the UK government with a procurement process spanning nearly two years, the final decision by the High Court understandably includes a long and complex analysis. For the purposes of this article, we will focus on the final challenge, which related to the government’s insufficient record-keeping.

The evidence presented at the lengthy trial shows that the government was acutely aware that an unsuccessful bidder might initiate a challenge to the contract award decision, and pro-actively and deliberately directed staff to limit or destroy documentation that might be detrimental to its case. This defensive approach included restricting evaluators’ note-taking, possibly destroying contemporaneous notes, and issuing directives to “consider shredding documents” that could damage their position should the matter proceed to litigation.

The credibility of the government became an issue early on in the proceedings, as they failed to produce witnesses to provide evidence on key points, and, in the words of the judge, the witnesses that did appear “suffered from what, on occasion, bordered on an almost obstinate refusal to accept that any mistakes or errors had been made at all.” Pivotal to the Court’s finding of liability against the government was evidence of deliberate attempts to avoid scrutiny by unsuccessful bidders and to subvert the procurement rules that required an open and transparent process.

Damages payable to ES will be assessed in a separate proceeding, but we can assume they will be in the range of several hundreds of millions of dollars – certainly not an effective use of tax dollars.

While this is a particularly egregious example of deliberately sabotaging principles of transparency, it serves as a cautionary tale for all procurement professionals. Had the UK government spent as much time and energy ensuring the process was conducted fairly – rather than redirecting those resources to limiting documentation that could support a potential challenge – the outcome would have likely been entirely different. A well-designed process with skilled and highly trained evaluators, coupled with rigor and discipline throughout the evaluation documentation process, would have provided a complete defence to any potential challenge. Instead, the UK government has taken a huge hit to its credibility, wasted potentially millions of taxpayer dollars and become embroiled in highly contentious and public litigation.

This case serves as a stark reminder of one of the key principles of our Canadian legal system: ‘justice must not only be done, it must be seen to be done.’ As we have seen in other, less egregious cases, it is not enough that the evaluators acted fairly and transparently: the procuring entity must be able to prove such conduct through proper and complete documentation of its process. We often receive questions about how much documentation should be retained through the procurement evaluation process, and our answer is always more rather than less. Retaining the absolute minimum required by legislation and/or policy is not always an effective approach to risk mitigation when it comes to procurement challenges in this litigious era.

Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case. For any particular legal problem, seek advice directly from your lawyer or in-house counsel. All dates, contact information and website addresses were current at the time of original publication

National Education Consulting Inc.

Phone: (250) 370-0041     Toll Free: (888) 990-7267

[email protected]

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Senior Executives Must Know Risks of Sole Sourcing

Under pressure to produce results, senior executives in government or private-sector organizations are often seduced by the apparent speed of sole-source contracting.              

In limited situations, sole-source contracts can indeed provide results. But that attitude can be dangerous, especially with complex deals and multiple parties.

Bond Development Corporation v. Esquimalt (Township) [2006], B.C.J. No. 1101 (B.C. Court of Appeal) is a cautionary tale for senior executives: don’t give up the serious benefits of competitive contracting without clearly understanding the risk/reward trade-off. 

Decision to Use Sole Source

In March 2001, Esquimalt wanted to develop a town centre to include a new city hall and public library. It also wanted to encourage the construction of commercial retail premises in the area. Instead of a public tender, the Chief Administrative Officer invited an experienced real estate developer, Bond Development Corporation to develop a proposal. Over an eight-month period, the parties had meetings to settle the design and quality of the building to be constructed, and the compensation to be paid to Bond. To assist in these discussions, Bond hired an architect who provided design drawings, a building contractor who prepared cost estimates, and a structural engineering firm that provided advice.             

In October 2001, the two parties signed a formal contract. Esquimalt agreed to pay a maximum of $4.06 million for a town centre building of 20,000 square feet. Esquimalt would pay part of the price in cash, and the balance paid by Bond’s receipt of the title to the land where the old city hall was located (known as the “CRB site”). 

Tips for Senior Executives: Don’t confuse meetings with making progress – especially for complex projects. Getting the sole-source contractor in early (the development proposal) is NOT always faster and more efficient than public tendering. It took eight months of discussions before Esquimalt and Bond signed their initial agreement. In contrast, eight months should deliver real progress on most public tenders.              

What about the cost? Since Bond was paying the fees for the architect, contractor and engineering consultants, the development process initially seemed to be low cost. It wasn’t. Ultimately, Esquimalt paid a far higher price.  

Negotiating Price and Quality

The October 2001 agreement did not settle the terms of price and quality. Clause 3.8 dealt with quality by saying that the town centre would be built “… substantially to the performance standards of the British Columbia Buildings Corporation for government offices … ” To assist the parties, Clause 3.8 identified two local buildings as “illustrations of the quality and finish” that was intended. Since the parties could not agree on the value of the CRB site, they decided to engage separate appraisers to estimate the value of the site, and then to average the two appraisals to fix the value of the property.             

The parties spent another seven months trying to reach agreement on extent and quality of the work to be done, and the value of the CRB site. After 15 months of negotiations, the end result was that the parties walked away from the contract. 

Tips for Senior Executives: Competitive bidding imposes a discipline on your organization, and provides a familiar process for most players. For example, the tendering method forces your organization to deal with the design and quality of the building to be constructed, and the price to be paid. Normally, your organization will hire its own architect and/or consulting engineer to prepare the detailed plans for the building. Then, the tendering process will distribute these plans to the contracting community, and tender bids will provide you with competitive pricing.  

Collapse of Contract Discussions

After the talks broke off with Bond, Esquimalt contacted the architect and the contractor previously hired by Bond, and built the town centre without Bond’s participation (at a higher price than $4.06 million). But this created a serious legal problem. In Bond’s view, Esquimalt had benefitted from the development services that Bond had provided, from the design its architect had provided, and from the cost estimates its contractor had provided. Bond sued to recover the value of those services.             

In April 2004, the B.C. Supreme Court found that Bond had done valuable work for Esquimalt, and that the work went beyond the usual level of preparation to make a tender bid or proposal. The trial Judge awarded Bond $222,658 plus court costs, based on the legal doctrine of quantum meruit – essentially “reasonable value for services.”             

In January 2006, the B.C. Court of Appeal not only upheld the damage award, but increased it. The Court of Appeal directed the trial Judge to compensate Bond for its efforts during an earlier stage of the “development proposal” process. 

Tips for Senior Executives: Sole sourcing means that your organization has given up huge negotiation leverage. In effect, the invited contractor has been given a favoured position – before you reach agreement on quality and price. Even worse, you are dependent upon the invited contractor; you don’t have a backup contractor who is ready and willing to do the job at a fixed price. A competitive bidding process (i.e., tendering or an RFP) maintains your negotiation leverage. If discussions with the preferred bidder break down, then you can go to the second-ranked bidder, and probably get your deal at his price.

Reprinted from The Legal Edge Issue 69, November 2006

Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case. For any particular legal problem, seek advice directly from your lawyer or in-house counsel. All dates, contact information and website addresses were current at the time of original publication.

 

 

 

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Procurement Governance 101 – Mind the Gaps!

by Lise Patry, ba sc (chem eng), llb, icd.d, Patry Law

I recently spoke at a legal seminar on “Mastering Public Procurement,” a session organized by lawyers for lawyers. A lot of information was presented on the state of the law in public procurement, along with discussions on new and not-so-new topics of interest.   

I took a different approach to the discussion.                   

Having led the transformation of a public procurement function from an arm’s-length transactional model to a client-focused, integrated model in my previous role as head of a procurement department, my interest has primarily been on setting up structures to manage procurement risk rather than react to procurement case law on a case-by-case basis. Less time spent analyzing case law, more time spent on avoiding becoming case law.

Public-sector buyers in breach of their procurement obligations face a firing squad of attacks. Aggrieved bidders have a candy store of options available to them to challenge the government buyer. Bidders suing federal public-sector buyers can file concurrent claims in provincial court, the Federal Court of Canada, and the Canadian International Trade Tribunal. There are at least four types of claims that can be brought against a federal public-sector buyer.

A bidder can:

  • seek an interlocutory injunction to stop the process or award of contract in its tracks,
  • claim remedies for breach of a trade agreement,
  • seek remedies via a judicial review application, and
  • claim monetary damages for breach of common-law duties.It doesn’t end there.                              
  • A strong procurement governance framework helps avoid these problems before they arise. Every in-house lawyer and procurement officer should understand how their governance framework measures against best practices and relentlessly strive to ensure that it is as strong as it can be.
  • Apart from being highly visible and public, this negative media attention, legal claims and outsider questions can be expensive and time-consuming to manage and will definitely affect corporate reputation. In addition, and most importantly, bidder claims can delay the purchase of goods and services essential for meeting operational objectives.
  • Bidder legal claims are often accompanied by lobbying efforts designed to create public pressure on the organization and senior management. A kitchen-sink approach is not uncommon. An aggressive bidder armed with their version of events will approach journalists looking for a story, politicians who want to embarrass the current government, an auditor-general who may want to conduct a review, a board chairperson who may want to take directive action over management, and anyone else who might have an interest in following up on the bidder’s allegations of wrongdoing                

Minding the gaps of procurement governance

How can you tell if your organization’s procurement governance framework is strong? Perform a gap analysis. Measure your existing framework against a benchmark. To do this, you need to find a good benchmark or develop your own benchmark.             

There are many off-the-shelf procurement governance models that can be used for benchmarking purposes. However, these are usually too detailed to be used as a quick gap analysis and doing so may make your initial gap analysis feel daunting.             

The benchmark used for our procurement transformation project was developed after careful study of current procurement governance best practices and supplemented with a group session during which we ultimately defined our own benchmark for the procurement function.             

The study considered a number of things, including the Office of the Auditor General of Canada’s 2007 report on Crown corporate governance, the 2005 Bellamy inquiry report, reports of the Office of the Procurement Ombudsman, practices of peer Crown corporations, and various procurement law texts and publications.             

In simplified form, this article refines the benchmark created by my team into 10 areas of focus.

  1. Procurement Policy and Procedures

This is your accountability framework. Every organization should be governed by a policy that’s supported by procedures and other administrative documents such as guidelines, instructions or directives. They should define roles, responsibilities, and accountabilities of all involved and include approval thresholds for procurements and contracts.

The accountability framework should also cover ethical considerations and address how conflicts of interest should be managed. Procedures should allow for flexibility in decision making, which normally means allowing for risk-based decisions. Significant risk-based decisions should require senior executive or Board involvement.             

The final package of policy and procedures should be organized into a single contracting manual that is published internally and accessible to all.             

The benefit: Clarity of roles and responsibilities helps avoid internal conflicts among staff involved in procurement (which is often present among internal clients and procurement officers) and ensures that accountability for decisions is placed on the right people and at the right level.

  1. Templates

Procurement templates are legal documents, but it’s important to keep in mind that they are mostly used by non-lawyers such as procurement staff, internal clients, and vendors. Because non-lawyers are working with these documents, it’s very important that they be user-friendly and consistent.             

Draft them in plain English and maximize the use of a fill-in-the-blanks approach. This makes information easier to find, the documents are easier to read, and it minimizes problems associated with non-lawyers drafting legal documents. The documents should have a consistent look and feel and use the same terminology across the suite of templates, to promote clarity and ease of reading.             

Consider adopting a tiered set of templates, with one tier comprised of simplified templates to be used for low-value, low-risk purchases. The longer, more comprehensive templates would be used for high-value, high-risk procurements.             

The benefit: A strong suite of templates will make procurement easier for everyone, and should lower both transaction costs and procurement risks. 

  1. Procurement Planning Process

Ensure that an explicit annual procurement planning process is in place and aligned with the corporate/budget planning cycle.             

As part of the annual planning exercise, managers should list what goods and services they will need to procure in the upcoming fiscal year and consult with the procurement team on the estimated amount of time each procurement will take.             

The benefit: Planning helps avoid time pressures in the solicitation process, which are often at the root of legal problems

  1. Trained Procurement Staff

All procurement staff should possess a solid understanding of procurement law, but technical knowledge of procurement is not enough. Procurement staff also need to be skilled communicators and negotiators.             

As the organization’s custodians of the fundamental aim to be “open, fair and transparent” in all procurements, procurement officers’ goals are often perceived to run counter to the internal client’s goal of meeting operational objectives. This provides fertile ground for internal conflict and mistrust between the two groups. Procurement officers need to be able to effectively manage this perceived conflict and stand their ground with tact – but they should also not be afraid to escalate matters as, appropriate.             

Onboarding all new procurement staff is also critical. No matter how technically strong or tactful the procurement officer, if they do not understand the organization’s governance framework and approach to risk, they will not be effective.             

The benefit: Strong procurement staff equipped with the right knowledge, technical skills, and ‘soft’ skills promotes the right balance between operational objectives and procurement risks.

  1. Trained Internal Clients 

All managers should receive basic training on the principles, processes, procurement timelines, and their own accountabilities when procuring goods and services. Otherwise, there’s a risk that managers will prioritize operational objectives over the proper balancing of procurement risks, which can spell disaster for an organization.             

Without a good understanding of procurement, managers (and the employees who report to them) may grow to resent the procurement staff for insisting on following what may be perceived as bureaucratic steps in the procurement process. This type of misalignment between procurement and internal clients can significantly raise the risk of problems in any solicitation.             

The benefit: Creating an effective balance between the pursuit of operational objectives and respect for the inherent risks of procurement.

  1. The Three-Party Negotiation Team, A.K.A., the “TNT”

“TNT” stands for the “three-party negotiation team,” which is a team consisting of:

  1. the internal business client,
  2. the procurement officer, and
  3. legal counsel.        

During our transformation project, TNT came to be the code word for the cross-functional project team that is assigned to each solicitation. This team is responsible for developing the documents, ensuring that the project plan for the solicitation is adhered to, supporting corporate decision-making, and minimizing procurement risks.             

The procedures should contemplate the appointment of a TNT to support procurement initiatives, as well as a protocol for escalating issues that can not be resolved by the team.             

The benefit: When the TNT is working well, the procurement is completed on time, and the right balance is struck between meeting operational objectives and managing procurement risks.

  1. Performance Management Program 

The procurement team should establish KPIs – Key Performance Indicators. This could take many forms and include client satisfaction metrics, or the number of supplier objections. It depends how a particular procurement department defines success.             

Performance results should be measured and reported every year, and annual plans should address deficiencies.             

The benefit: A focus on sustained high performance of the entire procurement team ensures that the team is working together toward common goals. This should increase overall team performance and internal client satisfaction, with the side benefit of reducing risk.

  1. Commitment to Continuous Improvement

Procurement is in a constant state of evolution.             

This statement gets raised eyebrows, but it’s true for some entities, as shown in the reports of the federal Office of the Procurement Ombudsman every year. There is always something new to keep in mind as you consider your next steps in enhancing procurement governance.             

Your procurement governance framework should incorporate an annual review process that considers environmental changes in procurement law, as well as best practices. An annual update ensures that the organization remains aware of any new gaps in its governance framework, and helps pinpoint higher-risk gaps – which in turn helps prioritize ongoing work on the framework. An annual review shouldn’t take long and will pay big dividends in the long run.             

The benefit: A formal commitment to continuous improvement ensures that the governance framework is current, and that resources are being invested to address the highest-priority gaps. 

  1. Change Management Procedures

Maintaining a performance management program and a commitment to continuous improvement will require an adaptability to changes in the governance framework.             

Effectively implementing a change in your governance framework is not to be taken lightly. If a change affects people beyond the procurement team, involve those people in your discussions early, to avoid the risk of resistance and wasted efforts.             

Changes should be planned over a period of time, rather than made all at once or in an ad hoc, unpredictable manner. Establish a regular schedule for changes, such as the first week of each month or quarter. Communicate the schedule of changes widely in the appropriate channels for your organization.             

Document the process so that it is done consistently and internal stakeholders know what to expect. For important changes, train internal clients in one-on-one, group or video training modules.             

The benefit: An effective change management procedure ensures buy-in, enhances compliance and supports the goal of minimizing procurement risks.

  1. Executive Leader Accountable for Procurement 

The manager cares about meeting corporate objectives, and the procurement officer cares about following the process and managing risk. These goals sometimes clash and lead to internal conflict and escalation – of stress levels and, ultimately, issues brought to the senior management table.             

If there isn’t an executive at the senior management table who is accountable for managing procurement risk, it is likely that operational interests will play a greater role in decision-making, which could increase procurement risks and problems.             

The benefit: Having a balance between operational and procurement considerations at the senior management table is critical to ensure that procurement risks are managed appropriately and effectively.

The above areas of focus for a high-level gap analysis are generic enough to be used by any organization. Once the analysis is done, major gaps in the procurement governance framework can be identified, and the bigger areas of risk should be apparent. This increased understanding of the critical gaps should pave the way toward a stronger procurement governance framework and decrease risks of bidder claims and all that entails. 

Lise Patry is a lawyer and former business executive with a strong background in technology and more than 20 years of business and legal experience in the public and private sectors. As principal of Patry Law, in addition to general law, she offers virtual counsel services and specialized expertise in contracts, licensing, government procurement and corporate governance. She can be reached in Ottawa at (613) 730-5959 or [email protected]. This article originally appeared May 9, 2016 at patrylaw.ca in Government Procurement/Bidding and Tendering. It has been edited for style and is used by permission.

Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case. For any particular legal problem, seek advice directly from your lawyer or in-house counsel. All dates, contact information and website addresses were current at the time of original publication.

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Municipality Unfair in Sale of Property? You Be The Judge.

Test your understanding of fairness in this recent case from Nova Scotia.

In 2012, the Halifax Regional Municipality (HRM) issued an RFP for the purchase and redevelopment of a surplus elementary school property. Jono Developments Ltd. and several community groups submitted proposals. There is evidence that the HRM closely followed the terms of the evaluation process laid out in the RFP, which allocated 20 percent of the weighting to the financial offer. Following evaluations, the HRM approved sale of the property to Jono.

Around the time the sale to Jono was approved, the community groups discovered that the HRM had passed a “Policy and Procedure for Disposal of Surplus Schools” in 2000. Among other steps, the HRM was required under the policy to first assess and evaluate any proposals from community groups or grant applications and, if none were received or none were supported by the Community Grants and Partnering Program under the HRM, then the HRM was to take steps to seek Council approval to put the property on the market.

Compelling evidence was presented that the HRM had not tested the policy since its inception, and in fact was not aware that it even existed until challenged by the community groups following the approval of the sale to Jono. When the HRM became aware of the policy, which clearly had not been followed in this instance (or in any of the previous disposals of 18 other surplus school properties), the HRM rescinded its decision to sell to Jono, made a motion to rescind the policy and, then, passed a third motion to sell the property to Jono.

The HRM was also enabled under its Municipal Charter to “sell property at market value when the property is no longer required.” The appraised value of the property was listed in the RFP as $4.3 million, based on a valuation report that provided three scenarios:

  • Market value of property as is: $1 million
  • Prospective market value – maintain old school/redevelop remainder: $3 million
  • Prospective market value – demolish all buildings and redevelop: $4.3 million

Jono had submitted an unconditional financial offer of $3 million for the property “as is,” to be increased by increments of $75,000 over the highest bid to a maximum of $4 million. In other words, Jono offered to pay $3 million if there were no competing bids, and up to $4 million if there were. Jono also provided a slightly higher option that was conditional on certain development approvals. 2 Several community groups also submitted proposals, each offering a purchase price of less than $3 million. The HRM approved the $3 million offer from Jono. As shown by the HRM’s evaluation process, Jono had received the highest score in the RFP process, in part because of its financial proposal.  

  • Pursuant to a Judicial Review application by the community groups, in 2012, the N.S. Supreme Court set aside the sale to Jono on the basis that the HRM had breached its duty of fairness to the community groups by not following its own policy, and further, that the HRM’s interpretation of “market value” was unreasonable, so the HRM had breached the Charter by selling the property below market value. The Court also ordered Jono to pay a portion of the costs awarded. Jono appealed the decision, and the matter was heard by the N.S. Court of Appeal in May 2014.
  • In the HRM’s view, “market value” is the price the market will offer, so it therefore believed that it was complying with the Charter. 

What would you decide in this case?

Reprinted from The Legal Edge Issue 112, October – December 2015

Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case. For any particular legal problem, seek advice directly from your lawyer or in-house counsel. All dates, contact information and website addresses were current at the time of original publication.

National Education Consulting Inc.

975 B Alston Street, Victoria, BC V9”A 3S5

Phone: (250) 370-0041   Toll Free: (888) 990-7267

www.neci-legaledge.com       [email protected]

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Public-Sector Entities Sharing Bid Information, and When Does Contract A End? NECI

FREQUENTLY ASKED QUESTIONS

Public-Sector Entities Sharing Bid Information, and When Does Contract A End?

Through our Signature Seminars, eSeminars, Public Sector Procurement Program (PSPP) and other courses, our NECI instructors regularly answer questions about procurement-related issues. Here are two recent questions.

What is the current thinking about public-sector entities sharing bid information? We are in the MASH sector (municipalities, academic institutions, school boards, and health and social service providers) and taking advantage of more and more provincial government tender contracts that are now available to us. We are conscious about bid-shopping, and always advise our users that once we go to RFx, we can’t go back to the government agreements. As the MASH and government collaborations increase, and we handle our own RFx’s, some government parties are curious about our experience in going to market, for when they go back out. We are cautious about the free flow of information, particularly from MASH to government, given that the current direction is the other way around. RFx strategies and the like don’t raise much concern, but sharing results makes us hesitate.

Generally speaking, bid-shopping has to do with using already submitted bid pricing as a negotiating tool with other suppliers. Typically, this relates to cancelling a tender process after closing, and then either going back out to market with the same scope, or using the pricing submitted in negotiations for a direct award of the work. Having said that, we know that the public sector is a lightning rod for challenges, and that the legal definitions of such terms are shaped, over time, by the various allegations that come before the courts.

Obtaining information on the lump-sum price of similar contracts with other public organizations is common practice, and indeed, it is public record, so probably couldn’t be considered improper. Going beyond that, however, and obtaining other pricing that perhaps did not result in an award, might be riskier territory. Using the lump-sum award pricing when shaping internal budgets is common, but if, for example, you were to use that information as justification for cancelling a tender process already underway, we could see some potential issues.

It would be prudent for you to raise this issue and get some legal advice on the implications. As always, this is not legal advice, just our take on the question, as educators. We have not heard this issue from any other organization, but as you say, the practice of sharing information among public-sector entities is becoming more common. While that is a good thing, you are entirely correct to be a little uncomfortable with the practice until you receive a legal opinion on how far you should go. The last thing you want, of course, is for the courts to make that determination for you.

At what point in the competitive bidding process does Contract A end? 

Great question! From a legal perspective, Contract A expires when Contract B (the Performance Contract) is signed with the successful respondent. If there is unfairness, of course there can be a challenge after Contract B is signed, but the alleged unfairness must have taken place during the competition before Contract B was signed.

Do you have procurement-related questions that might be of broad interest (or additions to/rebuttals of our answers)? We invite you to send them to our Legal Editor and Publisher, Maureen Sullivan ([email protected]). We will publish questions of a general nature that we think are relevant and timely. We cannot address specific legal questions, provide legal advice, or guarantee that your question will be published.

Reprinted from The Legal Edge Issue 111, July – September 2015

 

 

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Did Prequalification Include Subcontractors? – You be the Judge NECI

In February 2010, the Regional Municipality of Niagara created a shortlist of general contractors through a formal Request for Prequalification (RFQ) process, in accordance with its Purchasing Policies and Procedures Bylaw. The shortlisting process was for work related to two renovation projects at the Niagara District Airport: the “Groundside” project and the “Airside” project. 

Weinmann Electric Ltd. acted as the electrical subcontractor for Dufferin Construction Company, the successful bidder on the Groundside project, which commenced in June 2010.         

By way of letter dated April 21, 2010, the Region informed each of the five prequalified general contractors, including Dufferin, that they were eligible to submit written tender bids for the Airside project. On the advice of its consultant, the Region decided to specify minimum qualifications for the electrical subcontractors on the Airside project, due to the nature and complexity of the airfield lighting requirements.             

In the April 21, 2010 letter, the Region advised the general contractors bidding on the Airside project that “… electrical subcontractors must have successfully completed at least two airfield lighting projects in Canada with a value of at least $750,000 each.” In the same letter, the Region set out the names of the four electrical contractors that its consultant had said would meet the minimum qualifications, with a stipulation that other subcontractors would be considered, provided they met the minimum qualifications. The requirement for minimum qualifications was subsequently incorporated into the tender document for the Airside project by addendum, without mention of the four named companies.             

Although Weinmann was clearly a well-established electrical contractor, it was not one of the named companies, and did not meet the minimum qualification requirements, as its experience with airfield lighting work was limited. Weinmann contacted representatives of the Region and, through discussions, it became clear that Weinmann might have been able to meet the minimum requirements by partnering with another electrical contractor with suitable experience. On August 3, 2010, before such partnering arrangements could be formalized, and shortly before tender bids for the Airside project were due, the Region informed the bidders that they “may carry Weinmann as the airfield lighting/electric subcontractor for [their tender bids] pending receipt of the requested backup information.”      

Dufferin’s bid for the Airside project named Weinmann as the electrical subcontractor, incorporating Weinmann’s pricing for that aspect of the work. By letter dated August 11, 2010, the Region requested, among other things, the documentation with respect to Weinmann’s qualification as the proposed subcontractor. Although Weinmann did provide the backup documentation to Dufferin on August 13, Dufferin by that point had decided to use another electrical subcontractor on the project, in part due to its concerns about whether Weinmann could meet the requirements, and in part due to concerns about the possibility that Weinmann would be overextended by taking on the Airside project. 

Weinmann initiated litigation and sought damages from the Region, alleging that it lost the Airside electrical subcontracting job because of the unlawful actions of the Region. The Region’s bylaws prescribe the procedure for conducting prequalification processes, including prequalification of any subcontractors. Weinmann alleged that the Region had failed to follow the bylaw by not preparing and advertising a prequalification process for the electrical subcontractors on the Airside project – despite naming four “prequalified” companies in the letter of April 21. The Region denied that any prequalification was done for the electrical subcontractors, so there could have been no breach of the bylaw in question.             

The matter was complicated by the fact that an email from the Region’s consultant referred to the “prequalified list of electrical subcontractors,” although the issue was clarified by a subsequent letter confirming that other subcontractors could qualify by meeting the stipulated minimum requirements.             

What would you decide in this case?

Answer 

In Weinmann Electric Ltd. v. The Regional Municipality of Niagara, 2016 ONSC 13, the Ontario Supreme Court of Justice concluded that the conduct of the Region was not intended to produce, and did not produce, an exclusive shortlist of electrical subcontractors. The April 21 letter was clear that other subcontractors would be considered if they could meet the requirements. The letter simply included a non-exclusive list of suggested electrical subcontractors, which the Court found to be entirely reasonable, given the non-routine nature of the project. This conclusion was supported by the fact that the tender document for the Airside project did not list these suggested subcontractors; rather, it specified the minimum requirements that had to be met by any electrical subcontractor to be used.             

In concluding that the Region did not conduct a prequalification process for electrical subcontractors, the Court found that there could have been no breach of the cited bylaw. The Court also dismissed general allegations of breach of the duty of fairness. In the words of the Court, “If there has been no breach of the By-Law, and no other unlawful act, there can be no breach of a duty of fairness.”             

In the alternative, the Court found that, even if the Region had conducted a prequalification process and had breached the bylaw in doing so, Weinmann failed to prove that it had suffered any damages as a result. A plaintiff must prove more than an unlawful act in order to recover damages: it must also prove, on the balance of probabilities, that it has suffered a loss as a consequence of the unlawful act. In this case, if the Region had conducted a prequalification process, Weinmann would not have met the requirements, and therefore would not have made the shortlist, rendering it ineligible for the subcontract work in any event.       

Coupled with the vague calculation of the damages alleged by Weinmann – including the fact that the impact on profit margins of having to partner with another company for the electrical work was not reflected – the Court had no hesitation in dismissing Weinmann’s claim, leaving the parties to agree on the amount of costs payable by Weinmann.

Issue 113 | JAN – MAR 2016

Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case. For any particular legal problem, seek advice directly from your lawyer or in-house counsel. All dates, contact information and website addresses were current at the time of original publication.

 

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Scope Changes in Tendering – NECI

How much freedom does a company or a municipality have to change the scope of a tender? What if you suddenly realize that there is a cheaper or quicker way to do the work? What are the perils of major scope changes – especially after tender closing? A recent case from Alberta – Thompson Bros. (Construction) Ltd. v. Wetaskiwin, [1997] A.J. No. 822 – provides the answers.      

The City of Wetaskiwin was developing a park project with a lake. On October 1, 1996, the City called for tenders for the Urban Park lake excavation project. Tender bids were opened in public. The three lowest were Thompson Brothers ($481,913.23), Central Oilfield Services ($512,970.71), and El San Industries ($525,616.00).

On October 16, the Urban Park committee met and passed an internal motion that City Council approve the tender submitted by Thompson Brothers. The next City Council meeting was scheduled for October 26.

Prior to the October 26 meeting of City Council, City staff had a major brainwave. The staff reviewed internal reports that dealt with City requirements for approximately 40,000 cubic metres of clay at another project (the landfill site). The reports recommended that the clay excavated from the Urban Park lake project be used for the landfill site project.

As a result, two events took place at the City Council meeting on October 26. First, the motion to award the Urban Park lake contract to Thompson Brothers was deferred for two weeks. Then, senior staff recommended that the City seek separate tender bids for the excavation of the landfill site materials, and that the two contracts (lake excavation and landfill site) be awarded to the lowest cumulative bidder.

On October 30, City staff contacted the plaintiff (Thompson Brothers), and told them about the potential work hauling clay from the Urban Park lake project to the landfill site project. On November 2, the plaintiff was asked to provide a unit price per metre to excavate, haul, load and stockpile the clay at the landfill site. The plaintiff was not told that the City had decided to award the two contracts to the lowest cumulative bidder.

On November 4, prices for the landfill site work were received. Thompson Brothers quoted a price of $98,400.00 (unit price of $2.46 per metre), and Central gave a price of $64,800 (unit price of $1.62 per metre). As a result, Central was the lowest cumulative bidder on both tenders, by $2,542.50. On November 24, City Council approved the awarding of both contracts to Central. Thompson Brothers sued the City. The company argued that the City’s actions were unfair and compromised the integrity of the tendering process to such an extent as to breach Contract A. In its August 1997 judgment, the Alberta Court of Queen’s Bench agreed with the plaintiff and awarded damages in Thompson Bros. (Construction) Ltd. v.

Wetaskiwin, [1997] A.J. No. 822. First, Mr. Justice Murray commented that this “ … is another in the long line of cases involving an owner putting a construction job out to tender, tenders being submitted, and at the end of the day the low tender not being accepted.”

More importantly, the Court criticized the changes made by the City. Murray, J. said that “The contract awarded was not responsive to the tender process. Rather, it was for work of a different scope than that contemplated by the tender documentation. What the City did also amounted to a change or modification of the scope of the work after the close of tenders … By using the Plaintiff’s tender in this manner, the City gave Central a second chance to bid on the Lake project which was akin to a form of bid shopping and was unfair to the Plaintiff.”

The plaintiff received damages of $88,323.90 plus court costs. The damage award was based on the profits that the plaintiff lost by not being awarded the contract for the Urban Park lake project.

Reprinted from The Legal Edge Issue 19, May – June 1998

www.neci-legaledge.com

 

 

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