Canada: Federal Court Of Appeal Gives Teeth To CITT Procurement Review Process

Last Updated: February 6 2008

Article by Cliff Sosnow, Elysia Van Zeyl & Chad Matheson, © 2008, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Blakes Bulletin on International Trade - February 2008.

On October 26, 2007, the Federal Court of Appeal issued a decision that solidifies the ability of foreign companies to initiate procurement complaints under the Agreement on Internal Trade (AIT), an agreement between the Canadian federal government and the provinces intended to regulate trade.

Furthermore, the decision will require government institutions to adhere to "recommendations" of the Canadian International Trade Tribunal (CITT). The court held that a government institution cannot refuse to implement the recommendations of a Tribunal merely because a judicial review application is pending.

Non-Canadian Companies Can Complain About Procurements

On April 17, 2007, Northrop Grumman Overseas Services Corporation (Northrop) filed a complaint with the CITT concerning a procurement by Public Works and Government Services Canada (PWGSC). The procurement was for a supply of 36 advanced multi-role infrared sensor targeting pods and 13 years of in-service support for the pods. In the complaint, Northrop alleged that the evaluation of the bids was not completed in accordance with criteria of PWGSC's published evaluation plan. In particular, Northrop argued that certain criteria were evaluated incorrectly.

At the outset of the CITT's review, the PWGSC contended that Northrop, an American company, did not have standing to make a complaint under section 30.11 of the Canadian International Trade Tribunal Act (CITT Act). The PWGSC argued that only Canadian businesses had standing to bring a complaint in front of the CITT with respect to the procurement provisions in the AIT. This line of argument was consistent with the CITT's decisions in Re Complaint Filed by EFJohnson (April 26, 2006) PR-2006-006 and Re Complaint Filed by Europe Displays, Inc. (January 16, 2007) PR-2006-039.

In its decision, the Tribunal examined the three conditions required for an inquiry under section 7(1) of the Canadian International Trade Tribunal Procurement Inquiry Regulations (CITT PIR). Firstly, the complainant must be a "potential supplier". On this point, the CITT found that Northrop fell within the definition of a "potential supplier" because neither the CITT Act nor the CITT PIR contain any specific requirements as to the nationality of a potential supplier. Secondly, the complaint by the potential supplier must relate to a designated contract. The Tribunal found that Northrop met the second condition because the contract – for the supply of aircraft to the federal government – was of the type designated under the AIT. The final requirement is for the information provided by the complainant to disclose a reasonable indication that the procurement has not been conducted in accordance with the requirements set out in the trade agreement covering the contract. The Tribunal found that the complaint did, in fact, disclose a reasonable indication that the procurement had not been conducted in accordance with the AIT. Having met these three requirements, the Tribunal found that Northrop had standing to bring a complaint under the AIT. The Tribunal, departing from its previous decisions, ruled that there was nothing in the wording, context, object or purpose of the legislative scheme of the AIT to indicate that Parties intended to limit the application of the dispute settlement mechanism to Canadian suppliers. Therefore, unlike previous decisions, the Tribunal ruled that non-Canadian parties do, in fact, have standing to bring complaints to the CITT.

PWGSC Refuses to Re-evaluate Bids

After deciding that Northrop did have standing, the Tribunal turned its attention to the main complaint that the bids were not evaluated by the PWGSC in accordance with the published evaluation plan. Northrop argued that the PWGSC incorrectly evaluated certain criteria in the procurement process. After examining the criteria of the procurement process, the Tribunal ruled that the PWGSC incorrectly evaluated the bids. In particular, the PWGSC failed to clearly identify requirements of the procurement process as required by the AIT. Since these errors may have led the PWGSC to award the contract to a bidder without the highest score, the Tribunal ordered the PWGSC to re-evaluate the proposals applying the criteria of the procurement process correctly, and award the contract to the winning bidder from this new evaluation.

Following the decision, the PWGSC advised the CITT that it did not intend to implement the CITT's recommendations. In support of this course of action, the PWGSC relied on section 30.18 of the CITT Act and section 13 of the CITT PIR which stipulate that where the CITT makes procurement recommendations to a government institution, the government institution "shall ... implement the recommendations to the greatest extent possible". Subsection 30.18(2) obligates the government entity to advise the Tribunal as to the extent that the government entity intends to implement the recommendations and, if it does not intend to implement them fully, the reasons for not doing so. Section 13 of the CITT PIR sets out the timelines for the government institution to implement the CITT's recommendations and to advise the CITT of any non-implementation. The PWGSC's sole reason for refusing to implement the recommendations was that it disagreed with the recommendations and was seeking judicial review of the Tribunal's decision. In the meantime, the PWGSC insisted on carrying out a contract with Lockheed Martin, the winning bidder from the original procurement.

In reaction to this refusal, on October 26, 2007, Northrop brought a motion in the Federal Court of Appeal seeking:

  • an order directing PWGSC to give effect to the recommendations made by the CITT in support of its decision to revaluate bids in a procurement process
  • an order declaring that PWGSC's application for judicial review does not stay the CITT's decision and, alternatively,
  • an interim stay of the performance of the contract awarded to Lockheed Martin from the procurement process.

The Attorney General, on behalf of PWGSC, argued that the relief sought by Northrop was not in the nature of interim relief but was, in fact, final relief. Final relief may not be sought in the Federal Court of Appeal because subsection 28(1) of the Federal Court Act (FCA) does not list PWGSC as a body over which the Federal Court of Appeal has jurisdiction.

If the Federal Court of Appeal does not have jurisdiction, the application could only be heard by the Federal Court. Noël, J.A., however, found that the remedies sought by Northrop were within the ambit of section 18.2 and subsection 28(2) of the FCA. These subsections of the FCA provide the Federal Court of Appeal with the authority to make orders it considers appropriate pending final disposition of an application for judicial review. Since the remedies sought by Northrop were in the nature of interim relief, it was decided that the Federal Court of Appeal could hear Northrop's motion.

PWGSC Cannot Ignore CITT Recommendations

The Attorney General, relying on sections 30.15 and 30.18(2) of the CITT Act as well as section 13 of the CITT PIR, argued that the power of the CITT to uphold a complaint is limited to making recommendations which the PWGSC is not required to implement while an application for judicial review is pending. The Court, however, ruled that the subsections did not give the PWGSC authority to "ignore" recommendations of the CITT merely because the PWGSC disagreed with it and sought judicial review.

The Court relied on the reasoning of Linden J.A. in Canada (Attorney General) v. Symtron Systems Inc., [1999] 2 F.C. 514, a case in which the scope and purpose of section 30.18 were examined. In Symtron, although the Court recognized that section 30.18 seems to provide the government institution with discretion regarding compliance with the CITT's recommendation, the intention of Parliament and the plain language of the section indicate otherwise. Accordingly, the Court held that non-compliance with the CITT's recommendations should be an "awkward and unusual occurrence". Applying this jurisprudence to the case at hand, Noël J.A. ruled that disagreement with the recommendations did not fall within the ambit of those provisions.Therefore, the PWGSC could not ignore the recommendations of the CITT.

Impact of the Decision

The implications of this decision are clear. This decision confirms that foreign companies are entitled to complain to the CITT about procurements that have not been conducted in accordance with the provisions of the AIT. Furthermore, government entities that are bound to com-ply with the AIT, and other such agreements that impart procurement obligations, are also bound to comply with the procurement recommendations of the CITT, even when a recommendation is undergoing judicial review. Moreover, a government institution that refuses to follow a CITT recommendation will need, in addition to its application for judicial review, a compelling reason for this refusal. This decision seeks to provide more teeth to the procurement review process by the CITT. No longer is a "recommendation" simply that.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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