Public Procurement 2024 Year In Review

Key Developments at the Federal Level

This year was one of significant developments (and some rebalancing) at the federal level. A new debarment policy increases risks for suppliers, whereas Canada received reminders from the Federal Court of Appeal and the Canadian International Trade Tribunal (the "Tribunal") that it cannot act with high-handed impunity. On the other hand, groundbreaking jurisprudence regarding the national security exemption in the Canada Evidence Act reminds bidders that they are not necessarily entitled to all bid information in the context of a bid challenge.

CANADA'S NEW DEBARMENT POLICY

On May 31, 2024, a suite of changes to Canada's Integrity Regime came into force. The federal government established a new Office of Supplier Integrity and Compliance (the "OSIC") to administer a revised Ineligibility and Suspension Policy ("Policy"), which forms the core of the commitments and obligations of suppliers to maintain certain ethical standards.

The new Policy captures two competing dynamics – it is at once more flexible but also far broader than the previous policy. With regard to flexibility, the Policy provides the Registrar with considerable flexibility to find a supplier ineligible, which compares to the earlier Integrity Regime approach of strict and mandatory debarment for set periods of time with little consideration or discretion to allow Public Services and Procurement Canada ("PSPC") to vary such ineligibility.

The new approach provides the Registrar with guidelines on the maximum debarment period for various offences, and then considerations for how the period should be set based upon:

• The seriousness of the conduct, including the role of the supplier in the misconduct, the extent to which senior management participated, gains the supplier realized, the complexity and degree of planning/forethought, association with organized crime, the cost of enforcement by the authorities and whether the supplier is a repeat offender.
• Remediation efforts, including disciplinary action taken against individuals involved; independent internal investigations and implementation of remedial measures; any civil or criminal compensation paid to the government and/or any parties injured in the wrongful conduct; adoption of or improvements to compliance regimes; and a strong culture of compliance from management.

However, in conjunction with this flexibility, PSPC has greatly increased the scope of what potential charges or convictions may result in debarment. The prior policy was focused on provisions specifically related to certain elements of public integrity. This included fraud against His Majesty under both the Criminal Code and Financial Administration Act, bribery and corruption offences under the Criminal Code and Corruption of Foreign Public Officials Act, Competition Act offences related to bid rigging and conspiracies, forgery-related offences and lobbying offences. The newly listed offences include:

• Sections 83.02, 83.03 or 83.04 (Financing of terrorism), section 123 (Municipal corruption), section 279.01 (Trafficking in persons), section 279.011 (Trafficking a person under 18 years), subsection 279.02(1) (Material benefits/trafficking), subsection 279.02(2) (Receiving benefit to facilitate child trafficking), subsection 279.03(1) (Withholding/ destroying identity Documents to Facilitate Adult trafficking), and subsection 279.03(2) (Withholding/ destroying identity Documents to facilitate child trafficking) of the Criminal Code.
• Section 463 (Attempts, Accessories), section 464 (Counselling Offence That is Not Committed) and section 465 (Conspiracy) of the Criminal Code, each solely to the extent that it relates to an offence listed under paragraph (1)(b)(i) of the appendix of Material Events provided in the Debarment Policy
• Section 52.01 (False or misleading representation) of the Competition Act.
• Paragraphs 497(2)(a) (making contribution while ineligible); 497(2)(d) (exceeding contribution limits); 497(2)(e) (circumventing contribution rules); 497(2)(f) (concealing source of contribution; 497(2)(h) (entering into prohibited agreement); 497(2)(k) (making indirect contribution); 497(2)(l) (exceeding cash contribution limit); 497(2)(n) (making illegal loan); and 497(2)(o) (making indirect loan) of the Canada Elections Act.
• Paragraph 80(1)(b) (Defraud His Majesty) and section 81 (Bribes Offered or Accepted) of the Financial Administration Act.
• Section 117 (Organizing entry into Canada) and 118 (Trafficking in persons) of the Immigration and Refugee Protection Act.
• Any offence under Part I or Part II of the Canada Labour Code.

One particular note is that one of the listed offences has been expanded rather than added. Previously, the Integrity Regime debarred suppliers for fraud convictions under section 380 of the Criminal Code, but only where the fraud was committed against the Crown. Under the revised policy this scope now catches all fraud, regardless of whether it was committed against His Majesty or any other person.

The new Policy also includes a number of new "Material Events" that are not explicitly linked to charges or convictions. These include situations where a supplier:

• Makes certain misleading statements that are of a "material respect," a term that is not defined or discussed in the Policy;
• Committed a similar provincial offence in the past three years;
• Is a designated or listed person under the United Nations Act, Special Economic Measures Act, the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) or the Freezing Assets of Corrupt Foreign Officials Act, or is owned or controlled by such a person;
• Has engaged in any activity prohibited under above sanctions legislation;
• Lacks business integrity or honesty in the judgment of the Registrar such that contracting with them would bring the procurement system into disrepute;
• Has within the past three years been convicted of an offence that resulted in being listed on the Environmental Offenders Registry;
• Has within the past three years received a poor performance evaluation pursuant to Public Works and Government Services Canada's ("PWGSC") Vendor Performance Management Policy; or
• Has an owner, trustee, director, manager or senior officer that, in the past three years, has been convicted of or pleaded guilty to a listed offence.

Of particular are two specific new triggers. The first revolves around Canadian sanctions: it is now considered a Material Event if a supplier is a designated or listed person under the United Nations Act, Special Economic Measures Act ("SEMA"), the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law) or the Freezing Assets of Corrupt Foreign Officials Act, or is owned or controlled by such a person. This can become a more prominent issue given the expansion to the definition of "owned or controlled" under SEMA and the Magnitsky Act, both of which carry the concept of "deemed ownership" in a relatively broad fashion.

It is also a debarment offence to engage in any activity prohibited under these sanctions laws. It is important to note that this is not rooted in any requirement for a guilty plea or conviction – if PSPC is satisfied the illicit activity has occurred it can classify the actions as a Material Event. Most importantly, this signifies that debarment can occur even if a supplier lacks the requisite mens rea to ground a conviction. 1 2024 FCA 200. The second major new Material Event relates to agreed statements of fact. Most often found in plea or settlement agreements or Remediation Agreements/ Deferred Prosecution Agreements, PSPC may now draw conclusions based upon such facts to determine if they disclose an offence which may lead to debarment. It is therefore crucial that suppliers that are planning on entering into such an agreed statement of facts (or which have affiliates considering doing so) be aware of this fact and consider if they must communicate with the OSIC or Registrar concurrently to negotiate either no (or a shorter) debarment period.

CANADA (ATTORNEY GENERAL) V. ELLISDON CORPORATION¹ – DAMAGES FOR LOSS OF OPPORTUNITY ARE WITHIN THE REMIT OF THE TRIBUNAL

The Federal Court of Appeal upheld a landmark decision by the Canadian International Trade Tribunal (the "Tribunal") to award a bidder compensation for lost opportunities on third-party contracts arising from the government's severe mismanagement of the procurement process, which had led the bidder to be improperly awarded the contract for a period. During this period, EllisDon was under a stop work order but was contractually required to be ready to start work at any moment and so was unable to bid on other projects.

The root of the issue was caused by PWGSC improperly processing bid documentation submitted by another bidder, Pomerleau, and thereby removing its hyperlinks and invalidating its data. The contract was awarded to EllisDon on the basis that Pomerleau's bid was not compliant as its e-bond was not verifiable. Pomerleau objected and asked that the process be suspended in order to undertake an investigation. Although PWGSC determined that it did have a verifiable e-bond, it did not acknowledge any error and maintained the award on the basis that the bond submitted was non-verifiable at the tie of bid opening (although this was in fact the fault of PWGSC) – but issued a stop work order to EllisDon on the same day it sent the contract (six days after the award).

The Tribunal found that the procurement process was replete with errors, including the improper award of the contract to EllisDon despite having all the information and documentation required to identify and correct its own error at that time; holding EllisDon "hostage" regarding the performance of the contract by issuing a suspension order; PWGSC's statement to Pomerleau that the bid was not verifiable at bid closing although PWGSC knew or ought to have known that this error was due entirely to its own mishandling of the bid; and PWGSC's inexplicable delay of weeks post bid close before notifying the bidders that it might have made a mistake, although it had been in possession of this information for months. As such, the Tribunal recommended that PWGSC compensate EllisDon for its lost opportunity cost for the months it was held hostage, awarded a contract it had to remain in readiness to perform.

The Federal Court of Appeal found that the Tribunal had reasonably held that PWGSC's conduct concerned the procurement process, rather than contract performance; that the statutory scheme allowed for the grant of lost opportunity compensation for third-party contracts; and that this was an appropriate remedy within the circumstances.

CANADA (ATTORNEY GENERAL) V. NAVANTIA S.A.² – RELEVANCE IS NOT ENOUGH

In this case, the Attorney General invoked section 38 of the Canada Evidence Act to shield from production redacted portions of 48 documents relating to a Canadian Surface Combatant ("CSC") project request for proposal ("RFP") and bid evaluation process, on the basis that the redactions contained sensitive information or potentially injurious information.

The documents at issue related to (1) Lockheed Martin's successful bid (which the Attorney General asserted included sensitive and injurious information about the capabilities of the CSCs under construction) and (2) Navantia's unsuccessful bid, which included information or elements provided directly by third-party foreign subcontractor to the Canadian bid evaluation team in accordance with the government-to-government protocols in the RFP. Navantia, the unsuccessful bidder, sought production of these two categories of information as part of its challenge to the procurement process, on the basis that they were relevant to the joint decision by PWGSC and Irving Shipbuilding Inc. that its bid was non-compliant. After outreach from Canada, one foreign partner ultimately provided its consent to disclosure of certain documents to Navantia on strict and specific terms and conditions.

The Court conducted a careful analysis of the section 38 issue with respect to the remaining documents, assisted by the appointment of an amicus curiae ("amicus") on consent of the parties, as well as the submissions of the parties. The documents at issue were provided to the Court and to the amicus in unredacted form for their review, while an extensive redacted record was provided to Navantia.

The Court split the documents based upon these factors. For one set of documents, largely related to the first set of documents, the Court held that the position of the partner country, and the relevance of the documents, warranted disclosure. For the second set of documents, it ultimately determined that, without the clear consent of foreign partners to disclose their information, their disclosure (even on strict terms and conditions) would be injurious to international relations and in violation of bilateral agreements. On the other hand, while minimally relevant (insofar as it they involved bid information), the redacted information would not assist Navantia in making out its allegations that Canada improperly evaluated its bid. As such, the public interest in disclosure of the information did not outweigh the public interest in prohibiting disclosure of the information.

CHANTIER DAVIE CANADA INC. AND WÄRTSILÄ CANADA INC.³ – A CRY FOR SUBSTANCE OVER FORM IN THE DEBRIEFING PROCESS (OR, THIRD TIME IS THE CHARM)

The Tribunal expressed its frustration with this ongoing procurement saga (being the third complaint by Chantier Davie and Wärtsilä in reference to a PWGSC procurement of ship propulsion systems) with significant criticism of the ways in which government institutions participate – or, rather, do not participate – in the debriefing processes. In particular, the Tribunal noted that "strict adherent" to the requirements of article 516 of the Canadian Free Trade Agreement ("CFTA") "allows government institutions to entertain the unfortunate belief that they can essentially just tell losing bidders to go away and leave them alone."⁴ This, in turn, forces bidders to bring speculative complaints – and then be turned away by the Tribunal for engaging in a fishing expedition.⁵ The Tribunal recognized the irony of this situation, noting that the Tribunal "might have to ask itself how a complainant can be expected to bring evidence of an issue that it had to make a guess about, for lack of the government institution's willingness to engage regarding its accountability vis-à-vis its procurement award decision."⁶

The Tribunal further noted that, by hewing to the narrow requirements of the CFTA, Canada was treating domestic suppliers less favourably than foreign suppliers who benefited from broader and more explicit protections under international trade agreements.

The Tribunal specifically rebuked PWGSC, noting that it showed no openness to providing Chantier Davie and Wärtsilä with any information that would have allowed them to ascertain whether they had rightfully lost the bid. As the Tribunal underlined, this approach "ignores the fact that losing bidders undoubtedly ought to be able to know what was procured at the end of a procurement process with some detail."⁷

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Footnotes

1. 2024 FCA 200.

2. 2024 FC 929.

3. 2023 CanLII 81853 (CA CITT).

4. 2023 CanLII 81853 (CA CITT) at para. 65.

5. As is precisely what occurred in Chantier Davie Canada Inc. and Wärtsilä Canada Inc., 2023 CanLII 6265 (CA CITT), and addressed in our 2023 Year-in-Review.

6. 2023 CanLII 81853 (CA CITT) at para. 65.

7. 2023 CanLII 81853 (CA CITT) at para. 63.