Date:
20080331
Docket: A-238-07
Citation: 2008 FCA 109
CORAM: DESJARDINS
J.A.
LÉTOURNEAU
J.A.
TRUDEL
J.A.
BETWEEN:
DEFENCE CONSTRUCTION
(1951) LIMITED
Applicant
and
ZENIX
ENGINEERING LTD.
Respondent
REASONS FOR
JUDGMENT
DESJARDINS
J.A.
[1]
On
December 7, 2006 Zenix Engineering Ltd. (Zenix) filed a procurement complaint regarding
Solicitation No. IE070336 (the solicitation) with the Canadian International
Trade Tribunal (CITT or the Tribunal). The solicitation concerned a Request
for Abbreviated Proposal (RFAP) from Defence Construction (1951) Limited (the
applicant) for life-safety assessment and remediation analysis of modular
quarters for use by the Department of National Defence (DND). Any reference to
DCC in quotes in these reasons is a reference to the applicant.
[2]
In
an April 20, 2007 Determination (File No. PR-2006-035), the CITT found that it
had jurisdiction under both the North American Free Trade Agreement (NAFTA)
and the Agreement on Internal Trade (AIT) to consider the complaint, and
that the applicant had violated a clause of the RFAP. As a result the CITT
ordered that Zenix be compensated by an amount equal to its lost profit.
[3]
The
applicant seeks judicial review of the CITT’s determination before us.
[4]
Zenix
did not make any written representations or appear at the hearing of this
application for judicial review.
[5]
I
would dismiss the application for the reasons that follow.
ISSUES
[6]
The
applicant seeks judicial review of two parts of the CITT’s determination:
1. The CITT’s
jurisdiction under the NAFTA to consider the complaint.
2.
The CITT’s
determination that the applicant breached the AIT and the NAFTA by failing to
disclose DND’s budget limits to Zenix during the negotiations.
THE FACTS
[7]
A
summary of the pertinent public facts follows.
[8]
The
applicant is a Crown corporation created under a provision of the Defence
Production Act R.S.C., 1985, c. D-1. It provides contracting and contract
management services to DND and the Canadian Forces in the development and
management of its facilities infrastructure (affidavit of Ron de Vries - A.R.,
Book 1, tab 4, p. 290-291).
[9]
The
RFAP that is the subject of this application was made public by the applicant on
July 13, 2006, with a closing date for receipt of bids of August 17, 2006.
Material to this application, the RFAP provided that:
3.3 Results of
Evaluation / Contract Award
The RFAP technical scores,
as well as the Offer of Services scores (calculated as per paragraph 6 of the
RFAP), are added to determine the relative ranking of proponents. The Proponent
with the highest overall score will be selected to negotiate a contract with
DCC. Negotiations will include an agreement on a maximum amount for services
authorized by DCC. In the event that these negotiations fail, DCC will enter
into negotiations with the next-ranked Proponent. The services offered by the
Proponent shall be in accordance with this RFAP document.
[10]
In
response to the RFAP, Zenix along with five other bidders submitted proposals.
On August 30, 2006 Zenix was informed by telephone that its proposal had
received the highest overall score. As a result, Zenix was selected for negotiations
by the applicant.
[11]
I
adopt the factual findings of the CITT found in paragraph 44 of its
determination regarding the negotiations between the applicant and Zenix:
44. The evidence
demonstrates that an initial price for services was submitted by Zenix. The
evidence also indicates that Zenix modified its price offer shortly after the
start of the negotiations as a result of an exchange of information regarding
certain redundancies under the proposed contract. As a result of those
discussions, the evidence shows that the initial difference between the
estimated value of the contract and the initial price submitted by Zenix was
significantly reduced. Further discussions took place concerning the inclusion
of certain elements of cost in the second price submitted by Zenix, but the
evidence then shows nothing significant happening after that point, except for
inquiries from Zenix as to the status of the proposed contract. Finally, on
November 2, 2006, DCC informed Zenix that it was initiating negotiations with
the second-ranked proponent.
[12]
In
a letter dated November 3, 2006 Zenix responded with “surprise and
disappointment” to the applicant’s November 2, 2006 decision. Zenix requested a
meeting to discuss the applicant’s concerns with its bid.
[13]
On
November 23, 2006 the applicant informed Zenix that its decision rejecting
Zenix’s proposal was final.
[14]
By
letter dated November 29, 2006 the applicant informed Zenix that the RFAP had
been awarded to the second ranked proponent.
[15]
On
December 7, 2006 Zenix filed a complaint about the above procurement with the
CITT pursuant to subsection 30.11(1) of the Canadian International Trade
Tribunal Act, R.S.C. 1985 (4th Supp.), c. 47 (the Act).
[16]
On
April 20, 2007 the CITT rendered its determination, finding Zenix’s complaint
to be valid. The CITT ordered that Zenix be compensated by an amount equal to
the profit that it would reasonably have earned had it won the procurement. Reasons
were issued by the CITT on May 3, 2007.
ANALYSIS
STANDARD
OF REVIEW
[17]
The
Supreme Court’s recent decision in Dunsmuir v. New Brunswick, 2008 SCC 9
(Dunsmuir) has altered the administrative law landscape in Canada. Notably the
standard of review of patent unreasonableness has been eliminated. Before
applying this Court’s previous decisions about the standards of review
applicable to the CITT, they must be re-considered in light of Dunsmuir.
[18]
Fortunately,
the questions before us fall into two distinct categories for which there is
clear precedent and for which Dunsmuir does not significantly change the
law applicable.
[19]
The
first question before us is a question concerning the CITT’s jurisdiction under
the NAFTA. As this Court found in Canada (Attorney General) v.
Symtron Systems Inc., [1999] 2 F.C. 514 (C.A.) at para. 45 (Symtron),
questions related to the CITT’s jurisdiction are to be reviewed on a standard
of correctness. The holding in Dunsmuir does nothing to change this
finding, nor does Dunsmuir change the meaning of correctness (see Dunsmuir
at paragraph 50).
[20]
The
second question before us relates to the CITT’s interpretation and application of
the terms of the tendering (solicitation) documents. This is a question that
is well within the jurisdiction of the CITT and a Court should accord
significant deference to the CITT’s findings on such matters. Prior to Dunsmuir
such a question attracted a standard of review of patent unreasonableness (see Symtron
at paragraph 45). Dunsmuir does not change the fact that the applicable
standard is still the most deferential standard. The applicable standard for a
question within the jurisdiction of the CITT is therefore now reasonableness.
At paragraph 47ff of Dunsmuir, Justices Bastarache and LeBel, writing
for the majority, provide the definition of reasonableness that I will apply in
this case:
[47] Reasonableness
is a deferential standard animated by the principle that underlies the
development of the two previous standards of reasonableness: certain questions
that come before administrative tribunals do not lend themselves to one specific,
particular result. Instead, they may give rise to a number of possible,
reasonable conclusions. Tribunals have a margin of appreciation within the
range of acceptable and rational solutions. A court conducting a review for
reasonableness inquires into the qualities that make a decision reasonable,
referring both to the process of articulating the reasons and to outcomes. In
judicial review, reasonableness is concerned mostly with the existence of
justification, transparency and intelligibility within the decision-making
process. But it is also concerned with whether the decision falls within a
range of possible, acceptable outcomes which are defensible in respect of the
facts and law.
[48] The move
towards a single reasonableness standard does not pave the way for a more
intrusive review by courts and does not represent a return to pre-Southam
formalism. […]
[My emphasis.]
THE
CITT’S JURISDICTION
[21]
The
applicant argued vigorously during the hearing that the CITT does not have
jurisdiction under the NAFTA to hear this complaint. Its point of contention
is with the CITT’s determination that it was acting as an agent for DND in the
procurement. I note from the outset that the applicant did not take issue with
the CITT’s jurisdiction to consider the complaint under the AIT.
[22]
The
applicability of the NAFTA with regards to procurement complaints before the
CITT depends on different minimum monetary thresholds for the procurement
contract for different government institutions (see Articles 1001, Annex
1001.1a-1, Annex 1001.1a-2 of the NAFTA and Treasury Board Contracting Policy
Notice 2005-3). In this particular case, if DND was the government
institution at issue, the value of the procurement contract would meet the
minimum monetary threshold and the CITT would have jurisdiction under the NAFTA
to hear the complaint. This would not be the case if the applicant was found
to be the government institution at issue because a different monetary
threshold would be applicable. Because the CITT found that the applicant was
acting as an agent for DND, the CITT held that the relevant government
institution was DND and thus it had jurisdiction under the NAFTA to consider
the complaint (see paragraph 18 of the CITT’s determination).
[23]
TDepartment
of National Defence he applicant argued that it was not acting as an agent for
DND in the procurement at issue. The applicant relied on, inter alia,
subsection 6(3) of the Defence Production Act to argue that it can only
be an agent of Her Majesty, and therefore not of DND. The applicant also
sought to have us clarify or overturn the finding of this Court in Symtron,
supra where we held that for the procurement at issue in that case, the
applicant was acting as an agent for DND (see paragraphs 59 to 64 of Symtron).
Specifically, Symtron states the following at paragraphs 62 and 63:
62 The intention of
the parties is manifest. Under NAFTA, parties may not design contracts so as to
hide them from compliance. If Canada is to honourably uphold its NAFTA obligations,
the CITT must be able to decide that the true contracting agent was [page539]
DND, not DCC. In this case, the Tribunal based its conclusion on the following
findings of fact: (a) the FFTS [Fire Fighter Training System] is required by
DND; (b) DND ultimately approved the specifications drafted by DCC; (c) DND
conducted technical evaluations of the proposals; (d) DND will pay for the
work; and, (e) DND will own the work. I would add to this list that the RFP
itself has the following words in bold capital letters on top of its cover
page: "DEPARTMENT OF NATIONAL DEFENCE". Nowhere on the cover of the
RFP are the words "Defence Construction (1951) Canada Limited" to be
found. Further, each and every page of the RFP has a header which reads:
Fire Fighter Training
Facility
Halifax, Nova Scotia
Esquimalt, British
Columbia
63. I am of the
view, therefore, that the CITT did not err when it found that this contract
should be evaluated as having been let by the Department of National Defence.
On facts such as these, a contract should not be exempt from NAFTA simply
because the government has decided to let the contract through DCC. The
decisions of the Canadian civil service, no matter how well
intentioned, may not supercede our international obligations.
[24]
I
find it unnecessary to determine this issue. The applicant did not dispute
that the CITT had jurisdiction to consider this complaint under the AIT. As
will be discussed in more detail below, in this case the application of the material
articles of the AIT and the NAFTA are of much the same effect. Whether the
CITT had jurisdiction under the AIT or the NAFTA individually or together is of
no material consequence to the final determination of this matter. The undisputed
fact is that the CITT had jurisdiction under the AIT to make the decision it
did, and that alone is sufficient to dispose of this issue. Any comments I
would make with regard to the CITT’s jurisdiction under the NAFTA would be unnecessary
obiter dicta.
WHETHER THE APPLICANT BREACHED ITS AIT AND NAFTA
OBLIGATIONS BY FAILING TO DISCLOSE DND’S BUDGET LIMITS TO ZENIX DURING THE NEGOTIATIONS
[25]
The
CITT’s determinations regarding any possible breaches of the AIT and/or the
NAFTA are matters within the CITT’s jurisdiction. The applicable standard of
review is reasonableness.
[26]
The
articles that Zenix alleged the applicant to have breached are Article 506(6)
of the AIT and Article 1015(4) of the NAFTA. Article 506(6) of the AIT states:
In evaluating tenders, a
Party may take into account not only the submitted price but also quality,
quantity, delivery, servicing, the capacity of the supplier to meet the
requirements of the procurement and any other criteria directly related to the
procurement that are consistent with Article 504. The tender documents shall
clearly identify the requirements of the procurement, the criteria that will be
used in the evaluation of bids and the methods of weighting and evaluating the
criteria.
[27]
Materially,
Article 1015(4) of the NAFTA states:
(d) awards shall be
made in accordance with the criteria and essential requirements specified in
the tender documentation;
[28]
As
I discussed briefly above, these two articles are of the same legal effect on
this particular procurement complaint. Both articles require that the evaluation
of bids follow the criteria stated in the tender documents. As such, it is
immaterial which article the applicant is found to have breached.
[29]
The
tender document at issue in this case is the RFAP. The RFAP has two requirements
that are at issue in this application: first that the negotiations must include
an agreement on a maximum amount for services authorized; and second before the
applicant can enter into negotiations with the second ranked bidder, the
negotiations between it and the first ranked bidder must have failed. For
convenience, I quote again paragraph 3.3 of the RFAP:
3.3 Results of
Evaluation / Contract Award
The RFAP technical
scores, as well as the Offer of Services scores (calculated as per paragraph 6
of the RFAP), are added to determine the relative ranking of proponents. The
Proponent with the highest overall score will be selected to negotiate a
contract with DCC. Negotiations will include an agreement on a maximum
amount for services authorized by DCC. In the event that these negotiations
fail, DCC will enter into negotiations with the next-ranked Proponent. The
services offered by the Proponent shall be in accordance with this RFAP
document.
[My emphasis.]
[30]
The
applicant “submits that the language of paragraph 3.3 of the RFAP did not
require it to disclose DND’s budget limits during its negotiations with Zenix”
(paragraph 91 of the applicant’s memorandum of fact and law). The applicant
submits that the CITT committed a reviewable error by making such a finding.
[31]
The
applicant points to the findings of the CITT at paragraph 49 of its
determination:
49. In that context, the Tribunal is of
the view that the criteria for evaluating Zenix’s proposal and the methods
of weighting and evaluating the criteria contained in paragraph 3.3 of the RFAP
required DCC to clearly indicate to Zenix that, in its view, the negotiation
had reached an impasse on the maximum amount for services to be provided and on
the opportunity to meet a price imposed by DND’s budget limitations. The
Tribunal believes that it is only after communicating this information to Zenix
and having sought a final response from Zenix in this regard that DCC could
have reached the conclusion that the negotiations had failed.
[32]
I
would also point to paragraph 45 of the CITT’s determination:
45. According to
paragraph 3.3 of RFAP, the negotiations were to include “. . . an agreement on
a maximum amount for services authorized by DCC . . . .” The Tribunal is of
the view that DCC never clearly communicated to Zenix what constituted the
maximum budgeted amount authorized by DND. The Tribunal is of the view that, if
the negotiation were to lead to an agreement on a maximum amount for services
authorized, it was reasonable to expect that either DCC or DND would have had
to identify, during the course of the negotiations, the monetary limit of DND’s
budget authority …
[My
emphasis.]
[33]
In
support of its submission that there is no obligation to disclose its budget
limit, the applicant cites paragraph 3 of the RFAP, which states:
The objective of this
competitive call for Abbreviated Proposals for selecting a Proponent and their
Consultant Team is to obtain optimum value for DND and to ensure fair
treatment of their consulting industry.
[My
emphasis.]
[34]
In
my opinion the applicant is correct. The CITT committed an unreasonable error
in finding that the applicant was required to disclose the monetary limit of
DND’s budget authority. In my view, there was no basis or justification that
would allow the CITT to reach this conclusion. As pointed out by the
applicant, the Supreme Court in another context has provided some guidance on
this point. In Martel Building Ltd. v. Canada, [2000] 2 S.C.R. 860 at para.
67, the Supreme Court stated:
67 It would
defeat the essence of negotiation and hobble the marketplace to extend a duty
of care to the conduct of negotiations, and to label a party’s failure to
disclose its bottom line, its motives or its final position as negligent. Such
a conclusion would of necessity force the disclosure of privately acquired
information and the dissipation of any competitive advantage derived from it,
all of which is incompatible with the activity of negotiating and bargaining.
[My
emphasis.]
[35]
In
my view, a proper contextual interpretation of paragraph 3.3 of the RFAP is that
in order for the applicant to award the contract, there must be an agreement between
the negotiating parties on the maximum amount to be paid for services. It is
quite sensible and typical of commercial negotiations that there be an
agreement between the parties on the maximum amount to be paid before awarding a
contract. Article 506(6) of the AIT requires that evaluation of the tenders
follow the criteria outlined in the tender documents. I find that neither the
RFAP itself, nor Article 506(6) of the AIT requires that the applicant disclose
DND’s budget limits to Zenix. Such a reading would prevent the applicant from
being able to use its competitive advantage to obtain the optimum value for DND,
which is an object of the competitive tendering process.
[36]
I
would not, however, preclude such a situation from ever occurring. If a clause
of the tender documents clearly required the applicant to disclose its budget
limit, then under the AIT or NAFTA Articles discussed, the applicant would be
required to abide by it. However, such a requirement would require clear
language in the RFAP, as it is counter to the very nature of a competitive
bidding and negotiated procurement process. In my view paragraph 3.3 of RFAP
is clear in not requiring the applicant to disclose its budget limit while
negotiating, and the CITT had no basis or justification for making such a
finding.
[37]
This
finding is not, however, determinative of this application for judicial
review. This application is still refused because I can find no error in the
CITT’s determination that the negotiations between the applicant and Zenix had
not failed and the applicant has not challenged that determination.
[38]
Paragraph
3.3 of the RFAP requires that, “[i]n the event that these negotiations fail,
DCC will enter into negotiations with the next-ranked Proponent.” Paragraph 3
of the RFAP also states that part of the object of the competitive RFAP process
is, “to ensure fair treatment of their consulting industry”. For convenience,
I quote again the factual findings from paragraph 44 of the CITT’s determination:
44. The evidence
demonstrates that an initial price for services was submitted by Zenix. The
evidence also indicates that Zenix modified its price offer shortly after the
start of the negotiations as a result of an exchange of information regarding
certain redundancies under the proposed contract. As a result of those
discussions, the evidence shows that the initial difference between the
estimated value of the contract and the initial price submitted by Zenix was
significantly reduced. Further discussions took place concerning the inclusion
of certain elements of cost in the second price submitted by Zenix, but the
evidence then shows nothing significant happening after that point, except for
inquiries from Zenix as to the status of the proposed contract. Finally, on
November 2, 2006, DCC informed Zenix that it was initiating negotiations with
the second-ranked proponent.
[39]
None
of these factual findings are challenged by the applicant. Based on these
factual findings, the CITT determined that the negotiations between the
applicant and Zenix had not failed. The applicant submits at paragraph 92 of
its memorandum of fact and law that, “it was entitled to unilaterally terminate
the negotiations when it was reasonably satisfied that the parties could not
agree ‘on a maximum amount for the services authorized by the DCC.’”
[40]
I
do not accept the applicant’s submission on this point. I agree with the
CITT’s findings at paragraph 47 of its determination:
47. There is nothing in
the language of paragraph 3.3 of the RFAP that could directly or indirectly be
construed as indicating that the negotiations would be conducted in a manner
that is different from what can generally be understood to take place in the
context of a commercial negotiation. Nothing in that paragraph indicated that,
contrary to what would normally be expected in the context of a negotiation,
DCC could unilaterally determine when the negotiations had reach [sic] the
point of failure.
[41]
On
this basis alone, I would dismiss the application.
[42]
However,
even if I were to agree with the applicant’s submission about unilateral
termination, I can find no factual basis that would allow the applicant to come
to the conclusion that the negotiations had failed and that the parties could
not agree on a maximum price.
[43]
The
factual findings of the CITT are that shortly after the start of the negotiations
in early to mid September 2006, in response to discussions with the applicant, Zenix
modified its bid by lowering its price offer. There were then some discussions
in early October, 2006 concerning the inclusion of certain elements of cost in
the modified price submitted by Zenix. Zenix was then left in the dark as to
the status of the bid despite a number of requests by Zenix for a status
update. This ended on November 2, 2006 when the applicant unilaterally
announced negotiations had failed and that it was beginning negotiations with
the second-placed proponent.
[44]
Zenix
was never accorded a further opportunity to respond to the applicant’s concerns
about price. Zenix had no reasonable basis to believe there were any problems
with its modified bid until it was told the negotiations had failed. This in
spite of the fact Zenix left the door open to further negotiations by
periodically seeking updates on the status of the bid. I simply do not see how
the applicant could conclude that there could be no agreement with Zenix on a
maximum price for services. From the facts, Zenix was open to further
negotiation, but it was never accorded that opportunity by the applicant.
[45]
The
conclusion of the CITT at paragraph 50 of its determination that the
negotiations between the applicant and Zenix had not failed was justified and reasonable.
50. Thus, the Tribunal
concludes that DCC acted contrary to paragraph 3.3 of the RFAP by unilaterally
concluding that the negotiations had failed and by entering into negotiations
with the second-ranked proponent. In acting in that manner, DCC violated
Article 506(6) of the AIT and Article 1015(4)(d) of NAFTA, in that it did not
respect the criteria and the methods of weighting and evaluating the criteria
prescribed in the RFAP.
[46]
Since
the negotiations between the applicant and Zenix had not failed, the applicant
was not entitled under paragraph 3.3 of the RFAP to begin negotiations with the
second-placed proponent.
[47]
In
the result, I agree with the determination of the CITT and I would therefore
dismiss this application for judicial review.
Conclusion
[48]
I
would dismiss the application without costs.
"Alice
Desjardins"
"I
agree.
Gilles Létourneau J.A."
"I
agree.
Johanne
Trudel J.A."
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