As part of its new budget announcement, the Canadian Government has unveiled a policy that could punish defense contractors who challenge bidding results if the contractors are found to have caused “economic harm.”
The policy builds on Canada’s 2017 position that its evaluation of bids for replacing fighter planes would include a review of bidders’ impact on the country’s economic interests. Bidders found to have harmed Canada’s economic interests would be “disadvantaged” by having their otherwise validly obtained bid scores reduced. The new budget confirms this policy will now apply “to major military and Coast Guard procurements.”
According to Marcia Mills, Co-Leader of the National Security group at the law firm Fasken, the policy raises a number of important issues:
“One concern with this policy statement is that it is being applied across all defense procurement – tens of billions of dollars being spent annually by the government are now subject to this policy. A broader issue is what this policy signals – an arbitrary application of penalties to remove bidders who challenge the government.
“This policy position is profoundly disturbing and constitutes another attempt to avoid scrutiny when spending taxpayers’ dollars in some of the most expensive procurements in Canadian history. While its origins may have been focused for one particular procurement, it should not go unnoticed that this is now being applied beyond that one particular situation.
“No trade agreement to which Canada is a signatory allows a government to penalize bidders who raise concerns with respect to the conduct of a procurement, and it is questionable whether this approach is permissible under trade agreements Canada has signed in to law. This approach should be seen as a clear signal that Canada has no interest in being held to account.
“Usually, if a party to a trade agreement is seeking to trigger exceptions from the rules of the trade agreement these would be negotiated at the time the trade agreement is itself negotiated, or the party would follow the notification requirements of the trade agreement and provide notice to all signatories. These processes are in place to prevent parties from signing agreements then stepping away from their commitments. Canada accedes to trade agreements through passage of laws – the most recent is the Canada–United Kingdom Trade Continuity Agreement Implementation Act, proclaimed into force on April 1.
“In trade-covered procurements, the penalizing of bidders who seek fair treatment is not a “procurement rule” that would stand scrutiny, as it is not a legitimate operational requirement. “Further, it would appear that this approach violates the obligations of trade agreements to provide bidders a domestic review procedure, since bidders are effectively estopped from accessing the review processes in Canada as they will be penalized. The policy runs counter to the obligations of trade signatories to provide dispute resolution processes.
“What should not be lost is the fact that in defence procurements scoring between bidders is often very close – sometimes the difference between bidders is as low as half a point out of thousands of points available. All the government needs to do is “penalize” the bidder enough points to reduce their score so that they cannot win. Or “penalize” the bidder so that they do not achieve a requisite minimum points score and are disqualified. It is simply arbitrary and is intended to usurp a bidder’s right to access the trade tribunal or the court system in Canada.”
Marcia Mills is Co-Leader of Fasken’s National Security group and also counsel to Fasken’s Procurement, International Trade & Customs, and Technology, Media and Telecommunications groups and a member of the Fasken Government Relations team.
For over 25 years, Mills has worked in both the public and private sector as external and in-house counsel in defense, aerospace & security and information technology, including a decade with Public Services and Procurement Canada (PSPC), the central purchasing agent for federal departments and agencies. During her tenure at PSPC, she provided strategic and legal advice to Canada’s largest public sector buyer and for some of Canada’s largest defense and Major Crown procurements.