GRAND AND TOY LIMITED

GRAND AND TOY LIMITED
File No. PR-2015-046

Decision made
Tuesday, December 15, 2015

Decision issued
Wednesday, December 16, 2015

Reasons issued
Wednesday, December 30, 2015

TABLE OF CONTENTS

 

IN THE MATTER OF a complaint filed pursuant to subsection 30.11(1) of the Canadian International Trade Tribunal Act, R.S.C., 1985, c. 47 (4th Supp.).

BY

GRAND AND TOY LIMITED

AGAINST

THE DEPARTMENT OF PUBLIC WORKS AND GOVERNMENT SERVICES

DECISION

Pursuant to subsection 30.13(1) of the Canadian International Trade Tribunal Act, the Canadian International Trade Tribunal has decided not to conduct an inquiry into the complaint.

Jean Bédard
Jean Bédard
Presiding Member

The statement of reasons will be issued at a later date.

STATEMENT OF REASONS

  1. Subsection 30.11(1) of the Canadian International Trade Tribunal Act[1] provides that, subject to the Canadian International Trade Tribunal Procurement Inquiry Regulations,[2] a potential supplier may file a complaint with the Canadian International Trade Tribunal (the Tribunal) concerning any aspect of the procurement process that relates to a designated contract and request the Tribunal to conduct an inquiry into the complaint. Subsection 30.13(1) of the CITT Act provides that, subject to the Regulations, after the Tribunal determines that a complaint complies with subsection 30.11(2) of the CITT Act, it shall decide whether to conduct an inquiry into the complaint.

SUMMARY

  1. The complaint relates to a Request for a Standing Offer (RFSO) (Solicitation No. EZ107-120002/E)[3] by the Department of Public Works and Government Services (PWGSC)[4] to establish Regional Master Standing Offer(s) for the supply of various original equipment manufacturer or remanufactured imaging consumables.
  2. Grand and Toy Limited (Grand and Toy) alleged that PWGSC’s request to extend the bid validity period meant that the prices quoted in its bid would be frozen for an unreasonable length of time such that, by the end of the first contract period, any potential profit margins would be eroded and many products would be sold below cost. According to Grand and Toy, such pricing would generate less than zero profit thereby violating the sustainable pricing clause in the RFSO.
  3. As a remedy, Grand and Toy requested that the solicitation be cancelled and reissued.

BACKGROUND

  1. The solicitation was issued on January 5, 2015, and the solicitation period closed on July 24, 2015.
  2. Grand and Toy submitted a bid within the solicitation period.
  3. On October 22, 2015, PWGSC asked bidders to advise, by October 30, 2015, whether they agreed to an extension of the bid validity period from November 20, 2015, to February 29, 2016, due to the high volume of bids received.
  4. On October 23, 2015, Grand and Toy wrote to PWGSC and raised its concerns about the unreasonable length of time it was taking to complete the evaluation process for this RFSO. It requested that PWGSC consider a shorter first contract period so that qualifying standard offer holders could adjust their pricing by the Consumer Price Index as outlined in the RFSO. In the alternative, Grand and Toy asked PWGSC to consider allowing standard offer holders to adjust their pricing after the first six months of the new RFSO. Finally, Grand and Toy asked whether non-acceptance of the extension request would result in PWGSC having to cancel and reissue the RFSO.
  5. On October 23, 2015, PWGSC responded to Grand and Toy that it was reviewing the issues that had been raised. Grand and Toy reiterated its objection to PWGSC on October 26, 2015. Having received no response, it followed up again on October 30, 2015. The same day, PWGSC replied that it was still reviewing Grand and Toy’s concerns but that it would extend the deadline to November 13, 2015, i.e. for bidders to respond to PWGSC’s request for extension of the bid validity period.
  6. On November 10, 2015, PWGSC provided additional information to all bidders in response to Grand and Toy’s objection. In particular, PWGSC indicated that it could not accept requests to change the terms of the standing offer, as set out in the RFSO. It also confirmed that, should one or more bidders not agree to the requested extension, the RFSO would not be cancelled and reissued and those bids would be considered non-responsive. Regarding concerns that had been raised about potential price fluctuations, PWGSC noted that, under the terms of the resultant standing offer, an Offeror may withdraw its offer with 30 days’ advance notice.
  7. On November 12, 2015, Grand and Toy filed a complaint with the Office of the Procurement Ombudsman (OPO) noting that, despite its objection, PWGSC had indicated that the RFSO would proceed unchanged. On November 25, 2015, the OPO notified Grand and Toy that it did not have the jurisdiction to review the complaint, as it related to a standing offer and not a contract.
  8. On November 13, 2015, Grand and Toy gave notice to PWGSC that it accepted the extension of the bid validity period under duress, but with objection. That same day, Grand and Toy communicated its objection to the Assistant Deputy Minister of the Acquisition Branch at PWGSC. In a response dated December 4, 2015, the Associate Assistant Deputy Minister indicated that the request to extend the validity period of offers was necessary due to the number of bids received and confirmed that PWGSC could not accommodate the requested modifications to the terms of the standing offer.
  9. On December 11, 2015, Grand and Toy filed its complaint with the Tribunal.

ANALYSIS

  1. On December 15, 2015, pursuant to subsection 30.13(1) of the CITT Act, the Tribunal decided not to conduct an inquiry into this complaint. The reasons for that decision are as follows.
  2. Pursuant to sections 6 and 7 of the Regulations, the Tribunal may conduct an inquiry if the following four conditions are met:
  • the complaint has been filed within the time limits prescribed by section 6;[5]
  • the complainant is an actual or potential supplier;[6]
  • the complaint is in respect of a designated contract;[7] and
  • the information provided discloses a reasonable indication that the government institution did not conduct the procurement in accordance with the applicable trade agreements.[8]
  1. Grand and Toy’s complaint meets the second and third conditions. For the reasons discussed below, the Tribunal finds that the complaint was not filed within the prescribed time limits and does not disclose a reasonable indication that PWGSC failed to conduct the procurement in accordance with the applicable trade agreements. Therefore, it does not meet the first and fourth conditions.

Time Limit for Filing the Complaint

  1. Subsection 6(1) of the Regulations provides that a complaint shall be filed with the Tribunal “. . . not later than 10 working days after the day on which the basis of the complaint became known or reasonably should have become known to the potential supplier.” Subsection 6(2) states that “[a] potential supplier who has made an objection . . . to the relevant government institution, and is denied relief by that government institution, may file a complaint with the Tribunal within 10 working days after the day on which the potential supplier has actual or constructive knowledge of the denial of relief, if the objection was made within 10 working days after the day on which its basis became known or reasonably should have become known to the potential supplier” [emphasis added].
  2. In other words, a complainant has 10 working days from the date on which it first becomes aware, or reasonably should have become aware, of its ground of complaint to either object to the government institution or to file a complaint with the Tribunal. If a complainant objects to the government institution within the designated time, the complainant may file a complaint with the Tribunal within 10 working days after it has actual or constructive knowledge of the denial of relief by the government institution.
  3. By “actual knowledge of the denial of relief”, the Regulations contemplate explicit rejection of a complainant’s requested relief (for example, a written reply rejecting the complainant’s position). In past instances, the Tribunal has interpreted “constructive knowledge of the denial of relief” as other non-explicit situations constituting the effective denial of relief, including where, after the passage of a reasonable period of time, the complainant’s position has yet to be addressed by the government institution.
  4. Grand and Toy submitted that it made its objection on November 13, 2015, and received a denial of relief from PWGSC on December 4, 2015.
  5. The Tribunal finds that Grand and Toy made an objection, within the meaning of that term for the purposes of subsection 6(2) of the Regulations, to PWGSC regarding the solicitation at issue within 10 working days from the date on which it became aware of its ground of complaint, which the Tribunal considers to be October 22, 2015. As stated above, on that date PWGSC requested that bidders accept an extension of the bid validity period, and Grand and Toy made its objection to PWGSC on October 23, 2015.
  6. The Tribunal further finds that PWGSC’s letter to all bidders dated November 10, 2015, provided a clear denial of relief regarding Grand and Toy’s objection. Indeed, Grand and Toy’s complaint to the OPO dated November 12, 2015,  referred to PWGSC’s refusal to modify the RFSO or the solicitation process despite Grand and Toy’s concerns. However, Grand and Toy waited a month after that to file its complaint with the Tribunal, i.e. on December 11, 2015.
  7. As stated by the Federal Court of Appeal in IBM Canada Ltd. v. Hewlett Packard (Canada) Ltd., “[i]n procurement matters, time is of the essence. . . . Therefore, potential suppliers are required not to wait for the attribution of a contract before filing any complaint they might have with respect to the process. They are expected to keep a constant vigil and to react as soon as they become aware or reasonably should have become aware of a flaw in the process.”[9]
  8. In addition, where there has been a clear denial of relief in relation to an objection made by a complainant, it is not open to the complainant to keep the issue alive and delay final disposition of the matter through successive reiterations of essentially the same concerns.[10] Although Grand and Toy further complained to the OPO and the Assistant Deputy Minister, the Tribunal still considers the date of its objection and denial of relief to be October 23 and November 10, 2015, respectively.
  9. Grand and Toy was aware of the possibility of recourse to the Tribunal as early as November 12, 2015, as demonstrated in its correspondence with the OPO. However, it did not file a complaint until December 11, 2015. As a result, Grand and Toy missed the window to advance its complaint to the Tribunal in a timely manner.
  10. Therefore, the Tribunal finds that Grand and Toy did not file a complaint with the Tribunal within the time limits set out in section 6 of the Regulations.

No Reasonable Indication of a Breach

  1. Even if the complaint had been filed in a timely manner, the Tribunal finds that it does not meet the conditions of paragraph 7(1)(c) of the Regulations because the complaint fails to disclose a reasonable indication of a breach of an applicable trade agreement. The Tribunal focused its analysis on the relevant provisions of the Agreement on Internal Trade,[11] the Agreement on Government Procurement[12] and the North American Free Trade Agreement,[13] given that the other applicable trade agreements contain provisions similar to those found in NAFTA.[14]
  2. The relevant trade agreements require that a procuring entity ensure that its tendering procedures are applied in a fair and non-discriminatory manner. For example, Article IV(4) of the Revised AGP[15] provides that “[a] procuring entity shall conduct covered procurement in a transparent and impartial manner . . . .” With respect to the qualification of suppliers, Article IX(3) provides that “. . . procuring entities shall not adopt or apply any . . . qualification procedure with the purpose or the effect of creating unnecessary obstacles to the participation of suppliers . . . .”[16]
  3. Grand and Toy submitted that the extension of the bid validity period meant that bidders who received a standing offer would be forced to maintain their quoted prices for a period of over 19 months.[17] It alleged that such a lengthy bid validity period is unfair and discriminatory against those potential suppliers, including Grand and Toy, who purchase products in U.S. currency (USD) and sell them in Canadian currency (CAD), especially given the fact that the USD/CAD exchange rate has recently dropped significantly. In its view, PWGSC has essentially asked potential suppliers to “shoulder the burden” of exchange rate losses, thereby subsidizing the price of imaging consumable products for PWGSC.[18]
  4. Grand and Toy agreed to PWGSC’s request for an extension of the bid validity period, despite having made an objection, because it felt that it was not in a position to refuse given that it does significant business with the Government of Canada, and if it had not agreed to the extension, then its bid would have been deemed non-responsive and set aside.
  5. However, Grand and Toy submitted that the extended bid validity pricing will not allow it to recover its costs or make a profit on certain products due to exchange rate losses and increased manufacturer costs,[19] which would place it in violation of the sustainable pricing clause in the RFSO. It alleged that PWGSC’s refusal to permit potential suppliers to submit new or amended bid prices on the basis of the extended bid validity period is unfair and constitutes a violation of paragraph 1014(4)(c) of NAFTA.
  6. The Tribunal finds that Article 1014(4) of NAFTA is not applicable in this case. Grand and Toy relied on wording from paragraph (c), which provides that no procuring entity may, in the course of negotiations, discriminate between suppliers. “. . . In particular, an entity shall: . . . permit all remaining suppliers to submit new or amended tenders on the basis of the modified criteria or requirements.”[20] However, paragraph (c) must be read in the context of the entire provision. Article 1014 sets out rules for a procuring entity in conducting negotiations in respect of a procurement process.[21] Therefore, paragraph (c) would only apply to a situation where a procuring entity conducts negotiations regarding a solicitation process and those negotiations result in a change to the criteria or requirements set out in the solicitation documents. In such circumstances, paragraph (c) requires the procuring entity to permit bidders to submit new or amended tenders on the basis of the changed criteria or requirements.
  7. In the present case, there is no indication that PWGSC conducted a negotiation in respect of the RFSO. The Tribunal does not consider the request for an extension of the bid validity period and the subsequent communication between Grand and Toy and PWGSC to be a negotiation process. Therefore, there was no requirement for PWGSC to permit bidders to submit new or amended bids in light of the extended bid validity period.
  8. The Tribunal considers that the relevant provisions of the trade agreements for its analysis of Grand and Toy’s complaint include those set out above in paragraph 28, i.e. the requirement that the solicitation procedures be applied in a fair and non-discriminatory manner and not create unnecessary obstacles to the qualification of suppliers.[22]
  9. The Tribunal finds there is no reasonable indication that PWGSC’s request to extend the bid validity period, or its subsequent denial of Grand and Toy’s request to amend the terms of the RFSO, constituted unfair or discriminatory treatment to suppliers who purchase products in USD and sell them in CAD.
  10. The Tribunal has previously held that a government institution is entitled to define and meet its reasonable and legitimate operational requirements, as long as the procurement is not structured to favour any particular potential supplier.[23] As explained in its e-mail to bidders of October 22, 2015, PWGSC sought to extend the bid validity period due to the high volume of bids received. The Tribunal accepts this as a reasonable explanation given that there is no information indicating that the procurement was structured to obstruct any particular potential supplier(s) or that the procurement process was conducted in a manner that favoured a potential supplier. All bidders were asked to agree to the same extension of their bid pricing, regardless of their respective purchasing practices.
  11. Furthermore, the documentation filed with the complaint demonstrates that PWGSC conducted the process for extending the bid validity period in a fair and transparent manner. For example, following the questions and concerns raised by Grand and Toy, PWGSC provided its response to all bidders on November 10, 2015, in which it stated that, since the RFSO had closed, the terms set out in the RFSO would apply to any resultant standing offer.
  12. The terms of the RFSO clearly stipulate a one-year period for making call-ups against the resultant standing offer.[24] During the standing offer period, Offerors are permitted to voluntarily decrease their prices every four months.[25] The RFSO also provides that, upon notification of an extension of the standing offer, “. . . Offerors will be authorized to submit proposed price increases to the Standing Offer Authority for consideration” but that “[p]rices must not be increased by more than the (CPI).”[26]
  13. The sustainable pricing clause relied on by Grand and Toy is set out in Annex C of the RFSO, which covers the evaluation requirements and basis of selection for the solicitation. Clause C2 provides the financial evaluation requirements, including the following sustainable pricing clause:[27]

C2.1 Sustainable Pricing

In Canada’s experience, when financial evaluation of offers is based on a basket of goods, Offerors will from time to time propose prices that do not allow them to recover their costs and/or make a profit on certain items. Canada has adopted an evaluation strategy for this commodity based on sustainable pricing. A sustainable price is defined as a price for an item that, without subsidy, can generate greater than zero profit for the Offeror.

For the purpose of this requirement, manufacturer incentive programs such as rebates based on sales volume or volume commitments and co-operative advertising programs will be considered as subsidies.

When evaluating the prices offered for certain items, Canada may, but will have no obligation to, require price support for those items whose prices have been deemed as abnormally low. An abnormally low price is defined as a price lower than the minimum price threshold for the item, as detailed further in paragraph B2.3 a). Examples of price support that Canada would consider satisfactory include:

(a) a current manufacturer’s published price list indicating the cost of the item to the Offeror; or

(b) documentation such as copies of recently paid manufacturer/distributor invoices excluding any volume rebates or discounts; or

(c) a signed contract or agreement between the Offeror and its supplier which includes pricing structures.

Once Canada requests price support for any item, it is the sole responsibility of the Offeror to submit the information (either the information described in the examples above or information that demonstrates that it will be able to recover its own costs based on the price it has proposed) that will allow Canada to determine, with confidence, that the price proposed is sustainable. Where Canada determines that the price support offered does not demonstrate that the price offered is sustainable, the item in question will be considered non-compliant.

[Emphasis in original]

  1. The terms of the sustainable pricing clause authorize PWGSC, when evaluating the prices offered for certain items, to require price support for those items whose prices are deemed as abnormally low. Contrary to Grand and Toy’s allegation, if a bidder’s quoted prices fall to an abnormally low level due to exchange rate fluctuations, this would not constitute an automatic violation of the sustainable pricing clause. The clause sets out a mechanism whereby PWGSC may, but has no obligation to, require price support, and it is only if it determines that the price support offered “does not demonstrate that the price offered is sustainable” that the item in question will be considered non-compliant.
  2. Accordingly, if PWGSC were to require price support from Grand and Toy, then Grand and Toy would have the opportunity to provide certain information, which could include current manufacturer pricing information, and PWGSC would assess whether the price offered is sustainable. As no such request for price support or determination of whether Grand and Toy’s pricing is sustainable has been made, there is currently no basis to claim that PWGSC conducted an unfair assessment of Grand and Toy’s pricing or that PWGSC will find Grand and Toy’s bid to be non-compliant on the basis of the sustainable pricing clause.
  3. In light of the above, the Tribunal finds that the complaint does not disclose a reasonable indication that PWGSC did not conduct the procurement in accordance with the relevant trade agreements.

DECISION

  1. Pursuant to subsection 30.13(1) of the CITT Act, the Tribunal has decided not to conduct an inquiry into the complaint.
 

[1].      R.S.C., 1985, c. 47 (4th Supp.) [CITT Act].

[2].      S.O.R./93-602 [Regulations].

[3].      The complaint form completed by Grant and Toy identified two separate solicitation documents that were issued for this requirement:  Solicitation No. EZ107-120002/E aimed at the general industry and Solicitation No. EZ107-120002/F under the Aboriginal Set Aside Program. However, the information provided by Grand and Toy indicates that its complaint relates solely to Solicitation No. EZ107-120002/E, for which it submitted a bid. Therefore, the Tribunal considered Solicitation No. EZ107-120002/E for the purposes of its analysis.

[4].      On November 4, 2015, the Government of Canada gave notice that the name of the Department of Public Works and Government Services will be changed to Public Services and Procurement Canada.

[5].      Subsection 6(1) of the Regulations.  

[6].      Paragraph 7(1)(a) of the Regulations.  

[7].      Paragraph 7(1)(b) of the Regulations.

[8].      Paragraph 7(1)(c) of the Regulations.

[9].      2002 FCA 284 (CanLII) at paras. 18, 20.

[10].    Sani Sport, (23 March 2014), PR-014-064 (CITT) at para. 30; Stonehaven Productions Inc. (16 March 2012), PR‑2011-060 (CITT) at para. 11; Weir Canada Inc. (6 September 2012), PR-2012-014 (CITT) at para. 12.

[11].    18 July 1994, C. Gaz. 1995.I.1323, online: Internal Trade Secretariat <http://www.ait-aci.ca/agreement-on-internal-trade/> [AIT].

[12].    Revised Agreement on Government Procurement, online: World Trade Organization <http://www.wto.org/‌english/docs_e/legal_e/rev-gpr-94_01_e.htm> (entered into force 6 April 2014) [Revised AGP].

[13].    North American Free Trade Agreement between the Government of Canada, the Government of the United Mexican States and the Government of the United States of America, 17 December 1992, 1994 Can. T.S. No. 2, online: Department of Foreign Affairs, Trade and Development <http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-... (entered into force 1 January 1994) [NAFTA].

[14].    The solicitation at issue is clearly covered by the Revised AGP and the AIT. Under several of the other trade agreements, including NAFTA, Canada has excluded the coverage of certain procurements in respect of Federal Supply Classification 70 (“automatic data processing equipment, software supplies and support equipment”). The Tribunal considers there to be a possibility that some or all of the goods being procured may fall within that exclusion, but it would need more information in order to determine if that is indeed the case. However, the Tribunal is willing to accept that all the trade agreements cover the solicitation for the purposes of determining whether the complaint discloses a reasonable indication of a breach, given that the Revised AGP is applicable and contains similar provisions to Article 1014(4) of NAFTA, upon which Grand and Toy relied.

[15].    Grand and Toy relied on Article X(1) of the former Agreement on Government Procurement, 15 April 1994, online: World Trade Organization <http://www.wto.org/english/docs_e/legal_e/final_e.htm>, which has been replaced by the Revised AGP. The Tribunal notes that the Revised AGP includes similar provisions under Articles IV(4) and IX(3).

[16].    See also Articles 1008 and 1009 of NAFTA; Article 504 of the AIT.

[17].    The extension of the bid validity period to February 29, 2016, meant that prices quoted in July 2015 (i.e. when the solicitation closed) would need to be maintained, for those bidders who received a standing offer, until February 28, 2017 (i.e. the end of the first one-year standing offer period).

[18].    Complaint at 6; letter from Grand and Toy to the Tribunal, dated December 10, 2015, which contains a detailed statement of facts and arguments.

[19].    Letter from Grand and Toy to the Tribunal, dated December 10, 2015, which contains a detailed statement of facts and arguments. The Tribunal notes that on December 16, 2015, Grand and Toy filed additional information with respect to increasing manufacturer costs.

[20].    The Revised AGP contains similar provisions. See Articles X(11) and XII.

[21].    Article 1014 of NAFTA provides the following: “1. An entity may conduct negotiations only: (a) in the context of procurement in which the entity has, in a notice published in accordance with Article 1010, indicated its intent to negotiate; or (b) where it appears to the entity from the evaluation of the tenders that no one tender is obviously the most advantageous in terms of the specific evaluation criteria set out in the notices or tender documentation. 2. An entity shall use negotiations primarily to identify the strengths and weaknesses in the tenders.”

[22].    For example, as set out respectively in Articles IV(4) and IX(3) of the Revised AGP.

[23].    See Agri-SX Inc. (27 March 2013), PR-2012-051 (CITT) at paras. 26-29; 723186 Alberta Ltd. (12 September 2011), PR-2011-028 (CITT) at paras. 19-21.

[24].    RFSO, Part 7, clause 4.1.

[25].    RFSO, Part 7, clause 12.

[26].    RFSO, Part 7, clause 4.2.1.

[27].    RFSO, Annex C.

Case Number(s)

PR-2015-046

Attachment(s)

pr2p046_e.pdf (102.79 KB)

Status

Publication Date

Friday, January 15, 2016

Modification Date

Friday, January 15, 2016