Federal government department mismanaged procurement process, must pay construction co., FCA says

The Department of Public Works and Government Services mismanaged the procurement process for a Charlottetown refurbishing project, so one of the affected construction companies is entitled to the “novel” remedy of compensation for lost opportunity, the Federal Court of Appeal ruled Wednesday.

The FCA tossed out the government’s argument that a trade tribunal cannot calculate damages by considering lost opportunities from third-party contracts, finding that the government’s argument relied on a legal passage that had been taken out of context.

The principle in the case that the government cited, Oshkosh Defense Canada Inc., “is narrower than what the [attorney general of Canada] suggests and is tailored to the circumstances of that case,” Justice Judith Woods wrote for the court.

“In particular, it says that where lost revenue is being sought for failure to be awarded a contract, parties may not go beyond the relevant designated contract documents to estimate ‘what, if they had won the contract, additional types of revenues they might have been able to negotiate with the government outside or even ancillary to the framework of the RFP.’”

This principle “is not applicable in the case at hand due to the different facts involved,” Woods added.

Justices Donald Rennie and John Laskin concurred.

The dispute started in 2022 when construction companies EllisDon Corporation and Pomerleau Inc. made competing bids to work on a large refurbishing project in Charlottetown in response to an invitation by the government department, which is now known as Public Services and Procurement Canada.

A department employee incorrectly processed Pomerleau’s document and determined that the company’s bid was defective. The department awarded the contract to EllisDon in 2023 and told Pomerleau its bid was rejected because its application could not be verified.

Pomerleau requested an investigation and asked for the award process to be suspended, and the department issued a stop work order to EllisDon until the issue could be resolved. After Pomerleau confirmed its application had been verifiable and filed a complaint with the Canadian International Trade Tribunal, the department withdrew the contract from EllisDon and awarded it to Pomerleau instead.

EllisDon filed a complaint against the department with the tribunal, arguing that the department should compensate it for the opportunities and profits it lost due to the department’s flawed procurement process. The tribunal determined that the department’s procurement process was error-ridden and breached its obligations under trade agreements.

The tribunal also recommended that the department pay EllisDon for the lost opportunities, and the department appealed.

The FCA upheld the tribunal’s decision. The court rejected the attorney general’s argument that because EllisDon’s complaint dealt with contract administration rather than procurement matters, the tribunal lacked the jurisdiction to make the compensation recommendation.

“The breaches at the base of the complaint related to matters of procurement: improperly evaluating the bids, wrongly awarding the contract to EllisDon, and negligently providing false information to a potential supplier,” the FCA wrote. It concluded that the complaint focused on the department’s “mismanagement of the procurement process.”

The FCA also tossed out the attorney general’s argument that compensating EllisDon for lost opportunities was inappropriate. The government argued that such a remedy was “unprecedented, not consistent with the purposes of the tribunal’s regulatory regime, and not contemplated by the tribunal’s procurement compensation guidelines.”

The FCA countered that the Canadian International Trade Tribunal Act authorized remedies for lost opportunities and that the tribunal correctly ruled that such a remedy was appropriate, even if it was novel.

The court then declined to consider two more arguments by the government because they were first introduced to the FCA instead of the tribunal. However, the FCA said these arguments would have made no difference to its final ruling even if they had been considered, noting that one of the arguments was based on an excerpt of a filing from a previous case taken out of context.

Public Services and Procurement Canada and counsel for EllisDon did not comment by press time.