Legal horizons

Experts weigh in with tips and viewpoints on trends in procurement law

February 29, 2016
by Michael Power


From the February 2016 print edition

Procurement has no shortage of legal issues to consider—whether controlling risk, minding legal language in procurement documents or managing disputes. For the first issue of 2016, PurchasingB2B takes a look at some of the legal issues that procurement now deals with, recent trends, as well as tools and tips to deal effectively with challenges.

Perhaps the most significant legal trend is the move away from the binding competitive process for large, complex public procurements, says Maureen Sullivan, president of National Education Consulting, Inc. By avoiding Contract A obligations, public organizations are less restricted in their conversations with suppliers—and the ideas they can entertain—as the procurement unfolds. This process, the negotiated request for proposal (NRFP), is especially helpful when no “off-the-shelf” solution exists for a particular situation.

“It’s important, however, to make sure you’re adopting this approach for the right reasons and with the right resources in place,” Sullivan says. “Considerations include your organization’s tolerance for legal and political risk, leverage in the marketplace and availability of expert resources. Because this kind of approach requires a very different skillset than traditional procurement, most organizations reserve it for highly complex, highly uncertain procurement scenarios.”

Whether using a binding or non-binding process, the key to success continues to involve ensuring adequate time and resources for the procurement planning process, Sullivan says. “Time spent at this stage really does pay off tenfold downstream and helps to avoid unnecessary delays, challenges and political fallout that can be associated with flawed or failed procurements,” she notes. Procurement should remember their corporate reputation is shaped in part by how well-structured and fairly conducted their processes are. Due diligence helps avoid wasted time and false expectations when assessing the procurement need. Once key suppliers and vendors lose interest, it’s tough to recapture it, says Sullivan.

Judicial review
Paul Emanuelli, general counsel of the Procurement Law Office, cites the rise of judicial review as the most significant legal development in public procurement in the past decade. Along with potential lost profits claims based on commercial contracting remedies, losing bidders can now seek procedural remedies against public institutions under administrative law, Emanuelli says. This is a significant change in government procurement. Traditionally, procedural remedies like tender call re-draft orders, re-evaluation orders and contract cancellation orders have been restricted to federal-sector trade treaty challenges at the Canadian International Trade Tribunal (CITT). “Over the last 10 years the courts have become increasingly active in judicially reviewing the procurement decisions of federal and provincial governments, government agencies and the broader public sector,” Emanuelli says. “The courts have begun to apply very strict standards to government tendering practices and have shown an increasing willingness to strike down government contract awards when a public body fails to run a fair and procedurally correct competition.”

This encourages legal challenges in previously uncharted areas, he notes. In a recent case called Airbus Helicopters v. Canada, a court ventured into the pre-bid stage of the government’s procurement. In that case, the court ruled that the government was under a fair competition duty to draft neutral specifications and to ensure those specifications were reasonably connected to the government’s operational needs, says Emanuelli. The court also allowed a legal challenge from a supplier that never submitted a bid, requiring the government to defend against allegations its helicopter specifications were biased in favour of another supplier.

While the complainant lost the legal challenge, the case went into previously uncharted territory in three ways. “It expanded the scope of potential protesters to include non-bidders, where typically only competing bidders are given standing to legally challenge a government procurement process,” Emanuelli says. “It expanded the scope of legal review to include the pre-bid planning and tender call drafting stage of the government’s procurement process, where traditionally legal challenges have focused on the details of the bidding and award stages.”

Third, the move allowed a court-based challenge of allegedly biased specifications, he says, where specification challenges have only been levelled against the federal government at the CITT. This sets a precedent for potential specification challenges at all levels of government.

Technology advances have affected every aspect of modern business and procurement is no exception. The field has seen the rise of e-procurement as a tool to streamline the procurement process, as well as reduce costs. But purchasers must consider potential legal pitfalls. For example, while allowing for faster and easier communication, e-procurement can make it difficult to control that communication, say Graham Ragan and Jennifer Katsuno, lawyers at Gowlings law firm. Such communication becomes particularly important with complex contracts with several points of contact between purchasers and suppliers. Organizations involved in an e-procurement process should ensure all electronic communication happens with appropriate formality and according to the terms of the tender documents, they note. “Parties engaged in e-procurement should also be aware of the security risks associated with communicating and uploading information to an electronic site,” say Ragan and Katsuno. “Steps should be taken to ensure that any confidential or sensitive information is transmitted and stored with the appropriate electronic security measures.”

Another trend that Ragan and Katsuno have seen is lack of effective remedies for suppliers unhappy with a procurement process. That’s especially true with federal suppliers in challenging a contract award. The CITT can pose difficulties due to the short time limit for filing a complaint. Suppliers often can’t compile the information needed to support a CITT complaint within the 10-day timeframe. The CITT’s jurisdiction is also limited to contracts falling within the relevant trade agreements, restricting the degree to which it can consider challenges.

Suppliers can also file a civil claim seeking damages for lost profits from a contract award, say Ragan and Katsuno. But this is often unsatisfactory given the time and cost involved in litigation. Remedies under a civil claim can be less attractive for suppliers who want to perform the contract and challenge its award to another supplier before contract administration begins. The promise of financial compensation at the end of lengthy litigation can be unattractive to such suppliers.

Due to these factors, Ragan and Katsuno anticipate suppliers will seek creative ways to challenge contract awards and procurement processes. In particular, they also anticipate applications for judicial review may prove an attractive alternative to the CITT.

Alternative dispute resolution
A group of techniques and concepts, known as alternative dispute resolution (ADR), exists that can carry out disputes without going to more adversarial processes like litigation, says Toronto-based lawyer Marvin Huberman. ADR includes consensual or non-binding procedures like negotiation and mediation, as well as binding adjudication such as arbitration and private judging. Such alternatives are gaining popularity in public procurement disputes. An example of ADR is arbitration, he notes, in which parties refer a dispute to one or more impartial people who review the evidence and hear arguments before rendering a legally binding decision.

“Public procurement professionals recognize and continue to embrace the use of ADR as a way to lessen costs, save time, reduce stress, build and strengthen relationships, provide more flexible processes and more party-sensitive and complex solutions than a traditional litigated outcome,” Huberman notes.

Advantages to arbitration include an equal opportunity to be heard and to agree on flexible procedures, as well as to maintain control and involvement in the process, Huberman says. It’s also private, consensual and confidential and can resolve procurement contract disputes fairly and efficiently. On the other hand, it can be a lengthy, inefficient, costly, and formal process—especially when external advisers like claims consultants and lawyers are involved. ADR in procurement contract disputes offers both challenges and opportunities, Huberman says. It’s a tool that, if used properly, can help enhance the process.

The Charbonneau Commission
The Charbonneau Commission was created to inquire into the existence of collusion and corruption in the awarding of public construction contracts in Quebec, say Bill Woodhead, an associate in the Calgary office of Borden Ladner Gervais LLP and Doug Sanders, a partner in Borden Ladner Gervais’s Vancouver office. The Commission found that the current legislative framework and the predictability of practices by public authorities facilitated the development and continuation of collusive, illegal strategies.

The commission made several recommendations aimed at reducing corruption and collusion in public procurements, they say, noting that the causes for these illegal activities were pervasive throughout the construction industry. These recommendations included:

  • creating a new body to oversee the awarding of public contracts to supervise the process;
  • improving protection provided to whistleblowers;
  • reducing delays in payment of construction works;
  • no longer requiring contracts be awarded to the lowest conforming bidder;
  • expanding background checks on construction industry stakeholders; and
  • identifying employers of individuals making political donations.

Some of the commission’s recommendations will eventually become legislated, and as a result, procurement professionals must be aware of the forthcoming changes and may have to change or adapt their practices.

“The impact of the Commission’s report highlighted the corruption that can be prevalent in the procurement industry,” say Sanders and Woodhead. “Going forward, procurement professionals will be under the microscope when bidding on public construction projects and will need to comply with whatever legislative changes result from the commission’s report. It will be important that procurement professionals identify the inherent risk of illegal bidding practices within their specific industry and ensure that corruption and collusion are not encouraged through the processes being used.”

Procurement’s legal horizon has both challenges and opportunities. The rising profile and skills level of procurement professionals help ensure Canada’s purchasing community is well equipped to deal with legal challenges that arise.