The Federal Court of Appeal recently upheld a precedent-setting decision by the Canadian International Trade Tribunal ("CITT") to award compensation for lost opportunities on third-party contracts due delays and errors in a mismanaged procurement process conducted by the Government of Canada.

In Canada (Attorney General) v EllisDon Corporation (2024 FCA 200), the Federal Court of Appeal upheld the following:

  1. The breaches at the base of the complaint related to matters of procurement and not contract administration despite the fact that there was a delay in the termination of EllisDon's contract.
  2. The CITT appropriately awarded compensation for lost opportunities on third-party contracts in accordance with sections 30.15(2) and 30.15(3) of the Canadian International Trade Tribunal Act, R.S.C. 1985, c.47 (4th Supp.) (the "Act").

Key facts

On Sep. 21, 2022, EllisDon Corporation ("EllisDon" or the "Complainant") and Pomerleau submitted competing bids on a large refurbishment project in Charlottetown, Prince Edward Island in response to an invitation to tender by the Department of Public Works and Government Services ("Public Works"). The same day, a Public Works employee incorrectly processed Pomerleau's documents, thereby invalidating Pomerleau's data.

As a result, Pomerleau's bid was ultimately rejected in favour of EllisDon on Feb. 16, 2023. On Feb. 22, 2023, Public Works sent the contract to EllisDon (the "Contract") but notified it that a stop work order was being issued as a result of Pomerleau's objection to the evaluation of its tender. On Feb. 28, 2023, Pomerleau verified that it had sent valid data (a valid e-bond) and filed a complaint with the CITT.

On Apr. 5, 2023, Public Works notified EllisDon that it made an error in evaluating Pomerleau's tender. However, EllisDon notified Public Works that it was ready to commence work under the Contract, incurring costs in waiting, and forced to pass on other opportunities. On Apr. 28, 2023, Public Works awarded the contract to Pomerleau and terminated its contract with EllisDon on May 1, 2023.

On May 12, 2023, EllisDon filed a complaint (the "Complaint") with the CITT alleging that Public Works breached trade agreements by mismanaging the procurement process. The CITT found that the procurement process was "replete with errors" and in breach of its obligations under trade agreements, including article 515 of the Canadian Free Trade Agreement.

The CITT found that it had a broad discretion in selecting an appropriate remedy under section 30.15(2) of the Act. Specifically, subsection 30.15(2)(e) allowed the CITT to award compensation to the Complainant by a specified amount. The Court also considered five mandatory factors under subsection 30.15(3) of the Act in contemplating the appropriate remedy:

30.15(3) The Tribunal shall, in recommending an appropriate remedy under subsection (2), consider all the circumstances relevant to the procurement of the goods or services to which the designated contract relates, including:

  1. The seriousness of any deficiency in the procurement process found by the Tribunal.
  2. The degree to which the complainant and all other interested parties were prejudiced.
  3. The degree to which the integrity and efficiency of the competitive procurement system was prejudiced.
  4. Whether the parties acted in good faith.
  5. The extent to which the contract was performed.

In considering these five mandatory factors, the CITT found that EllisDon was entitled to compensation by Public Works for its lost opportunity. The CITT's findings on the mandatory factors, was as follows:

  1. Seriousness of the deficiency in the procurement process: The CITT found that the deficiency was serious, and that Public Works failed to follow basic required steps to verify Pomerleau's e-bond and failed to conduct basic due diligence when Public Works was unable to verify it.
  2. Prejudice to interested parties: The CITT found that EllisDon was prejudiced during the period when Public Works withheld its errors in evaluating Pomerleau's data.
  3. Degree to which the procurement system is prejudiced: The CITT found that although the deficiency was significant, it was not systemic.
  4. Good faith by the parties: The CITT found that the behaviour of Public Works was "negligent, even while lacking malice."
  5. Extent of contract performance: The CITT found that as there was no substantial performance of the contract by EllisDon, that this factor was neutral.

The appeal

The Attorney General of Canada (the "AGC") brought an application for judicial review before the Federal Court of Appeal challenging the remedy awarded by the CITT. The Federal Court of Appeal (the "Court") dismissed this Application. In arriving at its decision, the Court contemplated two questions:

  1. Whether the Complaint was a matter of contract administration.
  2. Whether the compensation for lost opportunity on third-party contracts was an appropriate remedy.

Jurisdiction of the CITT

The AGC argued that the Tribunal lacked jurisdiction to make the award for compensation for lost opportunity because the Complaint was one of contract administration and not procurement. The AGC argued that the prejudice to EllisDon flowed from Public Works' delay in terminating the contract, rendering the matter one of contract administration.

In response to this argument, the Court upheld the CITT's reasonings, namely, that the breaches at the core of the Complaint related to procurement, specifically, the improper evaluating of bids, wrongly awarding the contract to EllisDon, and negligently providing false information to a potential supplier. Based on the aforementioned reasoning of the CITT, the Court found that the CITT reasonably concluded that the Complaint concerned the procurement process and as such, that it had jurisdiction to recommend the appropriate remedy.

Compensation for lost opportunity on third-party contracts

The AGC argued that it was unreasonable for the CITT to award EllisDon compensation for lost opportunity on third-party contracts due to the legislative scheme, the CITT's decision in Oshkosh Defense Canada (2018 CanLII 146683), the CITT's Procurement Compensation Guidelines and the Tribunal's jurisprudence, which had not recognized this remedy.

The Court found that the AGC's argument on the Tribunal's decision to award the remedy for lost compensation was unreasonable. The Court found that the CITT explained in its reasoning that it had the authority to grant this remedy under the Act and that it assessed the appropriateness of the remedy by considering each of the mandated factors under section 30.15(3).

The Court also found that the Tribunal's consideration of the legislative scheme for determining remedies under sections 30.15(2) and 30.15(3) of the Act was not unreasonable. The AGC argued that under the Act, remedies must strictly relate to the designated contract, relying on sections 30.11(1) and sections 30.15(2)(a)-(d) of the Act. The Court found that this argument suggested that Parliament intended to circumscribe the compensation granted under section 30.15(2), limiting the scope of compensatory remedies under section 30.15(2)(e), which refers to designated contracts.

However, the Court noted that even if the AGC's interpretation was reasonable, it did not render the Tribunal's decision unreasonable.

Lastly, the Court did not agree with the AGC's submissions that the CITT failed to consider the legal constraints from Oshkosh Defense Canada. The AGC relied on paragraph 75 of Oshkosh Defense Canada, which states: "The lodestar of the Tribunal's compensation analysis is the solicitation documents and the complainant's proposal …"

The AGC argued that this precluded the CITT from awarding compensation for lost opportunities on third-party contracts. The Court found that Oshkosh Defense Canada is in fact narrower than suggested by the AGC, and is tailored to the circumstances of that case, and not the case at hand. The Court distinguished EllisDon's case from Oshkosh Defense Canada, stating that EllisDon was not seeking additional revenues it could have negotiated if it won the Contract, but instead was seeking compensation for a period that it was "held hostage" and lost opportunities due to Public Works' inexplicable delays and errors in its handling of the procurement process.

The Court concluded that the CITT reasonably found that it may award compensation for lost opportunity from third-party contracts and that it was appropriate to do so.

Key takeaways

This case confirms the CITT's jurisdiction to reasonably and appropriately award damages for lost opportunities from third-party contracts. This precedent-setting decision by the CITT establishes that contractors can be compensated for loss on potential third-party contract opportunities due to delays and errors by the Government in its handling of the procurement process.

This decision adds a significant potential avenue of recourse for contractors who are subject to inexplicable delays and errors in the procurement process in advance of or after contract award.

However, while the award of lost opportunities of third-party contracts is a novel finding, the CITT and the Federal Court of Appeal were careful to confirm several core principles, including that the breaches must be related to matters of procurement and that compensation is not for additional revenues, which could have been negotiated after winning the contract, but rather for the period of delay in mishandling the procurement process.

It will remain to be seen how broadly the CITT seeks to apply this decision in future cases given the unique facts in this case.