Federal government ordered to pay nearly $30 million to losing bidder in relocation deal

Federal government ordered to pay nearly $30 million to losing bidder in relocation deal by Kathryn May, April 8, 2012, Ottawa Citizen in Calgary Herald
The federal government has been ordered to pay nearly $30 million in lost profits to the losing bidder of a controversial mega-million-dollar relocation deal that an Ontario Superior Court judge found was “intentionally” steered by bureaucrats to a preferred supplier. In his ruling, Justice Peter Annis concluded Envoy Relocation Services should have won the five-year deal in 2004 that was awarded to Royal LePage Relocation Services (RLRS) to help move the 18,000 military, RCMP and bureaucrats who are uprooted each year to take new postings in Canada and abroad. The deal, the biggest of its kind in North America, was won by RLRS successively in 1999, 2002, 2004 and 2009. “In summary, it was found the Crown had acted intentionally to unfairly favour RLRS by repeating the 2002 property management services provisions in the 2004 RFP and by modifying the selection formula to play to RLRS strengths, Annis wrote in his decision released late Saturday. … Annis ordered the government to pay Envoy $20.7 million in damages to cover lost profits for the military contract and an additional $8.5 million in damages for the contract to move the RCMP and other bureaucrats to new postings. On top of that, Annis awarded interest and costs, but decided against Envoy’s pleas for “punitive damages,” which he argued would “serve no purpose in terms of denunciation and deterrence.”

“I’ve known from day one that any rational person would conclude what Justice Annis did,” Bruce Atyeo, one of Envoy’s partners, said Sunday. “If we didn’t feel so sure we would never have pursued this, but I can’t help but wonder now many others (suppliers) have known a bid was rigged and if they had the money would have sued.” Atyeo said that while he is naturally pleased with the ruling, he’s disappointed the government wasn’t further penalized with punitive damages, which are rare in Canada. “It’s not a level playing field when you sue the government. Few entities or individuals have deep enough pockets, the time and perseverance to do what we did and the government knows,” he said. “They exacerbate that because they have the money, time and lawyers on staff with unlimited funds — yours and mine. … They don’t care about delays and red herring motions in the path of justice which can go on and on. That’s why I think they need to be penalized heavily — to get their attention and stop the behaviour.”

Atyeo and his partner, Pierre Titley, have been campaigning to prove federal bureaucrats cheated them out the deal since 2002. They estimate they’ve spent close to $10 million exhausting all legal avenues since then.

Envoy sued the government for $62 million in lost profits and damages over its handling of the 2002 and 2004 contracts after a bombshell report in 2006 by then Auditor-General Sheila Fraser concluded the 2004 bidding process favoured RLRS. Atyeo and Titley accused the government of “intentional infliction of economic harm by unlawful means” and “breach of contract and negligence.” The relocation contract, which costs the government about $2.5 billion, has been one of most scrutinized and longest-running procurement disputes in recent history. It has wound its way through channels of hearings, investigations and audits before unfolding in last year’s lengthy trial, originally scheduled for seven weeks. More than 3,000 documents were gathered for the case, about 800 exhibits were tabled and at least two dozen witnesses called.

Alan Williams, a former senior bureaucrat who specialized in procurement, said the decision is another black eye on the government’s procurement system and is “symptomatic” of government’s failure to understand that the key role of its contracting arm, Public Works and Government Service, is to protect the integrity of the bidding process. This contract was scrutinized to death over the years, he said, and problems should have been fixed and caught. “Depriving bidders of due process and a fair shot can’t be much worse than that and it’s not like it happened only once,” he said. “How many times can they mess this up? And it begs the question why. Was it incompetence or did something else happen? If this continues they should undertake a forensic audit to find out if anything beyond incompetence triggered this.”

The case turned on whether Annis would find that the bureaucrats overseeing the awarding of the 2004 contract were aware the bidding process favoured RLRS, which as the incumbent contract-holder had an advantage and “insider knowledge” of what was involved. In his ruling, Annis criticized key public servants overseeing the bidding process for “turning a blind eye” to practices that favoured RLRS and later covering it up. He chastised the government for failing to call senior bureaucrats as witnesses and its reluctance to turn over key documents that would have routinely been made available in normal court procedures. The documents proved to contain critical evidence when they were finally forced over by a court order.

Annis said the debacle began in a “one-line formula buried in a 317-page tender document” that instructed bidders to use highly inflated volumes for pricing property management. The volumes for management services were 250 times higher than what was actually ever used. This allowed RLRS to use its knowledge that hardly any transferees used these services to bid zero and gain a $48-million advantage over its closest rival, Envoy. The judge found RLRS’s zero bid not only gave the company a huge price advantage but offered plenty of wiggle room for the company to raise the administration fee it charged for every file, and thereby increase its profits — and the cost to government. Evidence showed that not only did RLRS bid zero for providing property management services but then it turned around and charged transferees for a service that it promised to do for free. Internal documents over showed the key bureaucrats managing the process in Public Works and Treasury Board not only knew, but “authorized” the charges.

Annis said there was an “unfinished issue” as to who else in PWGSC and Treasury Board were aware that transferees were being charged for the service that RLRS promised to do for free. The judge noted that the inflated business volumes, coupled with RLRS’s decision to charge for property management services, wouldn’t have been uncovered if not for the top-notch work of former auditor-general Fraser. Her team was also the first to find the same inflated volumes were used for both the 2002 and the 2004 contracts. ”It would have remained undetected but for what can only be described as the brilliant intervention of the (Office of the Auditor General) ” wrote Annis. … Annis said it was “outstandingly remarkable” that RLRS’s bid “went unnoticed” through two bidding processes. “Indeed the fact that the same property management provisions were allowed to be tendered again in the 2004 RFP (request for proposal) is one of the main foundations for a finding of liability against the Crown,” he wrote. It’s still unclear why public servants would let this happen and how such inflated business volumes found their way into the RFP. … Annis’ ruling will surely ramp up Envoy’s push to get MPs to investigate the awarding of the 2009 contract, which also went to RLRS — now renamed Brookfield Global Relocation Services. Atyeo argues the process to award the 2009 contract, which was supposed to fix the controversy swirling around the earlier contracts, was just as just as flawed, and ruled out all competitors except RLRS. [Emphasis added]

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