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Hold the phone - telecom wars at the CITT

by Paul M. Lalonde

Looking at recent statistics from the Canadian International Trade Tribunal (CITT), it occurs to me that there is an unusually high number of bid challenge complaints in the telecommunications sector. In fact, the biggest telecom companies in Canada - Bell, Telus, AT&T Canada - have all complained to the CITT about purchasing in this area.

A rough scorecard of the CITT telecom cases looks something like this:

Complainant Complaints filed Withdrawn or not accepted for inquiry Valid or valid in part Not valid Pending
Bell Canada 5 2 1 1 1
Telus 4 1 2 1 0
AT&T Canada 1 0 1 0 0
Telesat 1 1 0 0 0
Accutel Conferencing Systems Inc. 2 1 1 0 0
including Bell Nexxia

Telecom companies have filed more than a dozen complaints and in five out of seven cases investigated, the complainant won. Even Barry Bonds would envy that batting average. So, what's going on in this sector?

Complaints filed deal with the purchases of voice telephony and data transmission services and systems by a variety of agencies and departments. Several reasons provide fertile ground for telecom bid challenges. The stakes tend to be high, some of the contracts can be worth millions, and securing a share of the government telecom business can be a vital component of the business. Given the relatively low cost and the speed of the CITT process, it makes sense for bidders to fight for every little edge.

Telecom Requests for Proposal (RFPs) tend to be lengthy, highly technical and complex, so skilled lawyers, mining through many pages of technical specifications and evaluation criteria, have a good chance of finding some little nuggets of ambiguity or unfairness to craft into grievances under the trade agreements.

Telecom cases often raise the issue of incumbency and the extent to which the government has to make accommodations for competing suppliers. Often, government departments will want to ensure that, if they must change suppliers and systems, the new supplier covers the transition costs, i.e., the staff training and other costs associated with migrating to a new system.

The CITT has confirmed in several cases that, in principle, the trade agreements permit the imposition of transition costs, so long as they are clearly identified and do not unduly give the incumbent a leg up on the competition - a line that is not always easy to draw. In one case launched by AT&T Canada (PR-2000-24), AT&T Canada claimed that certain cancellation costs that had to be factored into the bids of the non-incumbents went beyond the acceptable limit and amounted to discrimination against competing bidders, contrary to the Agreement on Internal Trade. The tribunal agreed and recommended that in evaluating the proposals, Public Works and Government Services Canada should ignore the transition costs prescribed in the RFP.

Gordon LaFortune, the Ottawa lawyer who represented AT&T Canada, agrees that telecom cases have raised issues similar to ones seen in IT cases, where purchasing departments tend to be concerned about the costs involved in adopting a new, unfamiliar software system or platform.

LaFortune says, "Telecom cases exhibit some of the same types of tensions about incumbency that existed in the Corel case. When you consider the value and complexity of the contracts, the delicate incumbency issues involved and the legal and jurisdictional questions raised by these purchases, officials can overstate transition costs it's no wonder there are a lot of cases."

But it is apparent that the tribunal is sensitive to the delicate issues it must balance. CITT decisions seem to try to give purchasing authorities guidance about striking a balance between legitimate transition cost and compatibility concerns versus unfair incumbent advantage, which, I hope, gives federal departments a clearer sense of what they can and cannot do.

Meanwhile, it's hard not to feel a little sorry for purchasing officers charged with drafting RFPs in this area. The suppliers have repeatedly - and successfully - used the CITT procedures and demonstrated very little tolerance for trade agreement breaches. Trying to prepare a fair, challenge-proof RFP for telecommunications services has to be one of the most daunting tasks in federal procurement today. Reviewing past decisions of the tribunal is a start, and so is factoring the possibility of a CITT challenge into plans and timelines. It may still be difficult to find a safe path, but at least the tribunal has started to show where some of the nastier pitfalls are, and what can happen if you fall in.

Paul M. Lalonde practices international trade and procurement law with the firm Heenan Blaikie in Ottawa and Toronto.



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