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CITTing In

by Paul M. Lalonde

Foundry Networks: Battling government’s specific specs

Of all the suppliers that have used the Canadian International Trade Tribunal (CITT) bid challenge system, one company stands out as the undisputed champion of complaint filing – in the last year or so, Foundry Networks, a US-based network equipment manufacturer, has filed 10 complaints with the tribunal. Why is a large, highly successful high-tech company so angry? What turned it into a serial complaint filer?

Foundry operates in the ultra-competitive market of network products and services, and despite the recent downturn in the high-tech sector, Foundry has remained exceedingly successful. Its product includes Internet routers, layer 2 and 3 switching routers and Internet traffic management systems. Foundry’s main competitors are Cisco, Lucent, Nortel and, to a lesser extent, 3Com.

In terms of success at the CITT, however, Foundry has won only one of its 10 cases, with two still pending. But, as Foundry representative Phil Weedon points out, that doesn’t mean the other complaints were groundless. Four of the cases were rejected because the tribunal deemed that they were filed late, not because they failed to raise legitimate concerns. Foundry strongly contests (to put it mildly) the tribunal’s timing decisions and has now retained counsel in the hopes of avoiding any future dismissals on technicalities.

Foundry’s main complaint has to do with mandatory requirements for product made by its competitors, without allowing for alternatives. Public Works and Government Services Canada (PWGSC) is purchasing network hardware that will be used to augment, supplement or upgrade an existing network. So there is a legitimate concern that any network equipment purchased will integrate with existing equipment. Foundry insists that its equipment does do this.

According to Weedon, network protocols and standards have been adopted over the last few years that ensure interoperability between the equipment of various companies; therefore, there is no need to specify a particular trademarked product. Requirements should be specified in purely generic terms, referencing industry standards.

In the case PR-2000-60, involving a purchase of internetworking equipment for the Department of National Defence (DND), the CITT agreed with Foundry’s approach and chastised PWGSC for specifying Cisco product without allowing for equivalents. PWGSC tried to justify its requirement based on overall costs, risk to operations, training and human resources requirements and system management considerations, but the tribunal didn’t buy it. None of this, held the CITT, established conclusively that the product proposed by Foundry could not meet DND’s operational requirements or be successful in an open competition. Foundry was awarded more than $145,000 in lost profits, plus costs.

But, in a subsequent case also involving DND (PR-2000-067), Foundry had less luck. The specifications in this case referred to product from Cabletron (another supplier), but allowed equivalent product from other companies as long as they met or exceeded the Cabletron specifications. The CITT felt that the reference to Cabletron product was designed to ensure interoperability and not to exclude other suppliers. The tribunal was not convinced by Foundry’s allegation that it was impossible for any other supplier to meet the specifications in the Request for Proposal (RFP).

Together, these two cases leave some doubt as to the CITT’s analytical approach to manufacturer-specific specifications. The tribunal will closely scrutinize manufacturer-specific criteria, but will allow the federal government significant latitude in using them as long as alternate product is allowed. In my view, the Foundry cases suggest that the tribunal’s approach may, on balance, be overly deferential to the government in this area.

For Foundry, perhaps the most galling thing about references to specific manufacturers is that, in many of these cases, the installed base was itself acquired without proper competition. According to Weedon, the networks are legacy systems in many instances, built piecemeal over several years and without the original equipment subject to open tender. The result is that Foundry is excluded (or at least hindered) from supplying on the basis of an installed base which was improperly acquired. No wonder it’s mad.

Moreover, where PWGSC does allow for “equivalents,” these equivalents must often meet the particular detailed specifications of the incumbent product. The result is that the specifications in the RFPs are often mere reproductions – sometimes restatements – of the incumbent manufacturer’s published product specifications. Instead, Foundry insists that all that is required to ensure seamless interoperability is for PWGSC to specify generic, recognized industry standards and protocols. . Alternatively, PWGSC should have allowed benchmark tests to be carried out to verify interoperability (as it has finally done in a very recent solicitation).

In other words, it is as if PWGSC were buying a fleet of cars and requiring that they be Volkswagen Beetles, or equivalent, and then requiring that the equivalents must meet or exceed detailed specifications, which just happen to be exact reproductions of the specifications of the Beetle, published by Volkswagen. The fair way of proceeding is to eliminate references to any specific make of car and identify what the vehicle is needed for.

Of course, truly generic, needs-based RFPs are often more difficult to draft, especially given the seductively convenient short cut of specifying an installed product. However, with militant complainants like Foundry around, it is a short cut you take at your peril.


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

 

 

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