2016-06-20

Rescinding of the contract for the acquisition of 14 pump sets for the Atwater plant (call for tenders 14-12725), decision filed on June 20, 2016

Summary

A contract was awarded to Xylem even though the company did not meet several requirements specified in the call for tenders. It did not provide a signed letter from one of its customers attesting to the reliability of the proposed pumps, as required in the call for tenders, and it attempted to mislead the Inspector General in this regard. Moreover, the pump cooling system proposed by Xylem did not meet the terms of the specifications and equivalency was granted because the requested product did not exist. But the inclusion of this requirement may have pointlessly restricted the market. The contract was rescinded.

SUMMARY

The Office of Inspector General conducted an investigation on the contracting process of the contract awarded by Montréal’s Agglomeration Council on January 29, 2015 to Solution d’eau Xylem, a division of Société Xylem Canada, for a maximum authorized sum of $24,691,847.89 including taxes. The contract was awarded following the call for tenders 14-12725 which sought the acquisition of fourteen (14) pump sets in order to proceed with the replacement of the pumps at the Atwater potable water production plant.

This decision shows that the City awarded a contract to Xylem even though the firm’s bid did not respect several requirements specified in the call for tenders. In addition, Xylem was not the lowest bidder, but it was the only bidder that was declared compliant following two (2) compliance analyses performed by SNC-Lavalin, the engineering firm mandated by the City to prepare the specifications and to supervise the work jointly with Montréal’s Directorate of Potable Water. After the first compliance analysis, none of the bids were deemed to be compliant among the five (5) bidders that responded to the call for tenders. A special committee was then formed and a second compliance analysis resulted in only one bidder being declared compliant: Xylem.

The investigation revealed that the Directorate of Potable Water and SNC-Lavalin did not respond in the expected manner to Xylem’s failure to respect one of the basic eligibility requirements for submitting a bid in response to the call for tenders. The criteria required the bidders to provide a letter signed by one of their clients and attesting to the reliability of the pumps. The failure to provide such a letter was deemed to be a “minor noncompliance” by the Directorate of Potable Water and SNC-Lavalin, whereas the bid submitted by Xylem should have been rejected. In accordance with the principles established by the courts, the Directorate of Potable Water could not use its discretionary powers because this would have been contrary to the principles of the equality of bidders and would have given an unfair competitive advantage to the winning firm to the detriment of the bidders that respected the requirement but also the firms who procured the tendering documents but did not submit a bid because they believed that they could not fulfill the obligation set out by the requirement in the call for tenders.

Furthermore, the investigation shows that the Directorate of Potable Water and SNC-Lavalin waived a technical requirement, judged to be a major requirement throughout the development of the specifications, by awarding the contract to Xylem who proposed an ambient-air oil-cooling system, whereas the specifications clearly called for a forced-air oil-cooling system. It appears that there was no oil-cooling system on the market that satisfied the requirements set out in the specifications.

In fact, after none of the bidders were declared compliant following the first analysis of the bids, the Directorate of Potable Water and SNC-Lavalin re-evaluated and revised certain requirements of the technical specifications, requirements which were clearly established in the call for tenders. The re-evaluation and revision of the requirements was done once the period set out for submitting a bid was completed and after the bids were opened. The investigation revealed that the Directorate of Potable Water and SNC-Lavalin granted an equivalence to Xylem and satisfied themselves with an ambient-air cooling system because the Directorate of Potable Water did not want to risk cancelling the call for tenders and having to restart the process because no bidder was found to be compliant.

In the absence of a complete assessment with respect to the availability of the required product and in the absence of a formal, serious and well documented market study before the launching of the call for tenders, the call for tenders process that took place did not allow the Directorate of Potable Water to obtain the best product for the best price. The fact that a forced-air cooling system was required while today the Directorate of Potable Water considers that an ambient-air cooling system is sufficient is susceptible to have unduly limited the market and the competition. In these circumstances, allowing a company that proposed an ambient-air cooling system to obtain the contract and to recognize an equivalence in their favour is susceptible to have breached the equality of the bidders and have given an undue advantage to the winning bidder.

The Inspector General also observed a lack of transparency with respect to the way in which the requirements in the call for tenders were revised during the second compliance analysis of the bids, but also with regards to the way in which the equivalence was granted to Xylem. In fact, there is no document indicating the results of the first bid compliance analysis, nor detailed reports of the meetings which would allow for an understanding of the verifications that were made and the decisions that were taken.

Finally, the Inspector General is of the opinion that the decision-making authorities concerned were not in a position to make an informed decision: the file submitted to them contained inaccurate and incomplete information.

The process that took place violates the fundamental principles as well as the rules governing the contracting process, intended to ensure the equality of the bidders and the integrity of the process.

In addition, what is extremely troubling in this file is the attempt by Xylem to mislead the Inspector General in the course of the investigation by leading him to believe that the firm had included the letter attesting to the reliability of the pumps in the bid submitted to the City, as required in the call for tenders.

In the firm’s response to the Inspector General’s initial request for information and documents, a request made, by virtue of his authority, Xylem provided a letter dated June 10, 2014, and presented the letter as the one provided to the City in the company’s bid in order to be compliant with the eligibility requirements in the call for tenders. However, following steps taken to verify and corroborate this letter, the Inspector General discovered that the letter in question was never provided to the City in Xylem’s bid documents. Instead, this letter had been signed and issued on September 11, 2015, that is, after the date that the Inspector General made his request for information.

In fact, the Inspector General had to take additional steps in order to retrace three (3) versions of this letter, all in possession of a Xylem representative. Signed and issued on September 10 and September 11, 2015, these three (3) letters display different header dates: June 10, 2014, September 10, 2015, and September 11, 2015. It appears as though Xylem obtained these letters in order to respond to the Inspector General’s request for information regarding the letter attesting to the reliability of the pumps provided by Xylem in its bid. Even though Xylem had all three (3) letters in its possession, only the letter dated June 10, 2014, that is, the letter dated before the filing of its bid, was given to the Inspector General in its response to the initial request for information. This was done in order to make it appear as though the company was compliant with the requirements set out in the call for tenders.

In conclusion, the Inspector General is of the opinion that the conditions set out in section

57.1.10 of Montréal’s City Charter have been established with regards to respecting the basic eligibility requirements specified in the call for tenders. Considering the seriousness of the violations observed with respect to the equality of the bidders, to the integrity of the call for tenders process that took place, as well as the attempt by Xylem to mislead the Inspector General, the Inspector General has no other choice than to rescind the contract awarded following call for tenders 14-12725.

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Rescinding of the contract for the acquisition of 14 pump sets for the Atwater plant (call for tenders 14-12725), decision filed on June 20, 2016