Financial Compensation

Financial compensation is a monetary payment made to remedy loss, damage, or prejudice. In Canadian public procurement, the term most often describes the remedy a supplier can receive when a federal procurement process was handled in breach of the rules.

That remedy can take several forms: compensation for a supplier's lost profit, compensation for a lost opportunity, reimbursement of bid-preparation costs, or, in exceptional cases, compensation for damage to the integrity of the procurement system. Two federal bodies recommend it: the Canadian International Trade Tribunal (CITT) and the Office of the Procurement Ombud.

How the CITT recommends financial compensation

The CITT may recommend compensation when it finds that a procurement complaint is valid under the Canadian International Trade Tribunal Act. Its recommendations are determined under section 30.15 of that Act. The Tribunal sets out its approach in its procurement compensation guidelines.

The guiding idea is to place the complainant, as far as appropriate, in the position it would have occupied if the government had not breached the rules. The Tribunal requires that every claim be supported by credible economic, financial, or other evidence.

Lost profit and lost opportunity claims

The CITT treats two main categories of loss differently, depending on what the evidence shows.

• Lost profit: The Tribunal may recommend compensation for the profit the complainant would have earned if it had received the contract. This applies where it is clear that the complainant would have won but for the government's breach.
• Lost opportunity: The Tribunal may recommend compensation where the supplier cannot establish that it would have won, but can show that government conduct deprived it of a meaningful opportunity to participate in the procurement.

The CITT guidelines also allow, in exceptional cases, compensation for harm to the integrity of the procurement regime.

Bid-preparation costs and the Procurement Ombud

The Office of the Procurement Ombud may recommend that a federal department compensate a complainant for proposal-preparation costs where the statutory conditions are met. In a review involving Pacific Economic Development Canada (PacifiCan), the Ombud recommended that the department pay a complainant $8,850 for the costs of preparing a bid, after finding that those conditions were satisfied. The findings are published in the Procurement Ombud's review report.

As with CITT claims, a supplier must substantiate the claim with credible evidence of its proposal costs.

"Compensation arrangement" in NATO task orders

NATO procurement material uses a related but separate expression. The NATO Communications and Information Agency (NCIA) refers to a compensation arrangement as the pricing method that governs payment under a task order. The arrangement may be firm-fixed price, time and material, labour-hour, or a combination of these. This is a contract pricing concept, not a remedy for a procurement breach. The NCIA's general rules of operation list these arrangements as the financial terms for task orders.

What it means for a supplier bidding on Canadian public contracts

Financial compensation is a remedy of last resort, and it depends on evidence. A supplier that files a complaint and expects compensation should keep records that show what it spent preparing the bid, what profit it expected, and how the government's conduct cost it a fair chance to compete.

• Track bid-preparation costs as they are incurred.
• Keep the pricing model behind the bid so expected profit can be shown.
• Document the specific conduct that deprived you of a meaningful opportunity.
• When working with NATO agencies, read the compensation arrangement in a task order as a pricing term, not as a remedy.