Caution is the watchword when planning to negotiate
July 3, 2012
by By Robert Worthington
As we previously discussed in May’s column, Canadian Courts have become increasingly concerned about owners using the competitive bid process to “bid shop” the contract.
There may be potential solutions for owners when faced with all bids being over budget. If, for example, an owner proceeds with caution and transparency, it may be possible to reduce bidder prices.
If an owner does not want to award at the bidder’s bid price, then the owner can negotiate (providing the power to negotiate was disclosed) both price and scope with the best ranked bidder but there are no guarantees an owner would thereby avoid allegations of bid shopping.
And, if the owner were unable to conclude an agreement with that bidder, then the owner would have a potential problem. We don’t know whether the owner could then go on to negotiate with the second best-ranked candidate for award, as there are no cases on point. We do know that the owner’s intention to potentially undertake such “serial negotiation” would have to be disclosed in the RFP and we also know that an owner trying this could not play one bidder against the other (they could not negotiate with more than one bidder at the same time). Why the first negotiation failed could be an issue (did the owner or first chosen bidder act unreasonably?) and, what would occur if the second attempted negotiation failed would be an issue as well. An owner negotiating with several bidders in turn certainly looks like bid shopping, especially when the owner could cancel the competition without any award, redo the scope and then re-compete the competition for a contract.
Practically speaking, such serial negotiations are problematic as bids are usually only open for acceptance for a limited period of time. Given that evaluation and then negotiation will take time, an owner could run out of time and then all bids would become revocable. And, seeking extensions of the bids’ validity in such a scenario could add to the likelihood of the process being seen as bid shopping.
Finally, owners must remember that there is little incentive for any bidder to agree to such a serial negotiation scenario. The best ranked bidder already has an existing contract (the Bid Contract A) and, if they are the best, they arguably should receive the award (at the price they quoted) if the owner makes any contract award. If the best ranked bidder refuses to participate at all in negotiations (as negotiation cannot be imposed), then the owner’s only options are to cancel without award or to award to that bidder anyway, at the bidder’s price. An owner could later seek a change to the project contract price using the change order/change directive process (assuming such a process is in the project contract), but payment of compensation to the now-contractor for the loss of a portion of the work would result. To skip over the best ranked bidder in such a scenario would very probably be bid shopping. An owner may not be bound to award—but they are bound to play fairly.
Short listing of bidders
If an owner knows that negotiation before awarding a contract in a competitive bid solicitation is required (for example, when the input of the contractor is required to determine how the work will be performed or what the work will in fact be), then to avoid unequal treatment of bidders, an owner could set up a two-stage evaluation process in the RFP whereby all bidders are evaluated and ranked on a shortlist. Then, the owner would negotiate only with those highest ranked bidders on the shortlist, starting with the highest ranked bidder.
In such a scenario, the content of the bids determines ranking on the shortlist, it is a formal process with only the disclosed evaluation criteria being used to determine ranking, and all bidders know these rules before bidding. Provided that the owner acts fairly in choosing which bidders make it to the shortlist and what their ranking is, such a process probably would be seen as “fair.” Then, as long as the owner when negotiating was careful to allow both pricing and scope to change, an owner could probably avoid being liable for bid shopping.
The watchword when planning to negotiate during a competitive bid process is caution. Proceed with care, be mindful and play fair!
Robert C. Worthington, LLB, specializes in teaching purchasers the laws of contract, competitive bidding and procurement. Please visit www.purchasinglaw.com for more information. This article is an excerpt from Robert’s new book, due for publication in late 2012, entitled The Desktop Guide to Procurement Law.