September 15, 2011
Purchasingb2b: July/August 2011
Evaluating competitive bids should be straightforward, at least in theory. Non-compliant bids are discarded and from the remainder, the purchaser can discern a clear winner based on compliance and the lowest cost. But as numerous buyers report, the situation often becomes muddled.
Once all the bids are in, purchasers may be tempted to collect more information from bidders before the contract is awarded. Typically, the purchaser will begin negotiating with a bidder or several bidders—but not all of them—before deciding on a winner.
As one of Purchasingb2b’s experts pointed out, this is similar to stopping a horse race 10 yards from the finish line to say, let’s negotiate the outcome of the race. We’re going to negotiate with one, perhaps two jockeys, but we’re not going to negotiate with everyone.
The motivation is usually financial. Purchasers try to save their organization money by getting the best possible deal. Another factor is misinformation. Often, procurement experts from the US speak at Canadian conferences. Some of these US-based instructors recommend collecting bids and then negotiating with all the bidders, in effect playing them off one another to get the best price. While buyers might see the value in this approach from a financial standpoint, they also wonder if the practice is legal.
In these cases, the parties negotiate on a request for proposals (RFP) that has closed and is irrevocable, and these negotiations can alter the original offer. The purchasing organization may say it wants more or less of something in the contract and a bidder will most likely agree, since doing so moves the contract closer to being secured.
But the purchaser’s question is often, should we offer other bidders the same thing? Some may say, what’s wrong with that? It’s fair, provided the organization says up front its intentions.
Using this logic, purchasers sometimes produce a shortlist of bids. The organization must treat all bidders the same, but inequality can arise. An organization might receive six bids. The evaluating committee or buyer then produces a shortlist of three bidders and says: we’ll negotiate with you three. Let’s see who gives us the best bid.
This increasingly common practice can raise concerns over fairness. A scenario such as this doesn’t treat all the bidders equally, and can run close to the edge of legality. Many purchasers assume it’s OK, provided the organization states in the RFP they plan to produce a shortlist.
One situation involved the Government of British Columbia. The government went to competition and said to bidders, here’s the scope of work we’re looking for. Several bids came back, but with one clear winner.
The purchaser involved in the bid process (in this case, not a professional purchaser, but a consulting engineer) was dissatisfied with the price of that bid. The purchaser then went to the second lowest bidder, but in secret. The court called that bid shopping and therefore unfair. The BC government tried to argue it was only negotiating, but the court disagreed.
The case raises a number of questions and uncertainties for purchasers, especially those who are new to the field and might not be fully acquainted with guidelines related to procurement ethics and legalities.
Those outside the procurement discipline, such as engineers and IT managers—who often lead or are involved with drafting RFPs and evaluating bids— might also require guidance on the issue.
The situation raises several concerns, so Purchasingb2b checked with legal expert Denis Chamberland to get some perspective. Read his response on common questions related to post-bid negotiations below.
Why post-bid closing negotiations are fraught with legal risks
by Denis Chamberland
Evaluating competitive bids should be straightforward – but it rarely is. Many questions arise after bids close: Can we contact the bidders to clarify important points? Can we change or fine-tune the evaluation criteria because some things have become clear since issuing the bid call document? Can we ask the bidders to submit a new price if all of the bids received are over budget? The ultimate question is “how much flexibility do we have, legally, to negotiate or amend the bid call document after the closing of the bids?”
The question traces its origins to the Supreme Court of Canada’s decisions in R. (Ont.) v Ron Engineering and Construction (Eastern) Ltd., which hailed the Contract A/Contract B analysis, and M.J.B. Enterprises Ltd. v. Defence Construction, where the court explained that the bidding process substitutes competition for negotiation. Insofar as the substantive contract to be signed is fully attached to the bid call document, the evaluation process truly should be fairly straightforward. But the substantive contract (‘Contract B’ in the language of the courts) is rarely attached in procurement processes where the thing to be acquired or the process itself have yet to become commoditized (predictable, known).
The answer to the ultimate question should be: subject to certain key principles to be discussed below, we have as much flexibility as can be anticipated upfront and is clearly articulated in the bid call document. It is important to recognize that the rigid procurement construct that the courts have historically dissected has revolved around the fact that the bid call documents under analysis typically failed to plan for a flexible post-closing experience, and when they did, the principles of procedural fairness were often not given sufficient attention.
It is perfectly possible to create a flexible yet legally defensible procurement process after bid closing. What can be done after bid closing depends on a variety of considerations, most importantly, the details of the bid call document in question, the principles stemming from the many court decisions and the applicable trade agreements. With that in mind, I comment below on each of the questions posed by the case study.
1) Is it acceptable to contact bidders after the competition has closed?
It depends what the bid call document says, and if it’s expressly anticipated; it’s important how the contact is made. If the bid call document allows the buyer to contact bidders for the purpose of clarifying their bids, there is no harm in contacting bidders for this purpose, provided the purchaser ensures the contact does not become an opportunity for bid repair or bid enhancement.
2) What information is suitable to collect from bidders during these conversations?
What conversations? Bid clarification should be conducted in writing. Any live contact with bidders after bid closing should be anticipated in the bid call document and it should be heavily scripted to avoid any spontaneous exchange of ideas, which can easily lead to bid repair or bid enhancement.
3) Should the purchaser share information gathered from the dialogue with other bidders?
No “dialogue” with any bidder—see question two’s answer above.
4) Is it okay to change the offer before contract award?
It’s generally not OK to change requirements set out in the bid call document post closing, but it can happen, as it did in the 2000 Ontario decision in Cable Assembly Systems Ltd v. Dufferin-Peel Roman Catholic Separate School Board. In Cable Assembly, the bid call document was interpreted as allowing the board to negotiate on the back end since all bids received exceeded the board’s budget. The right to negotiate was based on the fact that the bid call document authorized it for budgetary reasons. It was probably also important that the bid prices had not been made public.
5) When might these conversations with bidders before contract award be deemed as bid shopping?
There should be no “conversations” or “dialogue” between the purchaser and the bidders, but if the purchaser begins to play the bidders off against each other in trying to get a lower price, there is good chance that this will be considered bid shopping. The courts have recently defined “bid shopping” extremely broadly, such that any negotiations post closing (assuming they are permitted by the bid call document) should be handled with great care. If there are going to be negotiations, these should have been anticipated explicitly in the bid call document. It can happen that negotiations were not anticipated in the bid call document –as was the case in Cable Assembly, just mentioned – but a reservation of right in the bid call document should be available to support such negotiations. It’s generally the case that any negotiation on the back end, if supported by the language of the bid call document, should be consistent with the evaluation criteria set out in the bid call document. So, reservations of right should not be relied on to launch into a brand new procurement process that is legally unrelated to the initial evaluation methodology.
6) What should buyers do when none of the bids received are within budget for the project?
It depends what the bid call document says, and if it’s expressly anticipated; how the contact is made is important. For example, if the bid call document allows the buyer to contact bidders for the purpose of clarifying their bids, there is no harm in contacting bidders for this purpose, provided the purchaser ensures the contact does not become an opportunity for bid repair or bid enhancement.
7) Often, buyers receive bids from vendors they have dealt with for years. In these cases, it might seem intuitive to the buyer to circle back to a familiar bidder to get their help reshaping the offer before contract award. What best practices would the legal community recommend?
Where there’s a close commercial relationship between purchaser and supplier, the best thing is to set up a protocol well before issuing the bid call document, directing the purchaser’s personnel not to provide details about the upcoming bid call to that supplier’s staff. Sharing any information potentially creates an uneven field in favour of that supplier. As soon as it becomes known a bid call may be issued, the purchaser must take steps to ensure all potential suppliers are treated the same, and measures enacted to ensure equal treatment continues until the end of the procuremnt process. A best practice in procurement is to know the rules well, and to ensure they are followed. b2b
Denis Chamberland is a Canadian practitioner with Baker & McKenzie working on matters related to infrastructure, public-private partnerships (P3s) and the public procurement of goods and services. He can be reached at email@example.com.
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