Procurement law calls for proactive governance
From the April 2017 print edition
Government purchasing institutions must navigate a complex web of trade treaty rules while also complying with an increasingly complex list of common law duties. To manage these legal obligations effectively, public bodies must proactively establish institutional frameworks so that their project teams can succeed in their specific procurements.
By entrenching policies in favour of open public procurement, the trade treaties create a core distinction between government procurement and private sector procurement. While private sector institutions may voluntarily adopt tendering procedures to award certain contracts, most public institutions are compelled by trade treaties to openly tender all contracts over specifically prescribed values. These contract value thresholds are relatively low, particularly when compared to the costs of administering a tendering process.
The treaties contain a series of anti-avoidance rules that restrict direct contract awards to narrow exceptions. These “sole source” exceptions must be clearly documented, are typically subject to high-level internal approvals, and are sometimes subject to public disclosure duties that give other suppliers the right to legally challenge the sole source before the contract award. The treaties also regulate and restrict the ability to expand or extend a contract, compelling government institutions to retender in situations where a private institution may have added new requirements to an existing contract or extended a contract beyond the original extension options.
The trade treaties also give suppliers the right to launch bid disputes to challenge everything from direct award decisions, to the neutrality of technical specifications, to the fairness of an evaluation and award process. These bid challenges can result in financial or procedural remedies against the government body. Financial penalties can be significant since they are typically quantified as the amount of the complainant’s lost profits on the challenged contract award. Procedural sanctions can also have significant impacts since they can result in the voiding of a contract award, the ordering of a re-evaluation or even a direction that the contract be awarded to the complainant supplier.
While formal treaty-enforcement mechanisms within Canada have historically been limited to federal government bodies, the new Comprehensive Economic and Trade Agreement between Canada and Europe will expand these legal enforcement mechanisms to sub-federal levels so that most public bodies across Canada will soon be subject to treaty-based legal challenges. In the interim, decades of administrative and commercial law court rulings involving public bodies at all levels of government across Canada have filled that regulatory gap with a series of case law precedents. These precedents have long-established similar legal duties and sanctions to those that are enforced under trade treaty disputes.
For project teams, the trade treaties, along with the implied common law duties, heavily regulate the content of their tender call documents, prescribing the detailed public disclosure of bidding process rules, bid evaluation criteria and contract requirements. These duties also require project teams to carefully consider material background information that could impact the cost of contract performance. The failure to meet those material disclosure duties can result in extra cost claims from contractors and cause significant cost overruns and project delays. Once established, these bidding rules must be followed with a high degree of precision since competing bidders can challenge everything from tender compliance assessments, to the scoring of competing proposals, to the decision to cancel a bidding process due to budgetary constraints.
These fair process duties also require project teams to carefully manage and document their bid evaluations to ensure that they are fairly conducted and not compromised by bias or conflict of interest. The failure to keep proper evaluation records can also result in the failure to defend against a legal challenge. While ensuring that their internal houses are in order, public institutions must also be mindful of the risks imposed by improper supplier conduct and should establish debarment processes to sanction poor supplier performance and deter unethical supplier conduct, including inappropriate lobbying, collusion and price fixing.
Addressing these challenges is no easy task. While project teams should implement project-specific good governance practices, compliance with open public procurement duties is far too complex to be efficiently managed on an ad hoc project-level basis. Full and timely compliance can only be realistically achieved by proactively establishing winning conditions through the creation of proper institutional policies and procedures and the adoption of advanced document drafting and bid evaluation protocols, systems and tools. The current state of the law calls on a heightened level of institutional governance. Failing to meet that challenge is not a realistic option for those public bodies that are serious about properly serving the public interest by maintaining standards of open, fair and transparent competition.
This article is extracted from the brand new fourth edition of Paul Emanuelli’s Government Procurement textbook. Paul can be reached at [email protected]