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A primer on competitive procurement...By Jason Hicks, Bernard LLP

By BCShippingNews 15 July 2018
Jason Hicks, Bernard LLP
In practice, competitive procurements tend to form a spectrum with true tender at one end, true RFP at the other end, and many hybrids and combinations in between.

Whatever your position in the marine industry, chances are good that you will be called upon to navigate your way through a competitive procurement process at some point. In this article, I aim to give readers a primer on what to expect in a competitive procurement.

A competitive procurement is a structured process utilized by a party (the “Owner”) that procures a package of goods and/or services by creating a competition amongst potential suppliers wishing to supply those goods and/or services.

Categories of competitive procurements

Procurement law contemplates two categories of competitive procurements: tenders and requests for proposals (RFPs). A tender is essentially a pure price competition. The Owner knows exactly what it wants, and is looking for the supplier that will provide that good or service at the lowest cost. The competitive tender process creates all of the tension required to get the best possible price from the bidders.

An RFP, on the other hand, is more complex. Under a true RFP, the Owner knows its need, and is looking for suppliers who will offer proposals to fulfill that need. Price is one criterion, but there are others such as product features or functionality, quality and the bidder’s track record for success.

In practice, competitive procurements tend to form a spectrum with true tender at one end, true RFP at the other end, and many hybrids and combinations in between. What particular blend an Owner will choose depends heavily on its specific circumstances and the objectives of that particular procurement.

The procurement package

A procurement package typically contains the following components:

  • The Instructions, which set out the rules of the procurement competition. The Owner has considerable freedom under procurement law to set these rules, but once set, the Owner owes the bidders a duty of fairness to follow them.
  • The Specifications, which set out the specifications, performance criteria or other requirements applicable to the goods and/or services being procured.
  • The Contract Terms and Conditions, which set out the proposed legal and commercial terms pursuant to which the goods and/or services will be provided.
  • Forms and procedural documents relevant to operating the procurement process.

Pre-bid

The pre-bid period is the time after a competitive procurement is issued but before bids are due. During this time, bidders are responsible for asking questions to address gaps, seek clarifications and request further information required to prepare bids.

One of the keys to maintaining the integrity of a competitive procurement is to ensure that no one bidder is unfairly advantaged or disadvantaged due to differences in information. In order to accomplish this, the Instructions should set out a communications protocol that both the Owners and the bidders must follow. Typically, bidders will submit questions in writing to the Owner, and the Owner will circulate answers to all bidders.

Breaching the communication protocol is considered a serious matter in a competitive procurement and can result in a bidder being disqualified. Accordingly, bidders should instruct their staff to resist the temptation to simply pick up the phone and call their friend in the Owner’s office to discuss something about a particular procurement. That might be easier and faster at the moment, but could have serious repercussions for the bidding company.

Another potentially challenging area for both Owners and bidders is that of reliance. Reliance is the extent to which bidders may rely on certain data or assumptions when preparing their bid, for instance data pertaining to local soil conditions or tide patterns. To the extent such information is inaccurate, incomplete or out of date, the successful bidder may be entitled to qualify their bid or to demand a change order to an executed contract. On the other hand, an Owner may be entitled to rely on the knowledge that a bidder is known or presumed to have, particularly in an area where the bidder has considerable experience or expertise.

Bidders should check the Instructions carefully to determine how best to approach exceptions to the Contract Terms and Conditions. It is cold comfort to win a scope of work that is attached to unacceptable or unworkable contract terms. Many competitive procurements will permit comments or exceptions to be submitted, either before or with the bid submission, but will not permit the bidder to bid with undisclosed exceptions.

Bidder’s submission

The Instructions should set out the date, time and method for a bidder to submit a bid. It is the responsibility of the bidder to submit its bid in strict compliance with these instructions and any failure may result in disqualification of the bid. Close may count in horseshoes and hand grenades, but not in bids!

When it comes to the submission deadline, procurement law is crystal-clear — the bid simply must be on time. Whether submitting in person, by courier, or online, it is always the bidder’s responsibility to ensure that the bid arrives on time.

For the same reason, an Owner receiving a bid submission late typically is advised to return the bid package unopened. An on-time bidder can claim that, by accepting a late bid, the Owner is breaching its duty of procedural fairness.

Bid evaluation

Generally, an Owner will first review each received bid to ensure that it is complete and compliant with the Instructions. Then it will go on to evaluate the relative merits of each bid.

In order to maintain the integrity of the procurement, the Owner must disclose in its Instructions all evaluation criteria that it intends to use. Any use of undisclosed evaluation criteria opens the door to an unhappy bidder claiming the Owner has breached the rules of the competition and thus the duty of fairness. The list of evaluation criteria should include not only the usual suspects of price, functionality and the like, but also items like the bidder’s corporate strength and the Owner’s prior experience with the bidder.

Is a bid binding?

Whether or not a bid is binding on the bidder will depend heavily on the Instructions and the type of procurement.

In a pure tender, a bid is a clear and legally binding offer by a bidder to do a certain scope of work for a certain price.

In a pure RFP, a bid is a non-binding proposal that sets out the detail of what the bidder proposes to do for the Owner. The Owner may designate the bidder as the preferred proponent, and the two sides will then seek to negotiate a binding contract based upon the bidder’s proposal.

In a typical hybrid procurement, a bid is perhaps best characterized as a binding offer to negotiate based on the submitted proposal.

In most cases, bids will be valid for a limited period of time, after which the bid lapses unless renewed in accordance with the instructions.

Entering into a contract

In a pure tender, the legally binding contract is formed at the moment the Owner issues a notice of award to the successful bidder, even if a formal contract is not executed until later.

In a pure RFP or a hybrid, on the other hand, the legally binding contract to perform generally is not formed until the two sides have fully negotiated and executed a contract.

When something unexpected happens

Procurement law is an active area for litigation, particularly in British Columbia. Procurement law cases occasionally go all the way to the Supreme Court of Canada (for a recent example, see Tercon Contractors Ltd. V. British Columbia, [2010] 1 SCR 69). The damages are potentially significant, calculated as the value of the profits that the bidder would have made had they won the bid. Accordingly, Owners and bidders alike should consider their options and remedies carefully when something unexpected happens during a competitive procurement.

Prior to the bid submission deadline, the Owner has considerable latitude to address unexpected developments by changing some or all of the Specifications, the Instructions, or the bid submission deadline or even by pausing or cancelling the procurement altogether. Any of these can be implemented by issuing an addendum to the procurement.

For changes arising after bid submissions, the Owner’s options are more limited, and the stakes are higher. The Owner usually is presumed to have seen the bids received and is bound by the duty of fairness not to use that knowledge to change the competition in a manner which unfairly advantages or disadvantages particular bidders. Depending on the circumstances and the change being contemplated, an Owner may conclude that its most prudent course of action is to cancel the procurement altogether and restart the whole process.

On any significant procurement, a bidder is likely to be using one or more subcontractors and suppliers. Even if the subcontractors are listed in the bidder’s proposal, however, the Owner usually is entitled to look to the bidder for a remedy in the event of subcontractor non-performance. Know thy subcontractors, and keep them close!

Conclusion

Competitive procurements are effective commercial tools for procuring goods and services of varying degrees of complexity. Like any commercial process, they have their legal twists and traps, and the application of procurement law turns heavily on specific facts. While this article covers general principles and concepts, I recommend that you obtain professional advice if you find yourself grappling with a procurement situation.

Jason Hicks is a projects, construction and business lawyer specializing in infrastructure and maritime matters at Bernard LLP. He can be reached at Hicks@bernardllp.ca.