This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
Bolstering the legal defensibility of a bidding process calls for a three-pillar strategy aimed at addressing the following due diligence requirements: (i) managing mandatories through the use of clear threshold eligibility requirements; (ii) integrating rated requirements so the ranking criteria are clearly disclosed before bids are submitted; and (iii) ensuring procedural integrity through transparent and fairly administered evaluation processes.
Bidders who are prejudiced by non-transparent or otherwise unfair award decisions can be entitled to lost profit damages. Legal exposure increases with the value of the prospective contracts, and courts have found institutions liable for even minor evaluation irregularities. The greater the ambiguity in the selection process, the greater the risk of disagreement over award decisions. To meet the broadly recognized due diligence standards of transparency and defensibility required in a competitive bidding process, purchasing institutions should ensure that their solicitation documents contain full disclosure of their selection and award criteria and a clear description of their evaluation procedures.
The first pillar of legal defensibility calls for the proper management of mandatory tender compliance requirements. Under the law of tenders, a submission that does not meet a threshold eligibility requirement is legally incapable of acceptance and must be disqualified as non-compliant. Institutions that award contracts to non-compliant proponents face potential legal challenges by competing proponents. To reduce legal exposure and promote a transparent and clear evaluation process, threshold requirements should be objective, clear, and defensible. They should be structured in adherence to the following general principles:
- Clear Identification: Threshold eligibility requirements should be clearly identified as mandatory evaluation requirements and should be consolidated in one part of the solicitation document.
- Essentials Only: Threshold eligibility requirements should be used sparingly for compulsory requirements that are significant enough to actually disqualify a proponent, rather than for desirable but non-essential requirements.
- Clear Litmus Test: Those factors that are not genuinely capable of a pass/fail assessment (e.g. grey areas requiring judgment calls) cannot safely operate as threshold eligibility requirements, and should be either removed from the solicitation document or re-categorized as scored rated requirements.
- Timing of Adherence: Those requirements that relate to the post-award contract performance phase should not be included in the evaluation section. Rather, they should be organized in a separate schedule and should be incorporated by reference into the legal agreement.
- Self-Declarations: Proponent self-assessment and compliance declarations (i.e. where bidders “swear an oath” of compliance) are inadvisable. The purchasing entity is under a duty to disqualify non-compliant bidders and should therefore take positive steps to screen proponents for each threshold eligibility requirement. Those requirements that cannot be screened and independently verified should be removed from the evaluation. To give legal effect to the proponent’s agreement to abide by those standards, a separate schedule can be incorporated by reference into the representations contained in the proposal offer form and legal agreement.
Disclosing Rated Requirements
The second pillar of legal defensibility deals with rated requirements and calls for the disclosure of clear ranking and selection criteria. To meet the required standards of transparency and enhance the defensibility of a contract award decision, the purchasing institution should disclose the weightings, formulas, and sub-criteria it intends to rely on to arrive at the final score and ranking for each proponent. One of the most critical aspects of the second pillar is the proper evaluation of pricing. The pricing structure needs to be properly aligned with the description of contract requirements in order to: (i) achieve a clear, transparent, and defensible evaluation process; and (ii) inform how billing and payment will be managed under the awarded contract. To meet these due diligence standards, the purchasing institution should ensure that its pricing structures are clear, thorough, and plainly connected to the described requirements and scoring methodology. For example, a solicitation document should include:
- a clearly prescribed pricing structure that lends itself to the consistent evaluation of competing bids without requiring post-bidding clarifications or price adjustments;
- the volume estimates and scoring formulas that will be relied upon to calculate the total price;
- a clear indication of whether supplier ranking will be based on the “lowest bid” rule or on a combination of price and non-price factors; and
- in cases where ranking is based on a combination of price and non-price factors, the process by which price and non-price criteria will be individually scored and then tallied together.
Ensuring Lineal Integrity
The third pillar of defensible evaluations calls for a “lineal integrity” of the process. Each link in the process chain needs to be solid and based on pre-determined and pre-disclosed procedures. Transparency is paramount across the entire process. There should be no hidden evaluation stages, since bidders that lose out based on undisclosed evaluation stages have been known to launch and win unfair process claims.
Three Pillars for Legal Defensibility
To protect against bid litigation, purchasing institutions would be wise to employ a proactive three-pillar strategy based on pre-determined and transparent bid evaluation criteria and procedures. Due diligence training in solicitation document drafting will pay big dividends in avoiding unnecessary legal entanglements.