By Paul Emanuelli

This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.

Recent years have witnessed a rapid proliferation in the number of bid disputes dealing with conflict of interest and unfair advantage issues in the tendering process. As these cases illustrate, concerns over the integrity of the public sector tendering practices are putting those practices under increasing scrutiny.

For example, in its July 2016 decision in AT&T Government Solutions, Inc., the United States Government Accountability Office (GAO) found that the U.S. Air Force failed to guard against unfair bidder advantage in a potential conflict of interest situation. As the GAO noted, the federal procurement rules recognize conflict of interest arising out of: (i) biased ground rules; (ii) unequal access to information; and (iii) impaired objectivity. The GAO found that one of the winning bidder’s proposed subcontractors had prior access to information relevant to the bidding process and that the government evaluators had failed to provide a basis for concluding that the potential conflict had been avoided or mitigated. The GAO ordered a re-evaluation and re-award process.

Similarly, in its January 2016 decision in Arctic Slope Missions Services, LLC, the GAO found that the Department of Justice gave preferential treatment to a professional support services incumbent and placed unfair emphasis on past corporate experience. As the GAO stated, the government “must treat all offerors equally and evaluate their proposals even-handedly against the solicitation’s requirements and evaluation criteria.” The GAO found that the evaluators gave past experience marks outside of the relevant evaluation category and gave the benefit of the doubt to the incumbent, while scoring other proposals more narrowly and strictly. It ordered a re-evaluation due to the resulting unfair advantage.

Furthermore, in its January 2016 decision in ASM Research, the GAO found that the Department of Veterans Affairs failed to properly enforce its conflict of interest rules in a solicitation for cloud-based software infrastructure services. The GAO found that the winning bidder should have been rejected due to impaired objectivity since the awarded contract would require the contractor to evaluate its own prior work and assess fault as between itself and third parties for performance failures. The GAO found that the government failed to avoid, neutralize, or mitigate the potential conflict of interest and therefore ordered a re-evaluation.

However, in its January 2016 determination in Raytheon Canada Limited v. Department of Public Works and Government Services, the Canadian International Trade Tribunal rejected a complaint involving a Department of Defence Request for Proposals (RFP) for integrated solider suits. Instead of proving its allegations of bias, the Tribunal determined that the complainant had “substituted unsubstantiated allegations of impropriety for evidence”. The Tribunal found it “shameful” that the complainant had targeted government personnel and had “cast aspersions on their work and personal integrity.” The Tribunal was also critical of the complainant’s lawyers for advancing the complaint in the absence of evidence.

By contrast, in its April 2017 decision in United Services, Inc. v. City of Newark, the New Jersey Superior Court granted a temporary injunction against a tendering process for janitorial services based on allegations of unfair advantage. The plaintiff submitted a low bid that was $1 million. It launched a legal challenge after the municipality decided to cancel and retender the contract. The plaintiff argued that public interest issues were at stake. It alleged that the municipality wanted to award the contract to a competing unionized bidder since the union had contributed hundreds of thousands of dollars to the recent election campaigns of municipal officials. The appeal court granted the injunction.

Furthermore, in its June 2017 decision in Dell Services Federal Government, Inc., the GAO ordered the government to reconsider a potential Procurement Integrity Act breach. The case dealt with a Request for Quotations (RFQ) for information technology services. A bidder disclosed to the government that it had come into possession of a competitor’s prior bid document. While the government initially determined that this had no impact on the fairness of the bidding process, the GAO disagreed, finding that this could give the bidder an unfair advantage over its competitors. It therefore ordered the government to reconsider whether this constituted a breach of the conflict of interest rules.

Similarly, in its September 2017 determination in Re Transportation Resources Associates Inc., the New York Comptroller General’s Office struck down a contract award after finding that a bidder was improperly permitted to substitute a subcontractor that was in a conflict of interest. The case dealt with an RFP for consulting services for safety oversight of heavy rail systems. The complainant launched a bid protest alleging that the contract was awarded to a non-compliant competitor. The Comptroller General agreed, finding that the Department of Transport had permitted the winning contractor to replace a named subcontractor that was in a conflict of interest. The contract award was overturned.

Finally, in its September 2017 decision in Grascan Construction Ltd. v. Metrolinx, the Ontario Divisional Court rejected a judicial review challenge brought against a prequalification process by a rejected contractor. The case dealt with a $125 million. The contractor was disqualified for failing to provide the required audit letter confirming that its company had appropriate conflict of interest and ethical bidding practices in place. The contractor argued that it was provided insufficient time to meet the requirements and that the new audit rules favoured larger contractors. The Court disagreed and rejected the challenge.

In its January 2019 decision in Safal Partners, Inc., the U.S. Government Accountability Office (GAO) ordered a re-evaluation after finding that the government conducted an improper conflict of interest assessment. The case dealt with a Department of Education request for quotations for charter school support services. One of the bidders challenged the participation of a competing bidder since the competitor was already under contract with the department for recommendation services under the same program. The complainant alleged that the competing contractor could benefit financially by recommending grants for the program under its existing contract, while providing the recommended assistance under the currently tendered contract. As the GAO explained, under US federal rules, conflicts of interest for impaired objectivity arise “where a firm’s ability to render impartial advice to the government would be undermined by the firm’s competing interests” since “a firm’s ability to render impartial advice to the government will be undermined by its relationship to the product or service being evaluated.” The GAO concluded that the government erred when it decided that the contractor’s lack of final decision-making authority over grant decisions mitigated any conflict, noting that prior GAO precedent recognized that conflicts for impaired objectivity could arise even when the government retains the ultimate decision-making authority. The GAO therefore ordered a re-evaluation of the conflict issue.

In its March 2019 decision in Obsidian Solutions Group, LLC, the U.S. Government Accountability Office (GAO) overruled an unfair advantage disqualification after finding no evidence of unfair advantage. The case dealt with a $245 million procurement for Marine Air-Ground Task Force Training Support Services, under which multiple contractors would be awarded standing agreements for multiple future assignments. The GAO ruled that the agency in question unreasonably excluded the complainant from the competition after a retired former government employee attended an oral presentation on behalf of one of the complainant’s subcontractors. The GAO found no evidence of unfair advantage since “all qualified offerors with an acceptable proposal, and a fair and reasonable price, were to receive an award, and thus there seems to be little risk of an unfair competitive advantage from these actions at this stage in the procurement.”

In its April 2019 decision in Sopra Steria Group SA v. European Parliament, the European Court of Justice upheld a conflict of interest disqualification. The case dealt with an information technology services tender call issued by the European Parliament. Two bidders, who were in the process of merging during the bidding process, had their bids disqualified due to conflicts of interest. Those bidders challenged the disqualifications, arguing that the “merger steps, which had not yet been completed at the time of the decision to award, could not have influenced the submission of tenders, their ranking or the decision to award and could therefore in no way have created a conflict of interests.” The companies also asserted that “no information was exchanged between the companies, given that they remained direct competitors until the acquisition was completed”. The Court disagreed, finding that even if there were conflict factors during the bidding stage, there was a presence of factors that could create downstream conflicts of interest during contract performance, since one merging party could be required to evaluate the services provided by another merging entity in a biased manner due to their structural connections and shared interests. The Court therefore upheld the conflict of interest disqualification.

As these cases illustrate, public institutions face increasing expectations that they will avoid unfair advantage and run fair evaluation processes. Public institutions should therefore implement clear conflict of interest rules and defensible practices to deal with the risks of unfair advantage in the tendering process.