This article is an extract from the 5th edition of Government Procurement.
In its February 2022 report entitled Recommendations to Société de transport de Montréal regarding contract management of the Bellechasse Transit Centre construction project, Montreal’s Inspector General found that the Société de transport de Montréal (STM) engaged in bid-shopping and improper sole-sourcing in relation to a transit centre construction project. The case involved a tendering process where the agency received over-budget bids, extended the bid irrevocability period while it negotiated a direct award for the work with a subcontractor to an existing construction management agreement, and then cancelled the original tendering process. The Inspector General found that STM used information from the bids to negotiate price reductions with the subcontractor:
The Inspector General has noted that the work on the stairwell footings and formwork was not awarded in accordance with the regulatory framework and that STM did not show good faith to bidders in its decision to cancel the call for tenders. The extension of the bid validity period allowed STM and its builder-manager to negotiate a price with Santco for the stairwell formwork. It was only after Santco agreed to reduce its price that STM announced the cancellation of the foundation formwork call for tenders. Such a practice constitutes lack of good faith toward bidders since the request for an extension of the bid validity period was used only to enable a contract to be negotiated with a third party for the performance of the work.
As the Inspector General further detailed, the original bids significantly exceeded the internal budget estimates for the work and STM was already considering cancelling its tendering process before it extended the bid irrevocability period and entered into parallel negotiations:
4.2. Cancellation of call for tenders
STM notified bidders on September 15, 2020 that the foundation formwork call for tenders was cancelled, nearly three months after the bid submission deadline. However, the investigation revealed that, upon receiving the bids, STM was considering cancelling the call for tenders due to the considerable difference between the lowest compliant bidder’s price and the estimate. As mentioned in section 2.2.2, Synergy was the lowest compliant bidder for the call for tenders with a bid of $17,813,198.62, whereas the estimate produced by STM and Pomerleau for the contract was $10,816,735, a difference of 43%.
The Inspector General determined that STM acted unfairly in asking bidders to extend their bid irrevocability periods while it negotiated to award part of that work to a different subcontractor:
…in requesting an extension of the bid validity period, STM did not act fairly toward these bidders since this additional time was only used for negotiations with Santco to complete the stairwell work. From the start of negotiations with Santco in July 2020, STM should have cancelled the call for tenders and by carrying out parallel negotiations was unfair to bidders.
The Inspector General also found that the clause in STM’s existing construction management contract, which allowed it to direct the work to the subcontractor of its construction management firm, breached the open tendering rules:
The Inspector General has concluded that the internal control clause in the construction management contract is contrary to the regulatory framework applicable to STM since the contract was not entered into on a fixed-price or unit-price basis for the given item. Moreover, by adding a predetermined amount of $4M, STM is going against the very objectives and principles of a public call for tenders, which is to allow bidders to compete and tender prices based on the work described in the tender documents.
The Inspector General noted that if STM wanted to direct work to its construction management firm or to that firm’s subcontractors, that work should have been incorporated, with applicable pricing, into the originally awarded construction management contract, rather than being left open-ended as a discretionary direct award option:
As applied, the clause constitutes a discretionary envelope that allows STM to award contracts by mutual agreement to Pomerleau without regard to the rules for awarding public contracts. The Inspector General cannot accept such a clause in a public contract. If, as STM asserts, it would like to have the option of having work carried out quickly by the builder-manager, it must include items at a unit price that make up a group of services and materials on which bidders can tender a price.
As this case study illustrates, public institutions should tread with caution prior to cancelling a tendering process due to budgetary constraints since the subsequent steps they take to award that work to other contractors remains subject to after-the-fact scrutiny and legal challenge. Further, those institutions should avoid sole-sourcing work based on open-ended discretionary clauses in their contracts since this practice may not comply with applicable open procurement rules.
