This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
As discussed below, recent legal rulings and public audit reports have exposed a broad spectrum of procurement improprieties, ranging from bias and conflicts to collusion and corruption, that continue to undermine the probity of the public procurement process. Public institutions need to bolster their internal governance practices to deal with these ethics and accountability issues.
Biased Criteria and Requirements
Bias remains an ongoing risk area in public procurement. In fact, public institutions continue to face legal challenges over allegations of bias in evaluation criteria and contract requirements contained in their solicitations.
For example, in its March 2021 determination in Brion Raffoul v. Department of Public Works and Government Services, the Canadian International Trade Tribunal dealt with a bid protest filed by a losing bidder that alleged that the government relied on unnecessarily restrictive and biased prior experience criteria in a solicitation for patent agent services.
The complainant took issue with the mandatory evaluation criterion that required bidders to have successfully prosecuted one patent family in which the patents were issued in Canada, the United States, and at least two other countries outside of North America, and where each patent was issued in the past ten years. The complainant alleged that the ten-year time limit and the geographical restrictions were unreasonable, arguing that the time limit did not recognize the reality of prosecuting a patent family, the timing of which is largely outside the control of the patent agent.
While the Tribunal rejected these arguments, finding that the need to show recent experience in the relevant jurisdictions was a legitimate operational requirement, the case shows how suppliers are becoming increasingly active in raising bias claims against procurement specifications and evaluation criteria.
This case also serves as a reminder to public institutions that, when challenged, they bear the onus of proving that their evaluation criteria are rationally connected to their legitimate operational requirements and do not unnecessarily restrict competition. Failing to meet that onus can result in the invalidation of solicitation requirements.
For example, in its September 2020 decision in Mythics, Inc., the U.S. Government Accountability Office (GAO) ordered the government to redraft its solicitation document after finding that a cloud computing Request for Proposals (RFP) contained unnecessarily restrictive requirements that were biased towards specific firms. As the decision stated, “The RFP identifies the name-brand products of three cloud services providers, Amazon Web Services, Google Cloud Platform and Microsoft Azure, and requires offerors to provide pricing for an enumerated list of 13 products or services available from these three firms.”
As the GAO summarized, the complainant asserted that “the RFP impermissibly requires offerors to provide the 13 brand-name products peculiar to Amazon, Google and Microsoft without the agency having executed the required justification and approval for limiting competition to those products, and without alternatively specifying the salient characteristics of those products that are necessary to meet the agency’s requirements so that alternative products may be offered.” Further, the GAO summarized that according to the complainant, “this amounts to an impermissible brand-name-only solicitation, even though the agency added line items for “other” products in an amendment to the RFP.” The GAO agreed, ordering that the government cancel and redraft its requirements in a less biased and more neutral manner, or that it conduct an internal justification and approval process prior to using the biased specifications as required by the federal procurement rules.
Similarly, in its December 2020 decision in AES UXO, LLC, the GAO found that the government’s enforcement of prior experience requirements was unnecessarily restrictive to competition. The dispute involved a Request for Quotations (RFQ) issued for the Department of the Army for unexploded ordnance clearance services at Fort McCoy, Wisconsin. As the GAO noted, the complainant argued that “the solicitation’s evaluation criteria relating to the evaluation of relevant experience and past performance are unduly restrictive of competition.”
More specifically, the complainant asserted that it was “unfair to require that firms demonstrate relevant experience and past performance as either a prime contractor, or as a member of a joint venture.” Rather, the complainant maintained that relevant past experience gained as a subcontractor “should be adequate to satisfy the agency’s requirement.”
The GAO agreed, ruling that the requirement was biased against suppliers who had gained their prior experience as subcontractors. As the GAO stated, “if a firm submitting a quotation previously had performed the identical services currently being solicited—even if it had performed those identical services at Fort McCoy, the location for performance of the solicited requirement—its relevant experience and past performance would not be considered under the terms of the RFQ if the firm happened to have performed those services as a subcontractor.”
The GAO ruled that the evaluation requirement produced an “irrational result” since it was intended to prevent prime contractors from naming subcontractors that they never intended to use to artificially fill gaps in their own prior experience requirements, but that instead of achieving that objective, the requirement “effectively penalizes firms that actually have relevant experience and past performance by not permitting them to receive evaluation credit for their experience and past performance, merely by dint of having obtained it as a subcontractor rather than as a prime contractor or joint venturer.” The government was therefore directed to redraft its biased and unfair evaluation requirements.
Reputational Bias
Public institutions should be careful to avoid biasing their evaluations to unfairly advantage a bidder based on its prior reputation. For example, in its April 2021 decision in SL Ross Environmental Research Limited v. Department of Fisheries and Oceans, the Canadian International Trade Tribunal rejected a challenge based on allegations that the government had improperly scored the complainant’s prior experience.
The dispute dealt with a Department of Fisheries and Oceans Request for Standing Offer (RFSO) for the provision of scientific and technical advisory services on matters related to environmental incidents, response measures, and emerging technologies. To be eligible for award, bidders had to meet a minimum technical score of 80 points out of 110 points.
The complainant, SL Ross Environmental Research Limited (SL Ross), failed to meet that minimum score and then took issue with the scoring of its prior project experience. More specifically, the complainant challenged the determination the government evaluators had made that there was duplication in the projects submitted in the complainant’s bid. The Tribunal agreed with the evaluators, finding that there was duplication in the projects named in the complainant’s bid and finding that those projects could not be scored twice in the evaluation.
Notwithstanding the complainant’s assertions that it should have been given the benefit of the doubt based on its international reputation and should have scored higher to meet the minimum scoring requirements, the Tribunal noted that the complainant’s international reputation “would be an external factor not contemplated by the RFSO or in particular the rated technical criteria” and its consideration in the evaluation process would be contrary to the government’s obligations under the trade agreements. The complaint was therefore dismissed.
As the Tribunal concluded, the complainant’s reputation in the field “was not part of the evaluation criteria in the RFSO and that relying on such subjective information would have been unfair to other bidders.”
As this case illustrates, prior experience can be a contentious area in bid evaluations. In fact, over the years, these criteria have attracted a disproportionate number of legal challenges. Given these inherent risks, purchasing institutions should ensure that the prior experience criteria in their bid solicitation documents are unbiased, accurately defined, tied to legitimate operational requirements, and supported by well-documented evaluations.
Biased Sole-Sourcing
Concerns over the appearance of conflict and bias can also undermine the validity of sole-source decisions. In fact, in its June 2021 decision in The Good Law Project v Minister for the Cabinet Office, the England and Wales High Court of Justice ruled that a non-competed high-profile government contract award to Public First, a public opinion consulting firm, was legally invalid due to concerns over personal connections between that firm and senior government officials.
In dismissing two of three grounds of complaint, the Court found that the government’s direct award of a contract for COVID-19-related public opinion focus group services was justified to allow the government to quickly deal with the unforeseen COVID-19-related emergency, and the Court also found that the six-month duration of that contract was proportionate in length to deal with that emergency. In fact, the evidence showed that the firm in question was instrumental in assisting the government in developing its “Stay Home, Save Lives” slogan during the early months of the pandemic crisis.
However, the Court also found that the fact that senior government officials decided to award the contract to a firm run by individuals with whom they had long-standing personal relations, without also considering whether other firms were qualified for the sole-source services, gave rise to the appearance of bias and therefore rendered the award legally invalid. As the Court noted, the existence of personal connections between the decision-makers and the contractor “was a relevant circumstance that might be perceived to compromise their impartiality and independence in the context of a public procurement.”
In its ruling, the Court was careful to note that there was no evidence of actual bias arising out of the apparent conflict, nor was there any question as to whether the judgment of the senior officials in selecting the firm as competent to provide the services was compromised by the apparent conflict. However, the Court ruled that “the absence of actual bias is not in itself a defence to an allegation of apparent bias” since the appearance of bias is sufficient to render the award legally invalid. Given the circumstances, the Court found that it was “incumbent on those involved in the appointment of Public First to ensure that there was a clear record of the objective criteria used to select Public First over other research agencies so that they could allay any suspicion of favourable treatment based on personal or professional friendships.” More specifically, by failing to consider the suitability of other firms before making the contract award decision, the Court found that the senior government officials breached the sole-sourcing rules.
While the government advanced justifications for selecting the firm in question once the direct deal was legally challenged, the Court was careful to note that at the time of the actual contract award decisions, “no one identified the objective criteria against which Public First was determined to be the appropriate agency for the work.” As the Court stated, the fact that “Public First was considered competent, reliable and honest was a necessary but not sufficient basis on which to select it above others.” The Court also found that “at the time the decision was made, no one undertook any assessment to determine whether Public First was the most appropriate agency to use” and that the senior officials in question never “considered the possibility of using an alternative agency.” In fact, the Court found that the government failed to consider its database of prequalified suppliers to help identify other potential suppliers. Rather, the Court found that the government failed to contact any other potential contractors to determine whether they could perform the focus group work within the government’s tight timeframes.
Given the above, the Court ultimately ruled that “the Defendant’s failure to consider any other research agency, by reference to experience, expertise, availability or capacity, would lead a fair minded and informed observer to conclude that there was a real possibility, or a real danger, that the decision-maker was biased.” The Court therefore ruled that the contract award was unlawful.
Conflicts Awareness Training
Recent audits have raised significant concerns over the adverse impact of bias and conflict on the integrity of contract award decisions and have recommended improved training to deal with these issues. For example, in a July 2021 report of the procurement practices at South Carolina Governor’s School for Agriculture at John de la Howe, South Carolina’s Inspector General raised multiple concerns over the appearance of conflicts of interest arising out of undisclosed business and familial relationships involving staff and external contractors. The report called for staff to undergo ethics training and to formally affirm that they understand and will comply with the agency’s code of conduct.
Similarly, the March 2021 report of the Inspector General of the New York State Metropolitan Transportation Authority found that a staff member serving on an RFP evaluation committee leaked bidder pricing information to her director, who in turn leaked that information to the losing incumbent. The director then attempted to convince the RFP co-ordinator to allow the incumbent to resubmit lower pricing outside of the RFP process rules to preserve the incumbency. The audit found that this conduct was in contravention of the procurement rules and recommended staff counselling and training on the role of evaluation committee members.
Fraud, Collusion, and Corruption
While some conflicts might be addressed through improved internal training programs, public institutions need to also be aware of the external risks posed by substandard contractor work, collusion between contractors, and collusion between contractors and internal staff.
For example, in its July 2021 report entitled Roads Value for Money Audit, the City of Hamilton’s Office of the City Auditor raised concerns over multiple red flags regarding poor contractor performance and potential bid-rigging in the award of road paving contracts. As the report warned, “for many years, roads management has had a problem managing contractor performance and achieving the quality expected.” The report recommended that the City “consider implementing a contractor rating system similar to other jurisdictions.” More specifically, the report raised “significant concerns with roads management not using two crucial asphalt tests that are important in determining quality for acceptance” since this increased the City’s “exposure to poorly performing asphalt.”
In fact, the report found that “for many years, contractors have not been held appropriately accountable for poor performance” and that City auditors “could not find any examples where significant penalties had been levied for quality deficiencies.” Rather, the report found that “penalties issued were very insignificant when compared to the contract value”. The auditors cited one example where only two thirds of a contractor’s road mix samples met acceptable standards, but that contractor was sanctioned less than $2,500 on a $3.4 million contract. The report concluded that “penalties and fines for poor quality, to the extent they have been used in recent years, are relatively insignificant and do not act as a deterrent against low quality.”
The City auditors also found multiple warning signs of market domination, collusion, and bid-rigging in connection with the award of paving contracts. As the report stated, “a number of red flags were noted that signal risks related to market domination, bid suppression, cover bidding and low-bid/low-quality events, and which call for the need for vigilance by management in the tendering and monitoring of contracts.”
In fact, the City auditors reviewed 50 road resurfacing contracts and eight road surface treatment contracts covering the period from 2013 to 2019 inclusive and raised concerns over market domination since one contractor was awarded 52% or 26 out of the 50 road resurfacing tenders reviewed between 2013 and 2019 worth $36.0 million of the $77.8 million in total awards. As further evidence of market domination, the report also noted that three contractors accounted for 90% (45 out of 50) of all road resurfacing tenders worth $71.2 million of the $77.8 million in contract awards.
The report also raised concerns over cover bidding, where competing bidders collude to submit weak bids to give the appearance of competition. In fact, in the above-noted resurfacing contracts, the report stated that “one contractor bid 24 times without winning a tender while another bid 28 times winning only two” and that in 22 of the 50 bids reviewed, “the highest bid submitted exceeded the lowest (winning) bid by 30% or more, and in six cases the highest bid exceeded the winning bid by 50% or more”.
The report also raised concerns over repeat awards to a low bidder who subsequently performed substandard work, noting that the contractor that won most of the road resurfacing bids during the audited seven-year period was also “singled out for poor quality by an engineering consultant’s report.” As the auditors concluded, contractors who are “incapable of meeting the standards specified by the City in a prior contract should not be rewarded with a new one if quality cannot be assured.”
While the Hamilton report made no mention of any internal staff collusion in relation to any of these issues at the City, other public procurement case studies have found that irregularities and improprieties are often enabled through the assistance of inside accomplices. Recent case studies illustrate how this remains an ongoing issue.
For example, in its July 2021 report regarding the Higley Unified School District, Arizona’s Auditor General found evidence of collusion and fraud in relation to a school construction project that resulted in the indictment of four individuals on multiple felony counts.
The controversy involved a project for the construction of two new schools. The Auditor General found evidence that the school superintendent directed staff to leak material information regarding a construction project to an external consulting firm that gave that firm an unfair advantage over other bidders in the award of the $2.6 million development contract. The report also found that the firm in question was leaked advance copies of the RFP documents and was allowed to influence the RFP requirements before the official release of that tender call.
Furthermore, the Auditor General found evidence that the school superintendent received indirect kickbacks exceeding $45,000 from the contractors who benefited from the unfair award and that she never declared that income for tax purposes. As the report detailed, the superintendent was indicted on 18 felony counts relating to procurement fraud, fraudulent schemes and practices, misuse of public monies, conflict of interest, filing a false return, and conspiracy, while three of her accomplices were indicted on three felony counts each in connection with the scheme.
As the Auditor General stated, “Public officials with oversight authority have a responsibility to properly manage the administration of money and property entrusted to them and must ensure that sufficient internal controls are designed and implemented to protect those assets.” However, the report warned that “a system of internal controls will not succeed when those in a position to oversee those operations are perpetrating unlawful behavior and concealing their misconduct.” In this case, the Auditor General found that the superintendent appeared to influence employees to “comply with her directions to perform problematic functions” that included leaking material information, giving unfair preference to bidders, and spending $6 million in funds for unauthorised expenditures. However, while some employees viewed the superintendent’s actions as questionable, the report found that they were “concerned about questioning her decisions because they feared retribution.”
The Auditor General recommended that the school board “create an environment in which employees feel confident in reporting potential misconduct without fear of retribution” and that these reforms should include “creating a strong whistleblower system as well as conducting trainings that reinforce the governing board’s support for, and insistence on, adherence to strong internal control procedures.”
The report also stated that the school board should require all employees and public officers to complete an annual conflict-of-interest disclosure form and that it establish a process to review and remediate disclosed conflicts to ensure employees and public officers with disclosed conflicts recuse themselves from any related transactions. Finally, the Auditor General recommended that the school board continue to provide periodic conflict of interest training to all employees and governing board members.
As these recent case studies illustrate, to address ongoing irregularities involving bias, conflict, collusion, and corruption in the public procurement process, government institutions need to bolster their internal governance standards through the implementation of improved probity practices and enhanced staff training programs.
