By Paul Emanuelli

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

The days of public institutions engaging in non-transparent contract award practices under supplier lists, prequalification rosters, and vendor-of-record arrangements are coming to an end. In recent years, these “piggybacking” or “onboarding” arrangements have been repeatedly challenged in bid protests and audit reports as a source of non-competitive and non-transparent contracting. New procurement standards have created far more onerous rules around standing arrangements that often restrict the length of time that a public institution can maintain a “closed shop” of suppliers. These rules also require a careful consideration of the scoping of opportunities and mandate transparent second-stage call-up processes for the award of specific assignments.

Since “piggybacking” and “onboarding” are terms created by industry, rather than formal legal terms contained in treaties or statutes, you will not typically find specific prohibitions naming those practices in the rules. However, the confusion over the “piggybacking” or “onboarding” terminology should not obscure the long legacy of compliance breaches that have resulted from organizations using their own or another institution’s standing contract arrangements in non-competitive ways. Asking “Where does it say I can’t piggyback or onboard?” is the wrong question. The right question is, “Where does it say I can piggyback or onboard and not conduct an open tendering process as otherwise required under the public procurement rules?”

Public institutions that are considering the use of a Framework Agreement or “piggybacking” on another organization’s procurement or contract, should first obtain qualified advice to confirm that the contemplated process complies with their specific procurement rules, since “piggybacking” or “onboarding” is a form of improper sole-sourcing unless you set up and follow a proper framework arrangement. While many standing arrangements have been in place for years, this does not mean that they comply with current statutory, treaty, case law, and audit standards. In such situations, the devil is in the detail.

To better ensure compliance, public institutions should follow the following seven-step analysis for frameworks, piggybacking, and onboarding:

  1. The obligation under the procurement rules is to have an open competition any time an anticipated contract value reaches the applicable contract value thresholds (unless you fall under an exemption or exclusion). Typically, this obligation is met by doing your own tendering process on a one-time basis.
  2. This open procurement obligation can also be met by using framework arrangements (known in industry by a number of terms, such prequalification lists, rosters, supplier lists, vendor of records, standing agreements, standing orders, frameworks, etc.). However, the rules and applicable case law and audit reports are clear in requiring transparency in how you call up work under these frameworks. Otherwise, this is improper sole-sourcing and a breach of open competition duties. It is also a breach of the proper stewardship of public spending as noted in multiple public audits.
  3. While frameworks are sometimes used by multiple institutions, transparency standards still apply to (i) how you establish a prequalified list of suppliers, and (ii) how you award any specific assignment from the list of suppliers. You cannot directly award in a non-transparent manner because the standing agreement includes a “piggybacking” or “onboarding” clause. Suppliers do not have the authority to give you an exemption from your open tendering obligations simply by agreeing to those provisions. Those clauses are no defence to a sole-source challenge if you have not followed the rules.
  4. Proper prequalification framework purchasing (whether within one organization and its departments, or multiple organizations) requires transparency at the front-end initiating process, which for compliance purposes would include a disclosure of the involved organizations in the initial prequalification solicitation and then transparent protocols on the call-up process to award work through second-stage competitions. Compliance requires more than simply “naming the entities” in the original prequalification. It also requires a formal second-stage process.
  5. For lower value assignments, you may be able to establish a call-up process without tendering by using a rotational, right-of-first-refusal process so long as you pre-established this protocol in your original rules and then ensure that you are managing that rotational system fairly to distribute the work. Otherwise, you need to invite all suppliers prequalified in the specific category. Technology can be leveraged in these situations to ensure timely and compliant competition.
  6. In the United States, there may be statutory (meaning written in law) permissions to onboard onto another institution’s framework. For example, some state entities can piggyback on federal standing contracts or other state contracts, but those entities will typically still have to follow strict second-stage call-up protocols. Those entities cannot simply sole-source from another institution’s supplier list or ignore scoping restrictions in the original contract.
  7. Most jurisdictions typically don’t have the statutory permission to piggyback or onboard in the first place, so the option under rule #6 (direct onboarding onto another institution’s contract) is typically a non-starter. For example, Canadian institutions, along with institutions in other jurisdictions where there are no statutory piggybacking rules, should follow rules one to five for proper compliance.

Once public institutions complete the above analysis and obtain the qualified advice required to confirm that the arrangement is compliant, they can obtain better value-for-money and efficiency while avoiding becoming the next non-compliance case study.