This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
As this section discusses, purchasing institutions need to establish a system that deters inappropriate supplier conduct and poor contractor performance by instituting transparent and defensible debarment processes.
If you owned a company and one of your suppliers sued you, would you invite that supplier to bid on your next tendered contract? This would be highly unlikely. However, in many public purchasing institutions, there is a widespread reluctance to bar litigious bidders or apply other systemic solutions to deal with problematic suppliers. Purchasing institutions should implement a bidder barring protocol to deal with suppliers who launch frivolous lawsuits, who undermine the integrity of the bidding process, or who perform poorly after contract award. This section discusses the benefits of implementing such a bidder barring protocol.
As noted above, there is a widespread reluctance to bar litigious bidders. Part of that reluctance is well placed, since a barring process should not be used to add insult to injury after a supplier launches a legitimate claim. In such instances, the courts have criticized heavy-handed bureaucracies who attempt to “get even” for past disputes. However, a proper balance needs to be struck. Frivolous claims drain resources from the purchasing operation. Institutional policies and procedures should be established to help differentiate between meritorious claims, which should be settled in an expeditious and reasonable fashion, and frivolous ones, which should be streamed towards a barring sanction. Such guidelines can help reduce the resources squandered on protracted legal battles and at the same time help increase supplier confidence in the integrity of the institution’s procurement practices.
Many purchasing institutions rely on bid security as their primary deterrent against bidder improprieties; however, this remedy has serious flaws. Firstly, using bid security draws the institution into the high-risk Contract A tendering process, giving bidders a number of common law rights, which have translated into an avalanche of lost profit lawsuits in many Commonwealth jurisdictions. By requiring bid security, the institution increases its litigation risk and diminishes its ability to utilize more flexible, low-risk tendering formats.
Secondly, bid security is an overly broad remedy since it punishes all bidders by tying up their liquidity during the bidding process in order to sanction the few bad players who do not honour their bids. An example of this can be found in the World Bank’s procurement review of Samoa, which recognized this problem and recommended bidder barring as a better substitute remedy:
Although securities can be provided by local banks…this restricts the liquidity of firms in their cash transactions. In place of bid security…the Tenders Board may wish to consider allowing bidders to sign a declaration accepting that if they withdraw or modify their bids during the period of validity…the bidder will be suspended by the Tenders Board for a period of time from being eligible for any bidding involving Government funds.… [T]his would help the liquidity of the firms, while at the same time ensuring that frivolous bids are not submitted.
Global institutions can implement similar approaches, which would free them up to use lower-risk, non-Contract A, non-binding formats while still maintaining a credible deterrent against frivolous bids.
Finally, bid security fails to provide a practical remedy against corrupt tendering practices, such as bid-rigging and bribery. Lawmakers in multiple jurisdictions have passed bidder barring legislation to deal with these types of bidding abuses. For example, Kenya’s Public Procurement and Disposal Act 2005 established a maximum five-year ban for bidders who engage in corrupt tendering practices. Purchasing institutions should leverage these international legal developments to model their own policies and procedures for implementing bidder barring protocols as deterrents against tendering abuses.
When an institution receives a low bid from a poorly performing contractor, its natural instinct may be to rely on its reserved right to “reject any and all tenders” and select a different bidder. However, since the decision to bypass a low bidder is typically subject to legal challenge, purchasers should proceed with caution in these situations. The ability to safely sidestep a poorly performing low bidder is directly related to the evidence available to prove poor past performance and to the relevance of that poor past performance to the evaluation of the current tender. While good record-keeping can help in these situations, the low bid bypass remains subject to costly and lengthy litigation, to procedural remedies in all rule-of-law countries, and to lost profit awards in many Commonwealth jurisdictions, if the court decides that the bypass was improper. To avoid risky and resource-draining legal entanglements, institutions should bolster their contract management record-keeping and conduct post-performance assessments of their contractors. Like litigious bidders and unethical bidders, poor performers should be barred before they are given the opportunity to submit another low bid, mess up another project, and launch another lawsuit. We owe it to our institutions and the taxpayer to create effective firewalls to protect them from these problematic suppliers.
