By: Paul Emanuelli
This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
Recent legal decisions continue to underscore the inherent limitations of dealing with bid compliance issues using one-shot bid submission protocols. In fact, recent rulings are encouraging the use of multi-staged bid procedures that not only allow bidders to rectify compliance irregularities that would otherwise force a disqualification, but also allow competing bidders to receive evaluator feedback on their initial submissions so they can submit improved final offers and receive higher scores.
As the recent cases illustrate, rather than adopting restrictive procedures that compel the disqualification of bids over compliance irregularities, purchasing institutions should adopt multi-phased compliance protocols with formal cure periods that allow bidders to rectify any non-compliance concerns before they escalate into legal disputes. This way, project teams can focus on scoring competing proposals without the distraction of dealing with bid compliance lawsuits.
As has been the case for many decades, restrictive one-shot submission procedures continue to attract legal challenges over bid compliance issues. For example, in its March 2021 decision in Pomerleau Inc. v. The Province of New Brunswick, the New Brunswick Court of Queen’s Bench struck down the government’s decision to disqualify a $65 million hospital project bid over an insurance certificate requirement. The requirement in question called for the insurance certification from a “New Brunswick resident agent” but the government rejected the certificate since the agent did not have a physical office in the province.
The complainant brought an application for judicial review seeking to quash that disqualification, maintaining that the government was inconsistent in interpreting the residency rule for insurance agents since it had previously accepted the complainant’s insurance certificate from the same insurance company in a prior bidding process. The Court agreed, finding that the government acted unreasonably and that the decision to reject the insurance certificate raised “concerns of subjective, arbitrary and inconsistent decision-making that may offend the principle of the rule of law.” The Court therefore set aside the government’s decision to disqualify. As this case illustrates, rather than engaging in compliance brinksmanship, purchasing institutions should adopt post-bid compliance cure periods so that any unforeseen misunderstandings over the interpretation of compliance requirements can be addressed and any potential bid irregularities can be rectified before they escalate into legal disputes.
Similarly, in its April 2021 decision in QMAC Construction Ltd v Northern Ireland Housing Executive, Northern Ireland’s High Court of Justice ruled that the government housing agency breached the bidding rules by disqualifying the incumbent for failing to submit a prior experience certificate before the bid deadline. The dispute involved an Invitation to Tender (ITT) for maintenance services where bidders were required to submit a “Certificate of Technical and/or Professional Ability” from prior clients. The incumbent sought the required certification from the housing agency as a client so that the document could be included in the bid package.
However, due to internal approval delays, the housing agency failed to provide the incumbent with the required certificate prior to the bid deadline. The agency then disqualified the incumbent after claiming that it had no discretion to accept the document from the incumbent after the deadline. The incumbent challenged the disqualification decision. The Court upheld that challenge, ruling that the agency should have exercised its discretion to allow the bidder to formally submit the certificate, which was already in the agency’s possession as the issuing body, after the deadline. In fact, the Court concluded that it was the unnecessarily complicated internal government approval process that resulted in delaying the incumbent’s certificate in the first place. This case underscores the unnecessary risks created by vague and restrictive bid compliance rules that create uncertainty over the government’s ability to allow bidders to rectify non-compliance in their bid submissions. Had the bidding rules in question more clearly allowed for a rectification process, the resulting legal dispute, which ultimately resulted in the Court overruling the incumbent’s disqualification and ordering the government body to accept the delayed certificate, could have been avoided.
In fact, recent rulings are recognizing a broad range of rectification practices that are available to public institutions to address deficiencies in initial bid submissions. For example, in its February 2021 determination in Marine Recycling Corporation and Canadian Maritime Engineering Ltd. v. Department of Public Works and Government Services, the Canadian International Trade Tribunal noted that the government had adopted a phased approach to bid compliance.
The case dealt with a Request for Proposal (RFP) for vessel disposal services. As the Tribunal noted, the RFP “included a phased bid compliance process” where bids were first reviewed for pricing irregularities “to determine whether any information required to be included in the financial bid was missing” so that bidders could “remedy any deficiencies identified”. Once pricing issues were addressed, the phased rectification process moved to a second technical review phase “to identify any instances where the bid failed to meet any Eligible Mandatory Criteria”. As the Tribunal explained, after the technical compliance review, bidders were issued “a Compliance Assessment Report (CAR) identifying any Eligible Mandatory Criteria that the bid failed to meet”. After receiving those reports, bidders were “provided a period in which they could provide additional information to achieve compliance with the identified criteria.”
The Tribunal found no issue with the phased compliance process used by the government. In fact, it overruled the government’s decision to cancel the RFP over other issues relating to the subsequent scoring of those compliant proposals. The Tribunal determined that the cancellation decision was unnecessary and ordered the government to proceed with re-evaluating the proposals that had passed the phased compliance screening process. As this case illustrates, recent decisions are increasingly recognizing the validity of rectification processes that allow bidders to cure compliance irregularities so that a larger number of submissions remain eligible for scoring in the subsequent stages of the evaluation process.
However, the use of rectification procedures does not preclude the ultimate rejection of a bid for non-compliance. For example, in its March 2021 decision in Bechtel Limited v. High Speed Two (HS2) Limited, the England and Wales High Court of Justice dismissed a losing bidder’s legal challenge after finding that the government gave the complainant multiple opportunities to rectify its conditional bid, but the bidder failed to avail itself of those opportunities. The dispute dealt with a tender call for high-speed trains. A losing bidder challenged the evaluation and award process, but its legal challenge was rejected on several grounds, including on the basis that its bid was non-compliant. As the Court noted, the bidder included a material condition in its bid that shifted the financial risk of the project back to the government. Furthermore, as the Court summarized, the issuing authority was not prepared to accept that proposed amendment to the contract and gave the bidder “several opportunities to withdraw its qualification” but the bidder “declined to do so.” The Court ruled that the non-compliance was fatal to the complainant’s claim. This case serves a useful reminder that the employment of rectification processes does not mean that public institutions waive their ability to ultimately enforce compliance standards after allowing for a cure period.
Recent decisions dealing with abnormally low bids also highlight the importance of rectification processes since public institutions may be under a duty to look behind an apparently abnormally low bid before rejecting it. For example, in its November 2020 decision in Pasha Hawaii Holdings LLC, the U.S. Government Accountability Office (GAO) found that the government failed to conduct a proper price realism analysis to determine whether the winning bidder’s price offer was unreasonably low. As the GAO stated, “analyzing whether an offeror’s fixed price is so low that it reflects a lack of understanding of solicitation requirements is the crux of a price realism evaluation.” This analysis is important to guard against future performance issues since, as the GAO noted, “consideration of whether an offeror’s fixed price is so low that it creates a risk that the firm cannot perform its proposed technical solution at the price offered also forms the basis of a price realism analysis.”
The GAO noted that this analysis should not be limited to considering pricing in isolation, but it should also consider pricing in relation to the proposed technical solution. On this point the GAO confirmed that “it is axiomatic that a proper realism evaluation alerts agencies to those aspects of an offeror’s technical proposal which do not appear to be feasible based on what the offeror has indicated in its price proposal.” In other words, while pricing may clearly appear to be abnormally low on its face during initial compliance screening, other pricing may not reveal itself to be too low until later in the process when technical proposals are considered. Given the above, rectification rights should be drafted to allow for rectification even in situations where the non-compliance of a bid is not detected in the initial assessment of compliance but is only discovered later in the evaluation process.
In fact, even when faced with a no-cost bid, a purchasing institution may be breaching due process duties if it unilaterally rejects a bid for abnormally low pricing without first contacting the bidder to confirm the reasons behind the pricing. Clear rectification protocols can help enable those further due diligence steps. For example, in its September 2020 decision in Tax-Fin-Lex v Ministrstvo za notranje zadeve, the European Court of Justice found that Slovenia’s Ministry of the Interior improperly rejected a no-cost bid submitted for a legal information system.
The estimated cost of the contract was EUR 39,959.01 and the Ministry rejected that no-cost bid as abnormally low since there would be no financial consideration paid to the low bidder. However, in the circumstances, the Court determined that the Ministry breached the procurement rules by not first confirming why the bidder had offered to provide the service at no cost. The Court ruled that the Ministry failed to consider the value gained by the contractor in winning access to a new market and collecting new references that it could rely on in subsequent bids. Given what would be minimal, if any, incremental costs to the legal database provider to allow new subscribers free access for a limited time, this ruling appears reasonable. However, since the Ministry failed to follow up to determine the rationale for the no-cost bid, the Court found that the automatic rejection of that bid was arbitrary and contrary to the procurement rules. This decision serves as another useful example of the limitations of one-shot bidding processes that restrict post-bid communications, force uninformed disqualification decisions, and increase the risk of legal challenges that could otherwise be avoided through clear and transparent clarification and rectification protocols.
Moving beyond compliance issues, multi-staged submissions can also be used to help bidders improve their final offers in areas where their initial bids earned weak scores. In fact, rather than discouraging this practice, recent legal rulings are increasingly calling out government evaluators for failing to provide sufficient feedback to proponents to enable those proponents to address areas of weakness in the initial submissions. For example, in its January 2021 decision in GOV National Healthcare Drive, LLC, the U.S. Government Accountability Office (GAO) found that the government ran an unfair evaluation process since its evaluators failed to provide proper feedback to proponents. The dispute dealt with a Request for Lease Proposals (RFP) for a 20-year office space lease. As the GAO noted, when a government institution adopts a dialogue stage in its evaluation process that provides evaluators an opportunity to discuss the initial scoring of proposals with proponents, those discussions cannot be cursory. Rather, that feedback should help proponents address the deficiencies in their initial proposals so they can improve their final scores.
As the GAO explained, evaluator feedback discussions “must be meaningful; that is, they must lead the offeror into those areas of its proposal that require modification, amplification, or explanation.” In fact, rather than limiting that feedback or limiting the opportunity to revise proposals, the GAO ruled that during evaluation discussions, the government agency must, at minimum, “discuss all deficiencies, significant weaknesses and adverse past performance information to which the offeror has not had an opportunity to respond.” In the case in question, the GAO determined that evaluators had identified eight deficiencies in the complainant’s proposal, along with a larger number of other weaknesses, but found that “none of these deficiencies or weaknesses were brought to the protester’s attention during the agency’s discussions.” The GAO therefore determined that the “agency failed to engage in meaningful discussions” with the complainant and sustained the complainant’s protest.
As these recent cases illustrate, rather than being bound to restrictive one-shot approaches to bid submissions, purchasing institutions can adopt more flexible multi-staged submission processes that permit compliance cure periods and allow evaluators to provide feedback that gives proponents a meaningful opportunity to improve their initial submissions. Purchasing institutions should be adopting those more flexible processes whenever possible to encourage more competition and the submission of better final offers.
