This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
As the following case studies illustrate, unnecessarily strict procedures, overly narrow evaluation criteria, and overly prescriptive specifications serve to stifle competition and expose the procurement process to unnecessary litigation. To avoid tender compliance disputes and enable innovation, purchasing institutions should deploy negotiated Requests for Proposals (RFPs) that include rectification procedures and competitive dialogue stages.
Bidders are becoming increasingly vigilant in challenging what they perceive to be unnecessarily restrictive public procurement procedures. For example, in the October 2021 decision in Global Translation Solutions ltd. v. European Parliament, the Court of Justice of the European Union upheld the rejection of a bid after determining that the rejected bidder submitted parts of its proposal in the wrong file format. The dispute dealt with an invitation to tender for translation services. While the bid submission instructions required bidders to submit their translation tests in Word DOCX files, the complainant was disqualified after it submitted those tests in Word DOC files. The bidder legally challenged that disqualification, arguing that the different file formats were functionally equivalent, and that disqualifying its bid over the file format breached the principles of proportionality.
However, the European Parliament argued that the file formats were not equivalent since Word DOCX files could automatically be read by different types of software, whereas the conversion of Word DOC files to Word DOCX files required manual intervention and imposed an undue burden on the evaluation process. While the Court upheld the bid rejection after finding that the specific tendering rules did not allow the bidder to cure this issue, the time and expense of defending the legal challenge could have been avoided had more flexible submission procedures been adopted that allowed the bidder to rectify the relatively minor file format irregularity.
In addition to taking issue with unnecessarily strict procedures, bidders are increasingly challenging what they perceive to be overly restrictive evaluation criteria and performance requirements. For example, in the October 2022 High Court of Delhi decision in Mehendiram Foods Products Private Limited v Government of NCT of Delhi, a supplier brought an application to court seeking to quash what it alleged were arbitrary, discriminatory, and biased terms in a school food services Request for Proposal (RFP). To be eligible for award, the evaluation criteria required that bidders have an already established facility to perform the work or that bidders are able to mobilize their facility within 45 days of award. The supplier argued that this was an unlawful restriction to competition.
However, the Court dismissed the legal challenge, ruling that it would not interfere with the government’s right to set its requirements unless those conditions were arbitrary, discriminatory, made in bad faith, or motivated by bias. The Court dismissed the challenge after concluding that “the conditions imposed in the instant tender cannot be said to be whimsical, capricious, arbitrary or meant to be suited for a select few”. While the Court rejected the specific challenge, the case reflects a growing legal trend that sees public institutions under increasing pressure to avoid restrictive requirements and other anti-competitive practices.
In fact, in its October 2022 report entitled Improving health care through pro-competitive procurement policy: Digital Health Care Market Study Part 2, Canada’s Competition Bureau recommended that government institutions use less prescriptive evaluation criteria and specifications and use negotiated Requests for Proposals (RFPs) to enable bidders to propose market-based solutions rather than being tied to unnecessarily narrow government requirements. As this report cautioned, “Canada is at risk of falling behind international best practices for digitally-enabled health care treatments” and that adjustments were required to government purchasing rules to “ensure that Canadians continue to have access to the best care possible.”
As the Competition Bureau stated, while buyers “want to make sure that they buy the right solution at the right price”, the use of requirements that are “ill conceived or too demanding” can result in the unnecessary elimination of potential bidders. For example, the report noted that while past experience requirements help government institutions simplify their evaluation process, overly restrictive experience requirements “mean that any business that offers a new, innovative product, could not bid.” The report cautioned that such an approach “favours the tried and true at the expense of competition and innovation.” The report recommended the adoption of “demand-side policies” that stimulate the demand for innovation through the procurement process and noted that the European Union recently targeted 17 percent of its procurement expenditures to innovative solutions.
The Competition Bureau attributed current restrictive practices to a lack of government expertise in defining requirements and to a lack of market intelligence. As the report cautioned, “it is important to get RFP requirements right” since “failing to do so can create barriers to market entry, particularly for innovative companies and SMEs.” The report concluded that “improperly scoped RFP requirements can make procurement policies needlessly complex and, at their worst, can reduce competition and innovation to the detriment of the Canadian health care system.”
Similarly, in its July 2022 Annual Report 2021-2022, Canada’s Office of the Procurement Ombudsman cautioned against the use of unnecessarily restrictive evaluation criteria, noting that concerns over unfair, overly restrictive, or biased evaluation criteria were the top issues raised by its industry stakeholders. In fact, those stakeholders felt that government procurements were unfairly biased for and influence by incumbent suppliers. The industry stakeholders also raised concerns over the flawed interpretation of evaluation requirements and the application of hidden criteria, such as Canadian education requirements that were never disclosed in the government’s solicitation documents.
In fact, the use of unnecessarily restrictive requirements can lead to successful legal challenges, as evidenced by two high-profile legal rulings involving Canadian provincial governments whose procurements were struck down for breaching open competition rules under applicable trade treaties. In its February 2022 decision in The Ministry of Highways for the Province of Saskatchewan v. West-Can Seal Coating Inc., the Saskatchewan Queen’s Bench dismissed the Saskatchewan government’s appeal of a trade treaty arbitration decision. That arbitration decision determined that the government breached open competition rules by applying local labour requirements under a “community benefits” scheme that awarded highway maintenance work to a Saskatchewan company. The Court rejected the government’s appeal, finding no reason to overturn the arbitration ruling after the arbiter determined that the local labour requirements were an indirect form of prohibited local preferences.
Further, in its June 2022 ruling in Thales DIS Canada Inc. v. Ontario, the Ontario Superior Court of Justice – Divisional Court struck down an Ontario driver’s licence and health card Request for Proposals (RFP) after the government failed to justify domestic production restrictions on security and privacy grounds. In that case, a European bidder with card production facilities in Poland brought a successful legal challenge against Ontario’s made-in-Canada requirements. The Ontario government sought leave to appeal the decision, which was granted by the Ontario Court of Appeal in fall 2022, setting the stage for a higher court ruling on the use of restrictive requirements by Ontario government institutions.
The European Commission has also faced criticism for engaging in restrictive procurement practices that favour large firms through the over-scoping of contract requirements. In its 2022 report entitled External consultants at the European Commission, the European Court of Auditors raised concerns over the organization’s over-reliance on external consultants from large firms, concluding that “the Commission’s management of the use of external consultants does not fully ensure that it maximises value for money” and that “the Commission’s framework governing the use of these services has significant gaps.” As the audit noted, “the use of consultants also gave rise to potential risks of overdependence, competitive advantage, a concentration of suppliers and potential conflicts of interest.”
In fact, the report noted that the same small group of firms won a disproportionate number of contract awards since the Commission’s broadly scoped assignments required “a combination of advisory, implementation and evaluation services”. The report warned that “there is a risk that such suppliers may acquire a competitive advantage because they are involved in designing, implementing and evaluating the same EU policy.” However, the report warned that “the Commission does not sufficiently monitor, manage or mitigate these risks at the corporate level.” It recommended that the Commission improve its framework for retaining external consultants to mitigate against these anti-competitive practices.
A recent report from Northern Ireland also revealed how over-scoping a contract can adversely impact open competition. In its December 2021 report entitled Contract award and management of Project Stratum, Northern Ireland’s Audit Office reviewed the award of a £165 million contract for the rollout of full fibre broadband services across Northern Ireland. As the report detailed, only four bidders responded to the opportunity. One of those bidders was screened out during the prequalification stage for lacking the necessary capacity to perform the work, while a second bidder opted out after the prequalification process, leaving only two bidders to submit final bids. The winning bidder de-scoped its bid and only offered to cover 97 percent of the requirements, leaving only a single bidder who offered to fulfill the full requirements. While the audit questioned whether the government’s evaluation process properly accounted for the winning bidder’s de-scoping, the bigger issue is whether the government undermined open competition by over-scoping its requirements in the first place. The fact that only one bidder submitted a bid to cover the full project area raises significant concerns over the competitiveness of the overall process, and whether value-for-money for taxpayers was compromised by a big firm bias.
In its 2022 report entitled Towards Agile ICT Procurement in the Slovak Republic, the Organization for Economic Co-Operation and Development (OECD) raised similar concerns regarding the use of overly restrictive requirements in information and communication technologies (ICT) procurements. The report found “high levels of dependency upon a single service provider” and found that while public institutions were unintentionally “locked” into particular ICT solutions, they “repeatedly failed to improve tender documentation to be sufficiently flexible and to allow for future vendor turnover.”
In fact, the OECD found that “contracting authorities have a tendency to develop very detailed technical specifications, not leaving room for innovation or new solutions” and that they “require excessive qualification requirements for personal and past experience” including criteria that called for a “huge number of experts that is not justified by the scope or size of the contract”. To remedy the situation, the OECD recommended the broader adoption of agile procurement methods that leverage direct dialogues with suppliers and allow for innovative solutions, stating that “competitive dialogue is a public-sector tendering option that allows bidders to develop alternative proposals in response to a client’s outline requirements.” However, the report noted a lack of proper training, stating that public institutions “indicated that there was a lack of guidance on how to use the competitive dialogue procedure in practices, and feared incorrectly applying it to their procurements.”
A government’s ability to divide work among smaller suppliers and limit awards to larger suppliers was recently upheld by Ireland’s High Court in its February 2022 decision in Word Perfect Translation Services Limited v. The Minister for Public Expenditure and Reform. The dispute dealt with a translation services framework arrangement that divided the work into four separate lots and limited bidders to winning the maximum of one lot each. While the complainant asserting that the government did not have the right to divide the work or limit the awards, the Court disagreed, finding that the arrangement complied with the government’s policy of making more work available to small-and-medium-sized businesses. After noting that the aggregation of the work into a single lot would unduly favour larger suppliers, the Court determined that the procurement rules permitted the lotting and capping strategy. In fact, the Court ruled that limiting the number of awards did not unduly distort competition since the work awarded under the arrangement would likely account for less than one-quarter of the overall translation services required by the public sector in Ireland.
While government institutions should avoid setting the competitive bar too high with unnecessarily restrictive requirements, setting the technical bar too low and proceeding with low-bid awards can also stifle innovation. For example, in its September 2022 report entitled Audit of Zero-Emission Buses – Sprint 2 – Tendering Process for 40-Foot Electric Buses, the City of Ottawa’s Office of the Auditor General found that the City’s draft Request for Proposal (RFP) for a fleet of electric buses contained no rated technical evaluation criteria. Instead, the draft solicitation set minimum technical requirements and proposed to award the contract to the lowest compliant bidder. The Auditor General concluded that the proposed approach failed to allow for innovative solutions that could address the City’s future needs, stating that “this procurement approach could have resulted in awarding the contract to a proponent with the lowest proposed price that met the stated requirements, but not necessarily the proponent with superior technical capabilities which could potentially support the City as its operational needs change over time.”
While the Auditor General noted that the City planned four rounds of commercially confidential meetings prior to initiating its formal evaluations, it was unclear how those dialogues would inform the minimum technical requirements or enable the evaluation of more innovative solutions in a low-bid award format. The City ultimately decided to cancel its proposed RFP and instead collaborate with the City of Toronto in the latter’s electric bus procurement.
As this audit illustrates, public institutions continue to struggle in implementing dialogue processes that open the door to innovation and need more guidance in effectively leveraging these strategies.
To that end, in its May 2021 guidance note entitled Competitive Dialogue and Competitive Procedure with Negotiation, the United Kingdom’s Government Commercial Function office released guidelines for using competitive dialogue Requests for Proposals (RFPs). The guidelines confirm that public institutions should apply transparent and defensible criteria for determining who to short-list for dialogues and negotiations, stating that government departments “must use objective and non-discriminatory criteria or rules if it wishes to limit the number of qualified bidders invited to participate.” The guidelines also recommended that “a minimum of three bidders meeting the selection criteria must be invited to participate in the next stage” and that the subsequent final tenders should be “evaluated in accordance with the published evaluation criteria” in accordance with standard procurement procedures.
Further, the guidelines confirmed that “dialogue/negotiation sessions should be planned so as to ensure equal treatment for all bidders i.e. equal time should be available to all, agenda topics should be consistent, and the experience and quality of dialogue/negotiation teams should be consistent.” The guidelines also underscored the importance of adopting robust record-keeping practices for dialogue sessions to ensure the sessions were structured around agreed-upon agenda points and demonstrated consistency in the information provided to all bidders, while also ensuring that the commercially sensitive information and intellectual property of each bidder was handled appropriately.
As these case studies illustrate, rather than locking their procurements down with restrictive procedures, and stifling innovation with anti-competitive requirements, public institutions should be leveraging negotiated RFPs with competitive dialogues so they can open their competitions to more suppliers and open the door to more innovation.
