This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
Recent case studies highlight the need for greater clarity in defining and assessing compliance requirements, and call for the broader adoption of transparent rectification protocols to address compliance issues before they escalate into legal challenges.
Non-Compliant Award Challenges
Tender compliance issues continue to be a focal point of bid protests, with multiple recent examples of bid protests based on allegations that a contract was awarded to a non-compliant bidder. For example, in its September 2020 decision in Quail Roost Transit Village I, Ltd. v. Florida Housing Finance Corporation, the Florida Division of Administrative Hearings ordered that a contract award to a non-compliant bidder be voided and that the awarded contract be redirected to the complainant. The dispute dealt with a Request for Applications (RFA) for the provision of affordable housing, which included instructions to bidders to submit a list of their board members on a Principals Disclosure Form. The Court found that the winning bidder was selected for award even though its bid failed to meet this filing requirement since it failed to name one of its board members in the prescribed form.
While the Court acknowledged that not all bid deviations are material and compel disqualification, and while the winning bidder argued that the omission was a minor irregularity since the name of the board member in question was contained in another bid form required from non-profit bidders, the Court disagreed and found that the bid was non-compliant. As the Court reasoned, the irregularity would result in an unfair advantage over for-profit bidders who did not have to file the supplementary form and therefore did not have an additional opportunity to provide the name of their board members.
Similarly, in its January 2021 decision in Innovative Management & Technology Approaches, Inc., the U.S. Government Accountability Office (GAO) found that the government improperly allowed the winning bidder in a service desk operations tender call to remove a materially non-compliant condition from its bid without allowing other bidders to do the same. The GAO ordered that the government either conduct a re-evaluation or cancel the original award and award the contract to the complainant.
As this case illustrates, to ensure procedural probity, public institutions should establish transparent rectification procedures if they plan to allow bidders to rectify any irregularities in their initial submissions and should avoid engaging in non-transparent and inconsistent processes where some bidders are held to strict tender compliance standards while others are permitted to improperly repair their bid defects.
Finally, in its January 2021 decision in Arthur J. Gallagher Risk Management Services, Inc. v The School Board of Miami-Dade County, the Florida Division of Administrative Hearings dealt with another tender compliance complaint. The dispute involved a Request for Proposals (RFP) for risk management and insurance broker services. The complainant asserted that the winning bidder was non-compliant since, according to the complainant, the winning bidder had inserted a material condition in its bid relating to the form of agreement and had also failed to include a required price cap on commissions.
However, the Court disagreed, ruling that the winning bidder’s inclusion of a sample agreement in its bid did not constitute a conditional bid since that agreement was just a sample, which the evaluators could disregard given that the bidder had agreed in its bid to be bound by the terms of the form of agreement contained in the solicitation. Further, the Court ruled that the price cap issue was inconsequential since the budgetary constraints on the contract rendered that cap a moot point in the performance of the contract and that, rather than going to bid compliance, that issue could be addressed during contract award negotiations.
As these cases illustrate, compliance issues put public institutions in a Catch-22 situation since the decision to accept or reject a bid in grey area situations will subject them to legal challenge by one of the bidders no matter how they decide to deal with the issue. Purchasing institutions should therefore consider the use of transparent rectification processes to allow bidders to cure any omission that would otherwise lead to compliance issues since permitting a transparent cure process is preferable to exposing a contract award decision to protracted litigation.
All About Timing
The timing of compliance with tender call requirements is another area of recurring controversy. For example, in its December 2020 decision in Master Pavement Line Corporation, the GAO upheld the complaint of a rejected bidder after finding that the solicitation document for highway repair services contained contradictory instructions regarding the use of the online registration system.
The complainant was rejected for not having registered on the system by the bid deadline, whereas the solicitation stated that registration had to be completed “prior to award.” In noting the contradictory instructions regarding the timing of registration, the GAO ruled that the government should have allowed the complainant to correct its registration status prior to award and, since the complainant was the low bidder, should have awarded the contract to the complainant instead of rejecting that bid as non-compliant. This case falls within a long line of cases in which bid protests were triggered based on ambiguity and confusion regarding the timing of compliance with tender call requirements and underscores the importance of ensuring clarity with respect to the drafting of compliance standards and the timing of when these requirements need to be met by bidders.
Clarity regarding the timing of compliance enhances the defensibility of downstream award decisions. For example, in its November 2020 decision in Stericycle ULC v. HealthPRO Procurement Services Inc., the Ontario Superior Court of Justice dismissed a tender compliance dispute after rejecting a losing bidder’s allegations that the purchasing institution awarded a contract to a non-compliant bidder. The Court ruled that the requirement in question was a post-award performance standard and was therefore not subject to a bid evaluation challenge.
The dispute dealt with a two-staged RFP process for the provision of hazardous and non-hazardous waste management services. HealthPRO Procurement Services Inc. (HealthPRO), a health sector group purchasing organization, ran a pre-qualification process. It then conducted an invitational second-stage bidding process with the short-listed proponents and awarded a primary supplier contract to Daniels Sharpsmart Canada Limited (Daniels) and a secondary supplier contract to Stericycle ULC (Stericycle).
Stericycle challenged the evaluation and award process, alleging, among other things, that HealthPRO engaged in bid repair when it awarded the primary supplier contract to Daniels. As the Court noted, in its first-stage pre-qualification submission, Daniels confirmed that it was in the process of commissioning a waste management facility in British Columbia that would be fully functional by the contract start date. Stericycle argued that the RFP required that the facility be operational at the time of bid submissions and maintained that Daniels should have been disqualified since it did not have an operational waste management facility in place at that time.
However, the Court disagreed with this interpretation of the RFP, stating that “the fact that Daniels did not have certain required permits and licences in place to perform the required services at the time of the bid is irrelevant.” As the Court concluded, the RFP terms did not require that permits or licences be in place at the time of bid submissions. Furthermore, the Court noted that HealthPRO did not have an obligation to investigate and confirm that such permits were in place at the time of bid submission and that it was allowed to accept Daniels’ bid representations at face value without further investigation.
As these recent compliance timing cases illustrate, purchasing institutions need to clearly define the requirements that need to be complied with at the bid submission deadline and distinguish those requirements from post-contract-award performance requirements since the validity of contract award decisions can turn on this distinction.
Pricing Irregularities
The failure to properly deal with irregularities in pricing forms can create significant downstream issues in the evaluation and award process. For example, in its May 2021 determination in Joe Parsons Construction Ltd. v Public Works and Government Services, the Canadian International Trade Tribunal found that the government breached its confidentiality duties by prematurely disclosing the contract price of the winning bidder and then rescinding that award due to the after-the-fact discovery of alleged price evaluation irregularities.
The dispute dealt with two related tender calls for minor earthworks and hydraulic seeding services in Sydney, Nova Scotia. The complainant was initially awarded one of the contracts, but that award was revoked after the government discovered irregularities in its original evaluation process. More specifically, the government had adopted a process whereby it would correct discrepancies between the unit prices and the total price (referred to as the “extended price”) in the bids. However, after relying on that process to conduct its price evaluations, the government discovered that it apparently failed to clearly communicate that process to the bidders in one of the two solicitations. It therefore decided to cancel and retender its requirements for that tender call.
However, by that point, the government had already disclosed the total evaluated prices (but not the unit prices) for each the winning bids to multiple bidders as part of its post-award communications. In fact, it was through those further discussions with one of the losing bidders that the government discovered the apparent errors in its initial evaluation process.
The complainant took issue with the rescission of its award and the retender since its original total prices were already made public and there was no change in the scope of the new tender call to offset any resulting competitive prejudice. The complainant asked that the new tender call be cancelled and reissued with changed quantities to allow for a fresh bidding process.
After noting that under the relevant trade treaty rules the government had 72 days to release contract award information, the Tribunal ruled that the government had prematurely released that information and prejudiced the complainant’s competitive position in the retendered contract. Further, the Tribunal confirmed that the contract award disclosure duties under the trade treaties are not absolute and that they remain subject to the broader trade treaty duty to protect confidential supplier information, where the disclosure of that information “might prejudice fair competition between suppliers” or “cause prejudice to a bidder participating in a procurement process”.
Noting that the bids in the retender were lower than in the original bidding process, the Tribunal determined that the complainant “was prejudiced by the disclosure of its evaluated price as well as the evaluated prices of the other winning bidders in the original solicitation.” The Tribunal therefore concluded that “the integrity of the particular process was seriously compromised” since the price disclosure made it “possible for bidders to correct errors in their original bids and undercut the total evaluated prices of winning bids in Solicitation A.” In fact, the Tribunal noted that one bidder, who was not part of the original solicitation, “submitted an offer that underbid all of the other bidders.”
The Tribunal also found that the government had overreacted in its decision to retender since the original concern over the ability to correct calculation errors was unwarranted. As the Tribunal determined, the original solicitation clearly allowed the government to “correct errors made by the bidders when calculating the extended pricing using the unit prices stated in the financial bid” and as such there was “no need” to cancel the first tendering process.
The Tribunal therefore ordered the government to re-evaluate the original bids to determine the complainant’s ranking in accordance with the established price correction calculations.
As this case illustrates, the ability to address pricing errors in bid submissions remains subject to confusion and controversy and exposes the evaluation process to bid protests risks. Rather than restricting its bid correction procedures to discrepancies between unit and total prices, or other minor price calculation errors, government institutions should instead adopt broad rectification protocols that permit bidders to cure all apparent pricing errors during a confidential cure period. Where implemented, this practice will help avoid downstream compliance disputes while also preserving the confidentiality of competitively sensitive pricing information and maximizing competition through the acceptance of more compliant bids.
No Backtracking on Rectifications
Finally, once public institutions adopt rectification protocols in their bid solicitations, they should be careful to avoid the unnecessarily restrictive application of those procedures. For example, in its August 2020 decision in Peraton Inc., the GAO ruled that the government applied unnecessarily restrictive rectification procedures in a server and software development services RFP. As the GAO noted, while the government allowed proponents to revise their proposals to substitute key personnel, it limited those revisions to key personnel resumes, letters of commitment, and a portion of a single staffing plan template.
The GAO found that the rectification process was unreasonably limited in scope since the substitution of key personnel would materially impact other aspects of the proposals that proponents were not permitted to change. The GAO held that this would effectively require proponents to submit materially inconsistent proposals. The GAO ruled that when the evaluation process permits a corrective action relating to one aspect of a proposal, “the agency may not prohibit offerors from revising related areas of their proposals which are materially impacted.” In fact, the GAO ruled that “once the agency made an election to allow proposal revisions, the agency was required to seek these revisions in a reasonable manner.” The GAO therefore ordered the government to permit further proposal revisions to allow proponents to amend other areas of their proposals that were impacted by the initially permitted revisions.
As this case illustrates, once government institutions adopt appropriate rectification protocols, they should avoid backtracking down the slippery slope of restricting the scope of those rectifications since this will only recreate the compliance issues that rectification procedures were designed to cure.
Future Considerations
Recent case studies illustrate the importance of probity and due process during bid compliance evaluations since compliance issues can be weaponized by losing bidders to challenge a contract award decision. To mitigate against these risks, purchasing institutions should be clear in defining their compliance requirements and should integrate consistent and transparent rectification processes that allow bidders to cure bid irregularities before they escalate into bid protests.
