By: Paul Emanuelli
Public institutions face significant challenges managing their supply chains in the wake of major disruptions, like a global pandemic crisis. This briefing provides general guidelines for dealing with existing contracts, midstream tendering processes, and new procurements.
Existing Contracts
There are no easy answers when dealing with complex contracts in crisis situations. Some might assume that force majeure principles provide a simple solution to hard situations since serious disruptions like the global pandemic are outside of the control of the contracting parties. While the surface assumption may be that public institutions and their suppliers are relieved of their contractual commitments in these situations, the deeper truth is that even serious disruptions like a pandemic do not automatically relieve parties from their contractual obligations. In fact, depending on the nature of the contract, these events may actually heighten the contractual responsibilities tied to mission-critical supplies and services.
While most properly structured force majeure provisions recognize that neither party should be liable for performance delays caused by events beyond their reasonable control, they also recognize that these events will not provide an excuse for non-performance when a contractor should have established contingency plans to mitigate or negate the effects of such events. In fact, properly drafted force majeure provisions should expressly state that shortages or delays relating to supplies or services should not be considered force majeure events while requiring contractors to be ready to deal with those events.
Furthermore, even when circumstances fall within force majeure exceptions and allow for delays in performance, properly structured clauses only allow performance delays for a limited timeframe and allow the termination of the contract if performance delays exceed the allowable delay period. There is no one-size-fits-all answer. Each contract needs to be assessed in its own context.
When appraising existing contracts, purchasing institutions should therefore: (i) review their most mission-critical contracts to confirm the specific contractual obligations; (ii) carefully monitor supplier performance in all critical contracts; and (iii) provide clear written confirmation to critical suppliers who should already have contingency plans in place of the expectation of ongoing performance. While things may not be business as usual, the new normal should still require contracts to be fulfilled to the greatest extent reasonably possible, especially for those critical supplies and services that go to core ongoing government operations.
In-Process Tenders
An ongoing tendering process represents a particularly precarious situation that needs to be carefully managed on a case-by-case basis. Currently posted opportunities where bids remain pending should be carefully assessed to confirm their ongoing viability, and, where possible, they should be continued using the paperless procurement processes discussed further below in this briefing under New Tendering.
Where bids have already been received, the default expectation should be that bidders continue to honour their offers and that the purchasing institution sees its tendering process through to the award of a contract. The onus remains on either party to justify why it cannot proceed. While some adjustments may be necessary with respect to the commencement of newly awarded contracts, particularly where in-person performance may run contrary to current social distancing requirements, this is no excuse for non-performance when those contracts can be performed remotely, or where those contracts deal with supplies that continue to flow notwithstanding the global pandemic. As with existing contracts, each tendering process should be considered within its own context. Neither the purchasing institution nor bidders should automatically assume that force majeure principles will allow for the cancellation of tendering processes.
New Tendering
Procurement continuity remains paramount. Public procurement is essential to maintaining the government supply chains that are critical to government operations and services to the public. Government procurement is also a major economic driver. For both reasons, public institutions should be maintaining their ongoing procurement operations to the greatest extent possible.
While the emergency rule allows public institutions to bypass the tendering process and directly award contracts to deal with unforeseen circumstances requiring an urgent acquisition to address public health and safety concerns, all other public sector procurements are still governed by open tendering protocols. As the new normal sets in, purchasing institutions should maintain their ongoing tendering operations by adapting paperless procurement processes using software platforms that enable project teams to remotely design and draft their solicitations, receive bids electronically, and avoid in-person evaluations by using more legally defensible enhanced consensus scoring protocols. These technologies and legal protocols are already used by many purchasing institutions, so there is no excuse for shutting down operations at a critical time when solutions for maintaining tendering continuity remain readily accessible.
Furthermore, any newly awarded contracts should include properly structured force majeure provisions that are appropriately calibrated to the needs of the specific contract.
Securing Recommendations
When securing the tendering cycle during crisis situations, public institutions should consider the following guidelines:
- Prioritize, assess, and monitor mission-critical contracts to ensure that ongoing contractual commitments are respected to the greatest extent reasonably possible.
- Review current tendering. An in-progress bidding process, particularly where bids have already been received, should be continued unless there is a defensible rationale for cancelling that bidding process.
- Maintain procurement continuity for new procurements. The emergency rule for direct awards is a narrow exception. The default assumption is that new contracts will be awarded through open tendering. Deal with the new normal by going paperless with your procurement process so you can maintain social distancing, while also accelerating your tendering cycle.
Final Considerations
Minimizing the impacts of the global pandemic and serving the public interest remain paramount priorities for purchasing institutions in the public sector. To meet current challenges, these institutions should implement sound safeguarding principles and seek situation-specific advice from their procurement and legal advisors.
