This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
While many public sector institutions are under treaty obligations that call for open public procurement, those treaties generally do not prescribe the method for conducting open competitions. However, in December 2011, the General Assembly of the Nations adopted the newly revised 2011 edition of the United Nations Commission on International Trade Law Model Law on Public Procurement (known as UN Model Procurement Law). The new UN Model Procurement Law recognizes that public institutions can meet their mandates for open, transparent procurement and value-for-money by utilizing a wide range of procurement formats, protocols, and procedures.
The new model law provides useful guidance for updating an institution’s procurement playbook. The following discussion surveys the main competitive tendering formats recognized under the new UN Model Procurement Law, including the Invitation to Tender (ITT), the Request for Proposals (RFP) and the Request for Quotations (RFQ). It also makes recommendations on how the UN protocols can be adapted and enhanced for practical implementation even within Commonwealth jurisdictions that have recognized the Contract A process contract restrictions first adopted by the courts under Canadian tendering law.
The Invitation to Tender/No-Negotiation RFP: High-Risk Old-School Tendering
The Invitation to Tender (ITT) is often used for construction projects and for the acquisition of certain commodities. Price is typically the determining factor for contract award. The ITT typically adds a significant additional layer of legal risk and formality to the tendering process by requiring that bids be legally irrevocable for a predefined period, and by requiring bidders to guarantee their pricing by submitting bid bonds. In Canada, and in many other Commonwealth countries, the legal process created by this irrevocable bid protocol is referred to as Contract A or as “the process contract”. Under Contract A, purchasers are subject to an implied legal duty to award to the low bidder. Bypassing a low bidder in favour of another bidder or cancelling the tendering process exposes the purchasing institution to lost profit claims.
While the UN Model Procurement Law permits the acceptance of bids that contain minor variations, the Canadian courts have significantly restricted this discretion under Contract A rules, finding purchasers liable for bid repair for correcting pricing errors or seeking clarifications, and awarding lost profits when purchasers breach their implied duty to reject non-compliant bids. This gives losing bidders significant incentive to sue purchasing institutions and to challenge the validity of the winning bid. Furthermore, as reflected under the UN protocols and Contract A case law, purchasers are prohibited from engaging in post-bid negotiations under the ITT format. This gives losing bidders another avenue to claim lost profits by alleging that post-bid changes, however minor, constituted bid-shopping, bid repair, or unfair process infractions.
The UN Model Procurement Law also states that when an ITT is used, all bids should be publicly opened. However, as has been widely documented, public openings help facilitate bid manipulation by allowing a bidder to attend at the deadline with two envelopes, one with a competitive bid and another with an inflated bid that can be submitted if, through good fortune or prior collusion, no other bidder shows up to submit a competing offer. For these and other reasons, public openings are being phased out of public sector purchasing notwithstanding the UN protocol.
While listed under the UN Model Procurement Law as an RFP format, the No-Negotiation RFP is essentially the same format as the ITT. Like the ITT format, bidder pricing in No-Negotiation RFPs is irrevocable, contract terms are non-negotiable, and tender compliance protocols prohibit the acceptance of bids that contain irregularities under Contract A rules. Like the ITT, the No-Negotiation RFP typically operates within the Contract A process rules that make the purchasing institution vulnerable to bidder lost profit claims. The key distinction between the ITT and the No-Negotiation RFP is that the ITT ranks suppliers based on the lowest price, whereas the No-Negotiation RFP combines price and non-price factors to rank suppliers based on the highest score. Given its inherent restrictions, the No-Negotiation RFP continues to lose market share as a viable tendering option since it has little to offer when compared against: (i) the relative simplicity of the low-bid ITT; (ii) the flexibility of lower risk negotiated RFPs; and iii) the simplicity and speed of the lower risk RFQ formats.
While the ITT continues to enjoy widespread use in the construction sector for medium-complexity projects, the UNCITRAL Model Legislative Provisions on Privately Financed Infrastructure Projects provide a set of protocols that complement the new UN Model Procurement Law and recognize the use of flexible negotiated RFP formats when dealing with complex infrastructure-related construction projects. These model legislative provisions reflect a move within the construction industry away from their traditional tendering formats and towards the flexible formats used by many other industries that never adopted the No-Negotiation RFP or ITT formats in the first place.
Negotiated RFPs: Fine-Tuning Flexible, Low-Risk Open Competition
From the standpoint of facilitating flexible, low-risk procurements, one of the significant enhancements contained in the 2011 edition of the UN Model Procurement Law is the expanded scope contemplated for negotiated RFP formats. Under the prior 1994 edition of the model law, the ITT was the assumed default format for the procurement of goods and construction, and RFPs were the default format for the procurement of services. The 2011 UN Model Procurement Law dispenses with these restrictive assumptions, opening up the use of all types of formats to all types of acquisitions, thereby giving institutions a complete range of options to choose from for each procurement project. This development will help accelerate the expanding adoption of negotiated RFP formats for goods, services, and construction by institutions seeking to avoid the risks and restrictions of the ITT and No-Negotiation RFP formats governed in many Commonwealth countries under Contract A process contract rules. Under the UN Model Procurement Law, Negotiated RFPs come in two standard models: the Consecutive Negotiation RFP and the Concurrent Negotiation or Best and Final Offer (BAFO) RFP. In Commonwealth countries that recognize the Contract A process contract, negotiated RFPs should be structured based on traditional contract law rules that enable negotiations, rather than under the Contract A rules that prohibit and sanction such post-bid negotiations.
The Consecutive Negotiation RFP format ranks proposals based on price and non-price factors, and then allows the purchasing institution to run an accelerated negotiation process with the single top-ranked proponent. Within Canadian procurement circles, this approach is often referred to as the “Rank-and-Run RFP.” As the UN Model Procurement Law contemplates, where it becomes apparent that the parties cannot come to terms, the Consecutive Negotiation RFP allows the purchaser to run down the rankings to negotiate with the next-ranked proponent. To supplement the UN model rules, it is useful to incorporate a pre-established timeframe for negotiations within the RFP negotiation protocols. This helps keep competitive pressure on the top-ranked proponent, who must either close the deal or risk losing the deal to the next-ranked competitor. It also enhances the transparency of the process since everyone knows the timeframes for negotiations when they submit their proposals.
The Concurrent Negotiation or Best-and-Final-Offer (BAFO) RFP allows the purchasing institution to enter into parallel discussions with multiple short-listed proponents. The UN Model Procurement Law contemplates that the purchaser invites at least three proponents into concurrent dialogues before providing each of those proponents an opportunity to submit its best-and-final-offer, or BAFO. The final ranking is based on these final offers and, under the UN Model Procurement Law rules, the award goes to the final top-ranked proponent without any further negotiations.
To streamline and simplify the approach contemplated by the UN protocols, institutions should consider employing a dual track approach that reduces the number of short-listed proponents from three to two. This allows for a more manageable two-proponent final stage process while maintaining competitive pressures through concurrent negotiations. Furthermore, to avoid getting bogged down in contractual legalities, the process rules should be crafted so that the dialogue between the parties focuses on the business issues and is framed as an extension of the evaluation process leading up to the final offers of the short-listed finalists. This way, rather than covering the legal issues with multiple concurrent proponents prior to the BAFO rankings, the purchasing institution can finalize contract terms with the single top-ranked proponent using the same contract finalization protocols recognized under the Consecutive Negotiation Rank-and-Run RFP format. This helps bring greater speed and efficiency to the procurement process, while enabling concurrent dialogues at the initial stages of the competition to help enhance the evaluation process.
Another notable enhancement that can be introduced into the negotiated RFP formats is the addition of a rectification period during the threshold screening stage of the evaluation process. This allows the purchasing institution to avoid the trap of tender compliance disputes by allowing each proponent the opportunity to rectify their respective list of deficiencies. If properly structured with transparent and equally applied protocols, this approach encourages greater competition and avoids the unfortunate and common occurrence of being legally compelled to reject an otherwise superior proposal over a relatively minor irregularity.
The Request for Quotations: Keeping it Simple
The Request for Quotations (RFQ), which can be used for a broad range of standard goods and services, is gaining increasing traction as a simple, low-risk alternative to the high-risk and highly complex Invitation to Tender (ITT) and No-Negotiation RFP formats. At minimum, institutions should consider deploying two types of RFQs: Invitational RFQs and Open RFQs.
Invitational RFQs can be created using simplified offer and acceptance protocols, often by way of email correspondence, with basic price-based evaluation rules and streamlined purchase order contract terms. As noted in the UN Model Procurement Law, the RFQ format is particularly effective for contracts valued under the open tender thresholds, where fully open competition is not required but where a minimum of three suppliers are invited to submit quotes to better ensure that the contract pricing is reasonable, and that value-for-money is being obtained.
RFQs can also be scaled out for use beyond the three-quote invitational protocol contemplated by the UN Model Procurement Law. Open RFQs can be used for publicly posted solicitations for contracts valued over the open tendering thresholds. This provides a more simplified and lower risk alternative to the ITT format in situations where price is the determining factor. Furthermore, Open RFQs can be enhanced with evaluation protocols that incorporate price and non-price factors, thereby providing purchasing institutions with an alternative to the higher-risk No-Negotiation RFP in situations where non-price factors will inform the rankings and negotiations are not required.
Leveraging International Standards for Accelerated Tendering
As illustrated by this survey of the UN Model Procurement Law’s competitive bidding formats, institutions can leverage international practices to develop flexible streamlined tendering formats that enable open competition, while accelerating the tendering cycle.
