This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its May 2010 report entitled Winnipeg Regional Health Authority – Administration of the Value-Added Policy, the Manitoba Auditor General noted that the acceptance of “Value-Add” contributions from bidders during a public tendering process creates public perception issues and raises the potential of undermining the transparency and integrity of the competitive procurement process.
As the Auditor General noted, the acceptance of over $20 million annually by the Winnipeg Regional Health Authority (WRHA) of “money, equipment and other gifts” from its suppliers raised media queries that included an article entitled “What’s in the Envelope?” In its review, the Auditor General was careful to note that it found no evidence of impropriety in the administration of the “Value-Adds” policy:
The Value-Adds that WRHA received took the form of cheques as well as product, equipment and education. We found no evidence that anyone benefitted personally from Value-Adds. The cheques were received in the form of unrestricted or restricted funding. Our audit confirmed that all such funding was properly recorded by WRHA. There was no indication that there was ever any “cash” in “brown envelopes”. Controls around the Value-Adds for product, equipment and education were weak, but this control weakness was isolated to these items. Tendering for goods and services and construction contracts was well controlled and included a competitive bidding process, except for the project consultants for construction contracts, which were not tendered.
However, the report also noted that a “Value-Adds” policy, if not properly handled, could undermine the transparency and integrity of the bid evaluation process. As the report stated, “Value-Adds must be separated from supplier bids during the bid-evaluation process. WRHA followed this policy. The intention of the Value-Added policy is to ensure impartial bid selection. In theory, this is good practice, but in reality, there could be an influence from Value-Adds on vendor selection over time.”
The Auditor General explained how WRHA had attempted to establish safeguards in the administration of its “Value-Add” policy, but noted that the policy had led to practical problems in the implementation of transparent and defensible competitive bidding practices:
As part of the procurement process, WRHA issues a competitive bid document, which tells bidders to put any Value-Adds they want to offer in a separate envelope from their proposal and clearly mark it as a Value-Add. When a vendor includes a Value-Add with their bid, it consists of a document outlining the Value-Add offering. The analysis of proposals that Logistics Services staff prepare for the decision-making group excludes any Value-Adds. This exclusion is intended to ensure that the award decision is fair and impartial and based on the best product or service at the lowest price—without considering any Value-Add.
Beginning in 2007, the President and Chief Executive Officer issued a memo indicating that the WRHA would no longer accept restricted Value-Adds. The Value-Add Policy was not changed but the competitive bid documents have been changed to reflect this directive.
All bids, including Value-Adds, are opened with at least two Logistics Services employees present. The actual Value-Add, should WRHA choose to accept it, is provided to WRHA after it signs a contract with the winning bidder. In some situations, WRHA declines the offer when there is no benefit to accepting the Value-Add.
An example of an actual Value-Add in a proposal for infant formula was funding of $330,000 a year allocated as follows: the Women and Child Health Program ($100,000), Research ($210,000), and staff education ($20,000). Funding these programs was not a requirement of the competitive bid document that WRHA issued. In some cases, bidders include the Value-Add with their proposal, not in a separate envelope. Logistics Services staff must then remove all Value-Add references from the proposal before the evaluating committee can see it. They know that a Value-Add exists, but not its details.
While, as the report noted, efforts were made to buffer evaluators from the particulars of the “Value-Add” offers, evaluators were in some cases aware that offers were being made and this raised questions with respect to their ability to be unbiased and objective in the assessment of those bids. As this case study illustrates, introducing non-scored factors into bid evaluation decisions can create unnecessary complications. “Value-Adds” can also undermine downstream procurements where the “free” products become the de facto standard for scoping future solicitations.
