Public tender reboot

From the December 2019 print edition

Public institutions should tear down their antiquated “Contract A”—based tendering templates and roll out updated bidding documents that are based on the latest case law developments and leading global standards. This discussion covers seven deadly defects common in outdated tendering templates and explains why they should be replaced with updated flexible negotiated RFP formats.

Frankenstein formats
Notwithstanding all the tendering-related litigation in recent decades, many organizations continue to improvise with “one-size-fits-all” tendering formats that assemble random, irreconcilable provisions into a single template. These “chop-and-paste” mashups attempt to merge outdated Contract A concepts with more modern and flexible negotiating principles but create runaway formats with legal consequences that are impossible to properly manage, predict or control.

Vague price-holding provisions
Contract A is based on the unequivocal irrevocability of a bid for a prescribed time period. However, many tender calls ask bidders to “hold” their pricing or require that pricing be “valid” for a prescribed time period. These vague pricing provisions put purchasing institutions into a legal grey zone, potentially creating the risks of Contract A lost profit claims even when there was no intention to use that bidding system.

Negotiating over irrevocability provisions
Contract A replaces negotiation with fixed-bid “one-shot” tenders. Properly designed negotiated RFPs are based on traditional contract law, with negotiations serving as the embedded operating system for contract award. These two systems are mutually exclusive, yet many purchasing institutions continue to ask for irrevocable bids while reserving the right to negotiate over those bids even though the courts defined this practice as bid-shopping years ago.

Cancellation clauses
There is no such thing as a risk-free public procurement or the risk-free cancellation of a public tendering process. While tender call terms may contain reserved cancellation rights, bidders in a government procurement process have the right to sue to challenge the fairness of a cancellation decision. The courts serve as the ultimate arbiters of any challenged cancellation decisions, which means that pushing the cancel button may take a purchasing institution on a one-way trip into a legal entanglement over lost profit claims under Contract A formats.

Overbudget bid provisions
Once a Contract A bidding process crystallizes with the submission of compliant bids, there is no safe escape out of an overbudget bid situation, except finding more money. Whether the organization tries to negotiate its way out of the situation or decides to cancel and retender, its next step remains subject to legal challenge and lost profit claims. The failure of the courts to chart a clear course out of overbudget bid situations under Contract A fixed-bid tendering represents one of the most significant defects in the use of Contract A templates.

Mandatory waivers
A non-compliant tender is legally incapable of acceptance. Full stop. Procurement provisions that purport to give a purchasing institution the right to waive bid irregularities are a lawsuit waiting to happen. Rather than becoming the next case study on the “substantial compliance” test, purchasing organizations would be well served to manage their mandatories and reduce the recurring trip hazards that habitually cause their bidders to become non-compliant in the first place. They would also be well-served by integrating transparent rectification cure periods into their flexible negotiated RFP formats that allow them to avoid the tender compliance traps inherent in Contract A formats.

Limitation of liability clauses in Contract A
The only way to effectively limit the Contract A liability of lost profit claims is to avoid creating Contract A. Once Contract A is created, the ultimate effectiveness of liability disclaimers is highly suspect. In fact, these provisions are completely useless in preventing a determined bidder from initiating a lawsuit and potentially dragging a purchasing institution through protracted legal proceedings. As case law has proven, properly drafted negotiated RFPs are a far more effective method of enabling the rapid dismissal of lost profit claims and thereby serving as a deterrent against the initiation of lost profit lawsuits.

As regulatory requirements and case law developments reshape the tendering landscape, organizations are under unprecedented pressure to overhaul their tendering templates. Institutions should critically assess whether their existing templates can adequately withstand the rigours of the modern tendering process since their existing formats could contain deadly defects that call for their immediate replacement with more up-to-date bidding models.

Paul Emanuelli is the general council of the Procurement Law office. Paul can be reached at [email protected]