Devil in the details

From the June 2018 print edition

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

The days of public institutions engaging in non-transparent contract award practices under supplier lists, prequalification rosters and vendor-of-record arrangements are coming to an end. In recent years, these “piggybacking” or “onboarding” arrangements have been repeatedly challenged in bid protests and audit reports as a source of non-competitive and non-transparent contracting. New procurement standards have created far more onerous rules around standing arrangements that often restrict the length of time that a public institution can maintain a “closed shop” of suppliers. These rules also require a careful consideration of the scoping of opportunities and mandate transparent second-stage call-up processes for the award of specific assignments.
Since “piggybacking” and “onboarding” are terms created by industry, rather than formal legal terms contained in treaties or statues, you will not typically find specific prohibitions naming those practices in the rules. However, the confusion over the “piggybacking” or “onboarding” terminology should not obscure the long legacy of compliance breaches that have resulted from organizations using their own or another institution’s standing contract arrangements in non-competitive ways. Asking “Where does it say I can’t piggyback on onboard?” is the wrong question. The right question is, “Where does it say I can piggyback or onboard and not conduct an open tendering process as otherwise required under the public procurement rules?”
The procurement rules require an open competition any time an anticipated contract value reaches the applicable contract value thresholds (unless you fall under an exemption or exclusion). Typically, this obligation is met by doing your own tendering process on a one-time basis.
However, this obligation can also be met by using framework arrangements (known in industry by a number of terms, such prequalification lists, rosters, suppliers lists, vendor of records, standing agreements, standing orders, etc.). However, the rules and applicable case law and audit reports are clear in requiring transparency in how you call up work under these frameworks. Otherwise, this is improper sole-sourcing and a breach of open competition duties. It is also a breach of the proper stewardship of public spending as noted in multiple public audits.
While frameworks are sometimes used by multiple institutions, transparency standards still apply to (a) how you establish a prequalified list of suppliers, and (b) how you award any specific assignment from the list of suppliers. You cannot directly award in a non-transparent manner because the standing agreement includes a “piggybacking” or “onboarding” clause. Suppliers do not have the authority to give you an exemption from your open tendering obligations simply by agreeing to those provisions. Those clauses are no defence to a sole-source challenge if you have not followed the rules.
Proper prequalification framework purchasing (whether within one organization and its departments, or multiple organizations) requires transparency at the front-end, which for compliance purposes would typically include the disclosure of the involved organizations in the initial prequalification solicitation and then transparent protocols on the call-up process to award work through second-stage competitions. However, compliance requires more than simply “naming the entities” in the original prequalification. It also requires a formal second-stage process and a protocol to ensure that the purchase falls within the original contract scope.
When administering a framework for lower value assignments, you may be able to establish a call-up process without tendering by using a rotational right of first refusal process so long as you pre-established this protocol in your original rules and then ensure that you are managing that rotational system fairly to distribute the work. Otherwise, you typically need to invite all prequalified suppliers to bid on the individual assignments.
Public institutions that are considering the use of a framework agreement should first obtain qualified advice to confirm that the contemplated contract complies with their specific procurement rules since “piggybacking” or “onboarding” is a form of improper sole-sourcing unless you set up and follow a proper framework arrangement. While many standing arrangements have been in place for years, this does not mean that they comply with current statutory, treaty, case law and audit standards. In such situations the devil is in the details. Buyers should therefore beware and do their own due diligence before onboarding onto an arrangement that looks too good to be true.