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Saturday, December 25, 2010

Blanket purchasing pulling the wool over our eyes?

Fair and equitable treatment of buyers and sellers is not a concern of free market economics, except, perhaps, to the extent that competition for demand and supply is externally disrupted. Fair and equitable treatment of buyers and sellers is, however, a democratic philosophy of due process.

It is the purpose of procurement philosophy in practice to balance the constantly shifting tensions between the invisible hand of Adam Smith and the democratic goals of the community. I am not, by the way, demeaning Adam Smith's vision of the pursuit of profit; indeed, I'm a great believer in almost free markets -- markets not so devoid of control that they become manipulated by powerful economic interests, but not so politically controlled that they become manipulated by powerful interests, either. It's a matter of degree in a democratic society, and not an absolute freedom, as even Adam Smith acknowledged:
"All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man or order of men. The sovereign [politician] is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient: the duty of superintending the industry of private people." (The Wealth of Nations, vol. II, bk. IV, ch. 9.)"
There are thus various tensions that must be accommodated for a fair and effective public procurement regime. The root of these tensions is found in the competition of economic theories of pricing and political theories of justice and governance; the balancing of the need to get bang for buck and of the need to maximize fair use of pubic funds for the overall best interests of taxpayers. See, for instance, prior posts here and here.

When, for instance, small purchases for things like office supplies become too frequent and involves "petty cash", the need for precise accountability gives way to a more fungible means of acquisition and accountability, to the law of averages and other sampling statistics.

Under Guam/ABA Model code law, one means of accommodating small purchases is the "blanket purchase agreement" (BPA) See 2 GAR § 3112.1. A similar regime exists for "credit card" type purchases under the US federal GSA regulations.

The BPA is essentially a pre-approved charge account. It is described as

"a simplified method of filling anticipated repetitive needs for supplies or services by establishing “charge accounts” with qualified sources of supply and is to be used only if the services or supplies cannot be properly identified as to the quantity and the type of services or supplies required."
BPAs are appropriate when
"there is a wide variety of items in a broad class of goods (e.g. hardware) that are generally purchased but the exact items, quantities, and delivery requirements are not known in advance and may vary considerably."
"BPAs should be made with firms from which numerous individual purchases will likely be made in the given period. For example, if past experience has shown that certain firms are dependable and have prices considerably lower than other firm as dealing in the same commodities, and if numerous purchases at or below the small purchase amount limitations are usually made from such suppliers, it would be advantageous to establish BPAs with those firms."

"If it is determined that BPAs would be advantageous, suppliers should be contacted to make the necessary arrangements for securing maximum discounts, documenting the individual purchase transactions, periodic billing, and other necessary details. However, quotations for the price of the supplies or services themselves are generally unnecessary."
This is intended to result in something like the GSA Schedules system whereby the government uses its purchasing power to get, in the GSA context, "best customer pricing", or, in the BPA context, "maximum discounts".

These requirements address the "bang for buck" element of government purchasing.

One part of the governance element is addressed by introduction of a competitive context:

"All competitive sources should be given an equal opportunity to furnish supplies or services under BPAs. Therefore, if not impossible, then to the extent practical, BPAs for items of the same type should be placed concurrently with at least three separate suppliers to assure equal opportunity."
"The existence of a BPA does not justify purchasing from only one source. Whenever possible, the Chief Procurement Officer, the Director of Public Works, or the head of a purchasing agency must provide for equal distribution of the blanket purchase to at least three separate vendors."
The accountability aspect of the governance element is established by the prescription of invoicing and monthly accounting and other review and auditing requirements.

The implementation of BPAs in an isolated place like Guam may also benefit local economies and return government funds to the taxpayers where BPAs are established with local providers.

Where this last element of political philosophy begins to run off that rail and head down the pure economic track is when bang for buck completely ignores the political needs. If bang for buck were the ideal, every government, indeed every citizen, would acquire needs in an online controlled auction from the likes of Wall-Mart, Amazon and Office Depot. Government would be operated just like a business.

This consequence becomes even more exaggerated when local governments "piggy-back" on other jurisdiction purchasing regimes, as is the recent trend in municipal purchasing in the US.

Under this "piggy-back" process, a local government is (and many non-profit organizations are) empowered to purchase from vendors selected under source selection methods and procedures approved by another government, local or otherwise, in a region, or within an entire country. This is an abdication of procurement responsibility to a big or better government brother.

A "piggy-back" method would, for instance, allow the Guam government to purchase under the local procurement regime, and from the vendors doing business in, say, North Dakota, without any consideration at all for local Guam providers and the boost they provide to the local economy.

Some of these consequences are illustrated in the following article from Florida, USA.

State official's profitable deal with Office Depot may cost governments and nonprofits nationally

Office Depot now will be allowed to lure government agencies and nonprofits nationwide to the 16,000 products the state competitively bid at low prices without telling those agencies their contract purchasing website will be blended by default with potentially more than 44,000 so-called “non-contract” products priced as the company chooses.

A Brentwood, Tenn., company, National Intergovernmental Purchasing Alliance (NIPA), will market the contract nationwide to governments and nonprofits, which can share it through a process known as “piggybacking.” The purchasing alliance will profit from the amendment, as will the state agency, which came under fire this year from legislators critical of South’s leadership.

The Daily News examined some of the non-contract products listed on the state contract’s purchasing website provided to the city of Naples. The Daily News found Office Depot is selling some of the products at prices higher than it charges the general public, as it has done in the past.

“The offering of our retail website assortment as non-contract items in this instance is not outside of the ordinary and provides a tremendous benefit to agencies that piggyback off of the state of Florida contract,” Office Depot spokesman Jason Shockley said of the amendment.

Office Depot won’t be required to provide a list of the non-contract products, and state purchasing officials haven’t yet released a list of the on-contract products, making it impossible to independently verify which category each product falls under.

For nearly two years, the Daily News has been investigating the contracting practices of Office Depot, spurred by Fort Myers resident David Sherwin, a former government auditor and Office Depot employee. Sherwin launched a nationwide campaign to inform government agencies of the company’s tactics after being fired from his job as an Office Depot account manager in April 2008.

“This lays the groundwork for a bait-and-switch,” Sherwin said of the recent amendment to the state contract.

Since 2007, Office Depot has been accused of selling items without a competitively bid price in an unauthorized manner by the Florida Attorney General’s Office, by auditors with the states of Georgia, Nebraska, California, and North Carolina, and by auditors with Fresno County, Calif., Los Angeles, Calif., Clearwater, Fla., and San Francisco, Calif.

The head of the National Association of State Procurement Officials (NASPO) said it is unusual for a government agency to allow non-contract items to be purchased, and called the Florida purchasing deal a good example of “price shopping.”

“Sounds like from this amendment that they’ve really modified the intent of this contract to allow it to become a nationwide contract,” association director Jack Gallt said. “Certainly, it’s something NASPO would not support.”

The whole story, which contains links to a wider investigation, is required reading if you want the whole "morality play".

Tuesday, December 21, 2010

Lost bid? Out of luck? Not if out of scope changes

I briefly introduced this subject from the Government Contracts Blog a week or so back but did not have time then to report much about it. It is worth taking the time, so here it is:

Let Bygones Be Bygones - Except When It Comes To "Out of Scope" Modifications
As a general matter, the GAO does not review matters pertaining to an agency’s contract administration decisions. 4 C.F.R. § 21.5(a). Contract modifications and changes fall into this category and bid protests raising issues related to the issuance of modifications or changes generally will not be considered by the GAO.

At other times, however, it may be to a contractor’s benefit to have a long memory and a watchful eye.

The Competition in Contracting Act (“CICA”) requires agencies to use full and open competition when acquiring goods or services. 10 U.S.C. § 2304.

Unless an agency invokes an exception, an “out of scope” modification or change is essentially an improper sole-source award that circumvents CICA’s competition requirements. The GAO will thus entertain a protest challenging a contract modification or change when the contractor alleges that the modification or change is “out of scope” of the awarded contract.

If the GAO sustains the protest, it may order the agency to terminate the contract and re-solicit its modified requirements on a competitive basis, as it should have done in the first place. This remedy may afford a contractor another opportunity to compete for the agency’s requirements. A contractor should thus keep a watchful eye on its competitor’s contract to ensure that the work its competitor is being asked to perform falls within the scope of the contract as awarded and that it preserves its right to file a timely challenge at the GAO.

To prevail on a protest alleging an “out of scope” modification, a contractor must show that the contract as modified is materially different from the contract as awarded.

While no one factor is dispositive, the contract type and changes to the nature and type of work have received heightened attention in bid protest decisions. A contractor’s chances for success increase based on the number of factors that support the conclusion that the modification or change was “out of scope.”

Despite the lack of a bright-line rule, one thing remains certain. A contractor that lets bygones be bygones and ignores the manner in which its competitor’s contract is proceeding may never have an opportunity to make this showing and may be deprived of an opportunity to compete for a requirement that should have been subject to competition. Maintaining a vigilant guard could thus provide a piece of the pie that had appeared previously to be out of reach.

Monday, December 20, 2010

Pressing "play" after hitting the "pause button"

Among the material I subscribe to for procurement law developments is the excellent "Law-Now" series available by registration from CMS Cameron McKenna LLP, a UK-registered law firm.

A recent CMS Cameron McKenna Law-Now article deals with the "pause button" mentioned in this prior post: Hitting the pause button on procurerment. This concerns the mechanisms by which various procurement regimes try to maintain an interim status quo to allow a review of a procurement controversy.

As with other posts in this blawg, I quote from the article in excerpts, often re-arranging and editing the content; you should always click the link and read the source article in full for a complete and authentic understanding.

The procurement in issue in this case discussion involved the provision of cleaning services to a large vocational educational institution.

High Court lifts automatic suspension in procurement case

In the first case of its kind under the new public procurement remedies rules, the Public Contracts Regulations 2006, as amended by the Public Contracts (Amendment) Regulations 2009, the High Court has lifted an automatic suspension of entry into a contract. Under the new rules when a disgruntled bidder issues and serves a claim form prior to contract signature, the contracting authority is automatically prevented from entering into the contract. It is then incumbent on the contracting authority to apply to court to lift the automatic suspension.

The Court treated the application as though it were an application for an injunction and applied the American Cyanamid test. The Court looked at whether: (i) there was a serious issue to be tried; (ii) damages would be an adequate remedy; and (iii) the balance of convenience lay in keeping the suspension in place.

Based on the balance of convenience (or the balance of “irremediable prejudice”), the suspension was lifted. The judgment is interesting in a number of respects.

The Court concluded that it would “substantially emasculate” the effect of the new regulations if they required the claimant challenging the award to establish that it would have been awarded the contract, but for the defects in the procurement process. The Court therefore concluded that the proper test was whether, by reason of the defects in the process, the claimant has lost a “more than fanciful” chance of obtaining the contract.

The Court accepted that there were defects in the process and that there was a serious issue to be tried. However, whilst conceding that Indigo had a “more than fanciful chance” of obtaining the contract if it were re-run according to the rules, the Court concluded that the College’s case on causation would be more likely to be accepted at full trial, and that, in any event, there was only a low likelihood that the Court at trial would assess that chance of a loss as much more than the minimum threshold level of non-fanciful.

The Court found that quantification of the profits that could be earned by Indigo would be difficult (although the Court could, if required, carry out a quantification) and that damages would not be intrinsically an adequate remedy.

The Court then considered the balance of convenience, by assessing which course seemed likely to cause the least irremediable prejudice, taking into account, not only each of the parties, but also irremediable prejudice to third parties and the wider general public, as is important in the context of public procurement. In this respect, the Court found that the continuation of the suspension would result in the forced closure of the Colchester site, if only because of the impact of the health and safety regulations. The current cleaning contract was due to expire on 31 December 2010 and the suspension would mean that no contract could be put in place on expiry. Closure would affect both students and staff at the site. The Court rejected Indigo’s argument that the present contract could be simply extended for three months. As far as the Court was concerned this was not a solution because it ignored the possibility of appeal and further delay while the tender process was re-run. Moreover, although the contract provided for a possible extension, the Court concluded that this was for only one extension, which had already been granted, and did not provide for any further extension.

In conclusion, the Court found that the prejudicial impact on the College and the wider public of leaving the suspension in place far outweighed any prejudice which may be caused to Indigo by lifting it.

COMMENT: In terms of comparing this to Guam law (which, as often mentioned, is based on the American Bar Association Model Procurement Code), the first fact of importance is that this case involved a pre-contract protest. Under Guam law, the legislative automatic stay is only available pre-award/contract (although injunctive relief in a court is not foreclosed). It is not clear from this discussion if the automatic suspension is also likewise limited to pre-contract situations.

Under US federal law, as pointed out in my prior post mentioned above, an injunction would also be available (not automatically) in a post-award situation.

The second aspect of this case which is similar to Guam law, is that the court "lifted" the automatic suspension . Under Guam law, the automatic stay can be lifted upon application and adequate showing of necessity and public interest.

A factual item I think may have been critical to the balancing outcome in this case is that the protestor "came third, a considerable way behind the winner", a characterization which suggests there was little likelihood of it prevailing on the merits of its claim. Likelihood of prevailing on the merits is a significant requirement of injunctive/stay relief in the usual Guam situation.

Finally, I was particularly interested to read that the applicable regulations there apply a "standstill period" after the announcement of the preferred tenderer and before the contract was made.

I have been critical of the "gap" that exists between the rendition of a protest decision and the institution of a administrative appeal, and the lack of any "gap" that exists between the time the best offeror is chosen in an RFP and the announcement of the contract: in both cases there is insufficient coverage of the automatic stay effect to allow an aggrieved bidder or offeror to perfect a protest or appeal, which is quite prejudicial considering the significant damages available under a pre-award protest to those available post-award.

I believe Guam law would benefit from a similar "standstill period".

Sunday, December 19, 2010

Outsourced quasi-public-private partnerships subject to public procurement rules?

HRT skirted contracting and bidding laws, audit finds (Virginia, USA)
State investigators say Hampton Roads Transit's former leaders flouted federal and state contracting laws, steering millions of dollars of publicly funded consulting work to "preferred individuals" over about four years.

HRT manipulated some contracts to prevent them from coming before the agency's governing board and failed to seek competition in nearly 70 percent of procurements reviewed by the Virginia Department of Transportation Inspector General's office, that office says.

Additionally, consultant work at times was "improperly" arranged without the knowledge of HRT's procurement office or was secured under expired contracts, says the inspector general's "special review," which was released last week.

"HRT did not comply with applicable procurement laws," the report concludes.

"As far as I'm concerned, it's the same thing as stealing money," said Jim Wood, a Virginia Beach city councilman and past chairman of the HRT board. "If anybody who worked for HRT or works for HRT knowingly violated procurement laws, they should be prosecuted. Period."

The report states that HRT: improperly hired consultants without seeking competition in 16 of 24 contracts; failed to establish an "impartial and comprehensive evaluation" in eight of nine contracts competitively bid; produced no documents to show price was considered in five of seven competitive bids; awarded five consulting jobs under expired contracts; and twice hired consultants as temporary employees to avoid seeking competition.

The report cited examples including,

n When a recruiter was hired to fill an executive position, there was no documentation that the job was competitively bid or that the procurement department knew of the hiring. E-mails among senior staff admit that the hiring violated federal law and indicate Townes instructed staff not to use federal money to pay the contractor because rules were not followed.

n HRT policy stated that contracts over $50,000 must be approved by the HRT board. However, the board had no knowledge of payments of $485,000 over 2-1/2 years to one light-rail consultant. The consultant was hired as a temporary employee in five-month periods, for less than $50,000 each period, "in order to keep it within the President/CEO's signatory authority."

"HRT staff took deliberate steps to avoid obtaining Board approval of these services." And by contracting as a temporary employee, HRT avoided the need to seek competitive bids.

n HRT awarded a $9.5 million contract to Williams Mullen for legal services. Although pricing was listed as part of the selection criteria, the law firm was chosen before HRT's evaluation panel even considered the fee schedule.

Additionally, bias was introduced in the process when HRT's technical evaluation included the statements that Williams Mullen "has unequalled knowledge of HRT, its history and its needs" and "has demonstrated excellence in representing HRT... for many years."

n When HRT was selecting a firm to conduct a study for extending light rail into Virginia Beach, Townes, who was not part of the evaluation panel, attended a meeting to tell panel members that HRT might sue one of the proposers for other work it had done for the agency and therefore the firm's hiring could harm HRT's case. Prior to that, the firm received scores that were equal to or higher than the company that was eventually selected.

n A consultant's contract for light-rail construction and management was altered several times when costs started exceeding the contract limits. Early on, the contract with PBS&J Inc. was doubled to nearly $17 million by Townes, without approval from the board, which had authorized a $10 million limit for the work. Townes did not have authority to approve such a large change, so the contract increase was rescinded and replaced with one that brought the contract to the $10 million limit.

About six months later, the company wrote HRT indicating that it still needed the extra money, plus more, for a total increase of $10 million. About six months later, the HRT board authorized $2.8 million.

Then several months later, HRT staff had the board approve an additional $8.1 million. Meanwhile, during the lag, the consultant performed $2.4 million worth of work "without approved funding."

Donors profit from Myrtle Beach sales tax (South Carolina, USA)
(As a background note, this article suggests that the Myrtle Beach Chamber of Commerce was given public funds to promote the area's tourism industry. On Guam, the Guam Visitors Bureau is an autonomous government agency, part of the Executive Branch, and its affairs are expressly covered by the government Procurement Act.)
"Any time you're spending taxpayers' money, there should be some checks and balances," said state Sen. Ray Cleary, R-Murrells Inlet.

Although public money makes up 70 percent of the chamber's revenue - a projected $18.7 million for 2011 - state law does not require the chamber to solicit competitive bids or follow any other procurement rules for projects that are paid with taxpayer dollars.

The chamber is required to submit regular reports to governing bodies and the public showing how much tourism grant, accommodations tax and sales tax money it spends and where it spends it, but those reports have no impact on the vendors chosen to do that work.

Some businesses that made campaign donations to politicians who approved a sales tax increase for the Myrtle Beach Area Chamber of Commerce now are among the biggest beneficiaries of that tax increase.

The chamber has paid those businesses and others that donate to a political action committee supporting those politicians at least $5.9 million in public money - including sales tax revenue - during the first nine months of this year for marketing work without any competitive bidding and little public oversight.

Most of the sales tax money - charged on retail sales within the Myrtle Beach city limits - goes to the chamber of commerce for advertising to out-of-state residents. The city gets about 20 percent of the funds for property tax breaks and tourism infrastructure projects.

The tax is expected to generate up to $18 million per year over the 10-year life of the legislation.

Myrtle Beach, which passes the sales tax money along to the chamber, does not require the chamber to follow any procurement rules, according to city spokesman Mark Kruea.

"The chamber is interested in getting the biggest bang for its buck, so I'm sure they are being responsible with that money," Kruea said.

Myrtle Beach Mayor John Rhodes said the chamber's quarterly reports and regular updates to council provide enough accountability.

"It's all there - what they are spending and what they are spending it for," Rhodes said. "There are always going to be questions with anything that has to do with public money, but I think it's fine the way it is."

John Crangle, director of Columbia-based Common Cause of South Carolina, said giving public money to the chamber without oversight "is an open invitation to abuse."

Read more: http://www.thesunnews.com/2010/12/19/1877146/donors-profit-from-sales-tax.html#ixzz18aDv1w00

Friday, December 17, 2010

Personal liability for wrongful expenditure of government funds

This post discusses a specific Guam law that allows a taxpayer lawsuit against an Executive Branch employee who has expended government funds "contrary to law". Such action, if successful, holds the employee personally liable for the mis-spent funds, which are to be collected by the Attorney General for return to the Guam treasury. The taxpayer gets satisfaction and payment of legal fees.

But prior to discussing this law, it is worth pointing out a prior post dealing with similar liability.

On May 16, 2010, I shared a news item about JAMES WEED et al. vs BACHNER COMPANY INC., and BOWERS INVESTMENT COMPANY, an Alaska Supreme Court Opinion (No. 6475 - May 14, 2010; see, Weed v. Bachner Company Inc. sp-6475, 230 P3d 697. Note that the link in the original post has expired. There is a recent link to the opinion here, but it may also expire in time: it's reliability is touch and go).

The Alaska Supreme Court framed the question:
This case presents a single, discrete question: Are the procurement officials entitled to absolute or qualified immunity for allegedly tortious conduct arising out of actions they took in the course of the bid evaluation process? ... If the immunity is qualified, Bachner will be able to proceed with its claims that the procurement officers acted maliciously and in bad faith.
The Court then explained its reasoning:
We also agree with Bachner that an important purpose of the bidding process is to create transparency in the states procurement system, and to avoid awarding contracts based on improper considerations, and that this purpose weighs in favor of applying qualified immunity to procurement officers. Finally, we conclude that the highly restricted nature of a procurement officers discretion also makes this factor weigh in favor of qualified immunity.

Unlike the governor's function in supervising his or her subordinates which requires that the governor's discretion and judgment remain largely unfettered the role of a procurement officer in selecting bids involves a brand of discretion that is extraordinarily limited: Procurement officers are only allowed to consider those factors that the Procurement Code specifically lays out. We conclude that these statutory limitations on the officials' discretion also weigh in favor of qualified immunity.
The Court held that, under common law principles, procurement officials do not have absolute immunity but only qualified immunity:
This is not a situation where unfettered discretion is crucial to the best interests of the public; indeed, the procurement officers discretion is designed to be highly restricted. ... Thus, we conclude that, in defending against common law claims arising out of actions taken in the bidding process, procurement officers are entitled only to qualified immunity.

We take this opportunity to reiterate that qualified immunity still provides the officials with substantial protection from liability. Qualified immunity protects an official who has merely acted negligently, and it might even protect an official for liability arising out of a knowing violation where that official lacked the requisite degree of bad faith. The standard is similar to he one our legislature has articulated in the punitive damages context:
For an official with qualified immunity to be held liable, his conduct must have been outrageous or evidenced reckless indifference to the interest of another person.

Guam's law expressly does away with the question of immunity. It makes dealing with government money a fiduciary obligation, not simply an administrative discretion:
"Any officer, agent, contractor, or employee of the Executive Branch of the government of Guam who is charged with or assumes responsibility for the certification of availability of funds or the spending of money belonging to the territory of Guam, including the Governor and Lt. Governor of Guam, stands in a fiduciary relationship to the people of Guam in regard to the management of public money." (§ 7102.)
The law is found in 5 GCA §, Chapter 7, entitled "Enforcement of Proper Government Spending". The operative language is found in § 7103:
"Any taxpayer who is a resident of Guam shall have standing to sue the government of Guam and any officer, agent, contractor, or employee of the Executive Branch of the government of Guam for the purpose of enjoining any officer, agent, contractor, or employee of the Executive Branch of the government of Guam from expending money without proper appropriation, without proper authority, illegally, or contrary to law, and to obtain a personal judgment in the courts of Guam against such officers, agents, contractors, or employees of the government of Guam and in favor of the Government of Guam for the return to the Government of Guam of any money which has been expended without proper appropriation, without proper authority, illegally, or contrary to law."
It may have happened, but I am not aware of any action taken by any taxpayer to use this section in the context of alleged violations of procurement law, ... until now:



The ability to bring action under § 7103 can be particularly satisfying, and simple, when the government chooses to ratify an illegally procured contract. (See this post.) When the government ratifies a contract illegally procured, the protesting bidder has a bittersweet victory. He has proven the illegal act, but he nevertheless has no chance to get the contract.

He could, however, get some degree of vindication under this law. And, in bringing the action, unlike other instances, he would not have to prove illegal behavior since that would have already been a necessary finding before the ratification remedy is applied. That finding should be collateral estoppel in any § 7103 action. In that case, although he is not made whole economically, he can at least have the satisfaction of knowing that those responsible for denying his contract illegally will pay the price.


Follow Up:

DOE Settles Taxpayer Lawsuit With IBSS; Admits Improper Renewal of Copier Contract

Thursday, December 9, 2010

Some government contracting blogs

I've run out of room in my links section to add any further references, so you can look for additional sources by clicking on the "Other procurement links" label above.

Here are a couple of government contracting blogs I've run across today:
Government Contracts Law Blog by law firm Sheppard Mullin (USA)
Interesting recent post on contract modifications as improper sole source procurements: Let Bygones Be Bygones - Except When It Comes To "Out of Scope" Modifications

ContractsProf (Government Contracts) Blog (USA)
Interesting recent posts on oral change orders:

"No oral modification" clause dooms claim under public contract


Feldman on oral change orders

Oral change orders and the NOM clause, part III


Also this post on recent decisions regarding whether personal service government contractors can be treated as "employees": More claims by "contract employees" against Feds
As always, if you know of a good resource for public procurement law and advice, let me know by email or comment.

Monday, November 29, 2010

Failure to award

This story was published today in the Marianas Variety, Guam Edition.

GDOE’s use of emergency power to buy copier machines questioned
A PROTEST has been filed with the Office of Public Accountability against the Guam Department of Education for abusing “emergency declarations” to procure copier machines instead of properly awarding contracts through the normal procurement process.

According to the complaint that Attorney John Thos. Brown, legal counsel for Island Business Systems & Supplies or Town House Department Stores, Inc., filed GDOE issued an invitation for bid in May, but failed to follow through with the rest of the procurement process and award a contract to the lowest bidder, IBSS.

Instead, Brown said GDOE Superintendent Nerissa Bretania Underwood used “emergency declarations” to purchase copiers from Xerox Guam.
There's more to the story, but that is the gist of it.

You can read the Notice of Appeal here.

The interesting aspect of this Appeal is that the Protest alleges that the award of the contract was withheld due to bad faith. Usually appeals are brought alleging a solicitation was conducted wrongly. Here, the allegation is that the solicitation was a good as far as it went, but that it just did not go far enough and award the contract to the low bidder.

There are reasons allowing a government to reject bids or cancel a solicitation, and no bidder has any beneficial or legal right to an award where the government has legitimate rights to end a solicitation. The operative point here is that the action of the government must be legitimate.

In the ABA Model Procurement Code, and Guam Law, there is a right that the bidder can rely on: all parties involved in the negotiation, performance, or administration of territorial contracts have a duty to act in good faith. Moreover, there is an overriding obligation to apply the procurement law "to ensure the fair and equitable treatment of all persons who deal with the procurement system". The government does not act legitimately if it denies a bidder its right to fairness and good faith consideration of contract award.

The Appeal in this case alleges certain facts which specifically draw into question whether the government administered the procurement in this case fairly and in good faith. The Appeal seeks an order that the government award the contract.

This raises an interesting question of remedies. When there is a finding that the solicitation is in violation of the law, the only practicable remedy to a protesting low bidder is to have the solicitation or proposed award "revised to comply with the law". (See 5 GCA § 5451.) In the typical case this would result in a revision of some specification, method of source selection, reconsideration of relevant evaluation criteria or contract term; that is, some error of judgment.

Here, there has been no award or proposed award, and the violation alleged is the failure to judge, not the error of judgment. Thus, the only available "revision" is to require that the decision making process be "revised" by determining the award that should have been made but was not; that is, to exercise the judgment that should have occurred but, for lack of good faith and fairness, was not.

On Guam, the Public Auditor has that authority implicitly by the grant of "the power to review and determine de novo any matter properly submitted". (5 GCA § 5703.)

Friday, November 26, 2010

Debating transparency in Kenya: a case for reform

Note: This post contains a number of labels, as the opinion piece in this post is a comprehensive critique of the procurement situation in Kenya. You should read the full article, particularly if you do not understand the reference to any particular label.

Transparent and competitive public procurement system key to a functioning economy
all governmental entities are struggling in the face of unrelenting budget constraints, downsizing, public demand for increased transparency in public procurement and greater concerns about efficiency, fairness and equity. Additionally, public procurement professionals have faced a constantly changing environment typified by rapidly emerging technologies, increasing product choice, environment concerns, and the complexities of international and regional trading agreements.

Further, policy makers are increasingly using public procurement as a tool to achieve socioeconomic goals. In this environment, public procurement has become much more complex than ever before, and public procurement officials must deal with a broad range of issues.

They have been walking on a tight rope in balancing the dynamic tension between (a) competing socioeconomic objectives, (b) national economic interests vis-à-vis- global competition as required by regional and international trade agreements, (c) satisfying the requirements of fairness, equity and transparency, (d) maintaining an overarching focus on maximising competition; and (d) utilising new technology to enhance procurement efficiency, including e-procurement and purchase cards.

A sound procurement system is based on four major elements or pillars: legislative and regulatory framework, institutional framework and management capacity, procurement operations and market practices, and integrity of procurement system. A weakness in one of the four pillars inevitably leads to an unsound public procurement system. This contribution highlights the weakness in the current legal and regulatory framework on public procurement—the Public Procurement and Disposal Act 2005.

The principal reason for the enactment of the Act was to have a legal regime that weeds out inefficiencies in the procurement process, remove patterns of abuse, and the failure of the public purchaser to obtain adequate value in return for the expenditure of public funds.

However, these objectives have never been fully achieved in practice. Key provisions of the Act and the regulations are replete with textual weaknesses that have often been abused by procuring entities. Moreover, the Act does not envisage contemporary market realities hence the need to continuously revise it to keep pace with these developments.

The authors’ review of more than 100 decisions from the Review Board and the High Court has revealed an inconsistent implementation of these policy objectives. There are no set guidelines, judicial or statutory, that ought to guide decision makes in the interpretation and application of the policy objectives. It is proposed that the Act is amended to restate and redefine the stated policy objectives.

transparency and non-discrimination are the key pillars of the legal regime on public procurement and disposal. A transparent and openly competitive public procurement system with clear procedures and contract award criteria is a prerequisite to a functioning economy.

A good procurement system must therefore provide watertight provisions amongst others , (a) requiring procuring entities to publish tender notices in good time to allow adequate responses from bidders, (b) clearly stipulating any technical specifications and procedures, (c) outlining bid opening procedures and detailing the terms and conditions of the contract awarded, and (d) requiring the procuring entity to maintain reliable record of proceedings, disclose all relevant information and avail for inspection the name and address of the successful bidder and the value of the winning bid.

the right of unsuccessful tenderer to challenge the award of the tender is a key feature of the public procurement process. An ideal public procurement legal regime should contain bid-challenge procedures that are non-discriminatory, timely, transparent and effective.

A critical review of the Act reveals that while the mere fact of lodging of a request for administrative review to the Review Board automatically operates to suspend the procurement proceedings, there are no concomitant provisions for automatic interim measures when an applicant seeks to challenge the decision of the Review Board by way of judicial review to the High Court.

This conflict was played out in the case of Republic Versus the Public Procurement Administrative Review ex parte Egerton University where the Review Board’s decision to direct procuring entity to extend the disputed contract for three months was stayed by the High Court. This created a hiatus that led to the completion of the original project thereby rendering the judicial and administrative review proceedings nugatory.

Debating transparency in Pakistan

Access to information stressed to ensure transparency, good governance
Realizing the importance of transparency in governance and right to information legislation, Individualland- a nonprofit organization held a roundtable seminar on Friday, to promote a healthy debate that can yield positive results.

Participants from number of different organizations like Public Procurement Regulatory Authority (PPRA), National Accountability Bureau (NAB), Public Accounts Committee (PAC), Development Assistance Database (DAD), National Database and Registration Authority (NADRA) and National Disaster Management Authority (NDMA) took part in the roundtable.

The participants said access to information was mandatory to ensure transparency, good governance and to curb corruption in the country.

Speakers were of the view that transparency in governance refers to the absence of secrecy and mystery between the government and those being governed. The information shared should not be ambiguous or selective, but complete and correct.

Transparency International Chairman Adil Gillani on the occasion said transparency meant openness. “Government departments need to put all records and information on their websites as it a public property,” he said.

He said NAB was responsible to take action against various scam like sugar crises not the Supreme Court of Pakistan. “Presently there is no governance in Pakistan,” he said.

Individualland Pakistan Executive Director Gulmina Bilal said that transparency in governance not only improved goodwill of the government but all its functionaries.

Gulmina said that Pakistan being a democracy also had this legislation as an integral part of its constitution. However, its implementation was still not up to the mark. At the end it was agreed that better understanding of governance, especially economic governance and transparency are important aspects of successful governments. It was also agreed that consensus between different stakeholders on increasing transparency could only be ensured by proper implementation of the right to information legislation.

Ireland schools also pay for unauthorized procurement

NI Department of Education launches procurement fraud probe
Northern Ireland’s Department of Education has launched fraud investigations into buying practices at two education authorities after discovering procurement irregularities in school contracts.

Launching the inquiries, education minister Caitríona Ruane informed the Northern Ireland Assembly of serious concerns surrounding procurement activities at the North Eastern Education and Library Board (NEELB) and the South Eastern Education and Library Board (SEELB).

The external investigation into the NEELB, County Antrim’s local education authority, follows its purchase of a £8.2 million school building for Magherafelt High school. This involved an agreement with a contractor without the full approval of the Department of Education. Despite lacking approval, the board paid the contractor for work.

The minister also expressed “serious concerns” around procurement practices at SEELB, which covers most of County Down and a small part of Country Antrim. She described a “suspected fraud” concerning the installation of heating equipment in a school, where second-hand burners were put in. Additional procurement irregularities linked to a maintenance contract led Ruane to commission an investigation into the contract and procurement practices at the SEELB.

Ruane has also instructed her department to create a Centre of Procurement Expertise for the education sector. It will carry out an assessment of the region’s capacity to manage contracts and procurement practices across the education sector.

She said: “In the light of these events I have determined that further action is needed to provide assurance to me as minister and to the executive that procurement practices across the education sector are professional.”

NI Education Minister’s Statement To Assembly On Procurement


Comment: The reference to "also" in the title to this post?
See this.

When preference turns to privilege

The bulk of the news in this post comes from a report in the Washington Post, which was picked up by other MSM, too (e.g.).

WaPo's story is about a small corporation with no obvious direct experience which picked up a very large military contract. The small corporation was affiliated with a Alaskan Native Corporation, known as US2.

Before going to the WaPo item, it is worth going first to Alaska for some home-grown information about this company. This from the Alaska Dispatch:

Alaska Native subsidiary got $250 million Army contract

An Army contract worth as much as $250 million awarded to a subsidiary of Cape Fox Corp., an Alaska Native corporation in Southeast, is drawing attention two years later, according to The Washington Post. The newspaper, which has been reporting on special federal contracting privileges for Alaska Native corporations, says United Solutions and Services, known as US2 and co-owned by Cape Fox Corp., got the no-bid federal contract.

It's not the first time Cape Fox has come under scrutiny this year. Alaska Dispatch reported in May that Cape Fox and two companies it owns -- APM LLC and 1CI Inc. -- were suing two of APM's former CEOs and four of those men's companies for $27 million in damages.

Last fall, the Air Force expelled 20 contractors from its procurement list, citing an extensive scheme to exploit and deceive an award process designed to assist small and disadvantaged businesses -- businesses which, if Native-owned, are given preferential treatment. Six of the companies named had direct ties to Cape Fox. The rest had ties to former APM chief executive Townsend Jackson, his brother Craig Jackson, and other family members.

Cape Fox and other Alaska Native corporations have been under fire for benefiting from a special federal contracting program. Many Native corporations have created subsidiaries that are involved in what are called 8(a) contracts with the federal government. For years, critics have claimed Native corporations have received unfair advantages compared to other small businesses and that the Small Business Administrations 8(a) program lacks oversight.

The program creates preferences for economically disadvantaged small businesses. Alaska Native companies enjoy the lion's share. Native corporations can go after federal contracts without facing competition. They can also subcontract to larger companies that aren't Native-owned but have the expertise to fulfill the contracts.
Now from the Washington Post:

Little size or expertise, but a big contract
For its first three decades of existence, US2's parent, Cape Fox, was primarily a logging operation. But its forests became depleted, and ventures into tourism, real estate and other areas were unprofitable.

Company executives turned to federal contracting. In late 2004, Hadley launched US2. Cape Fox owned 51 percent of the new company, qualifying it under federal rules to receive the contracting benefits bestowed on Alaska native corporations.

Hadley has long lived in Delaware, but under the unique rules approved by Congress, ANC subsidiaries do not have to be run by native executives or operate in Alaska. US2 has no native employees.

Hadley spent much of his career at Delmarva Power & Light, working as a lineman, field supervisor, training supervisor and project manager. He has had management jobs with other firms, including another ANC subsidiary.

The year before, United Solutions and Services, known as US2, had just three employees and several small contracts for janitorial services and other work. It was based in a four-bedroom colonial, where the founder worked out of his living room.

But the firm had one quality the Army prized: It was co-owned by an Alaska native corporation (ANC) and therefore could receive federal contracts of any size without competition, under special set-aside exemptions granted by Congress to help impoverished Alaska natives.

On Sept. 2, 2008, US2 was granted a deal worth as much as $250 million - 3,000 times the $73,000 in revenue the firm claimed the year before. The contract enabled the Army to quickly fund a wide array of projects, including a global campaign to prevent sexual assault and harassment, without seeking outside bids.

US2 could not do the work by itself, though. With the Army's knowledge, the firm subcontracted the majority of it to more established companies, a Washington Post investigation has found.

Federal rules generally require prime contractors on set-aside deals to perform at least half of the work, something US2 did not do on more than $100 million worth of jobs, according to interviews with Army officials and an analysis of federal procurement data.

In response to The Post's findings, officials at the Department of the Interior, which managed the contract for the Army, said proper procedures were followed in the contract award. But they said in a statement that they have asked the department's inspector general to investigate.

Army officials acknowledged using the firm to avoid competition, saying they did not have enough time or contracting workers to seek other bids. "At some point, you don't have time to use the six-, nine-month sort of standard contracting route," said Andrew Jones, chief of budget integration for Army Manpower and Reserve Affairs. "Our internal contract office here, they can't always handle the surge of requirements."

Jones played down the company's lack of experience. "All that prior stuff is irrelevant," he said, because the firm has delivered solid results. [See my comments on the "no harm, no foul" defense, here and here.]

"This is one of the things that's going right with contracting," said Walter Wood, a contracting official for the Army.

Stephen Hadley, the nonnative chief executive operating out of his living room in Delaware, received $615,000 last year as 49 percent owner of US2. That amount does not include his salary, which he declined to disclose. William Walker, an attorney for US2 and Cape Fox, said Hadley's compensation agreements were approved by the Cape Fox board. Walker said US2's profits "played an integral part" in providing benefits to Cape Fox shareholders, contributing to a total of $5.2 million in dividends since 2001.

Hadley said he has worked hard to build US2.

"When I got into the 'federal world' and realized that I had a chance to be entrepreneurial, do public service and help out the Alaskan natives, I fell immediately for the challenge," he said. "I am very proud of what we have accomplished. All it took was a good plan, lots of luck, perseverance, people willing to take a chance and God's will to make it happen."

"Contrary to your misinformed view, this contract is an example of the way in which the government can solicit strong results on the part of federal contractors to ensure taxpayer interests are effectively represented," Walker said.

In April 2008, the firm's fortunes began to improve. It received a no-bid contract from the Army potentially worth more than $7 million for "professional, scientific and technical services." Three months later, the company received a $22 million construction contract without competition to build a 15,000-square-foot Army Experience Center, a high-tech facility in Philadelphia intended to support Army recruitment.

Walker said that job made US2's reputation inside the Pentagon. "As a result of US2's successful work on this project and other previous contract awards on behalf of the U.S. Army, the company earned a reputation as a quality, reliable contractor," he said.

At the time, the Army was under pressure to address the more than 2,400 reported sexual assaults each year in the military.

On Sept. 2, 2008, US2 received the contract for $250 million over five years to provide human resources and technical support to the Assistant Secretary for Manpower and Reserve Affairs.

Under the contract's broad terms, jobs quickly began flowing to the small firm, including the Sexual Harassment and Assault Response and Prevention Program (SHARP). In a few days at the end of September 2008 alone, the Army issued $42 million worth of task orders. Nearly all of the Army spending so far - 97 percent of about $143 million - has been approved in the last few days of the past three fiscal years, federal procurement records show.

The Army is using US2 so extensively that the ceiling on the contract was raised by 50 percent, to $375 million, documents show.

In 2009, US2 was asked to provide support to a program to identify 145,000 servicemen and -women, veterans and their beneficiaries who were eligible for special "stop-loss" pay for serving extended tours in Iraq and Afghanistan. This year, the Army has used US2 for programs that deal with drug and alcohol abuse, suicide prevention, traumatic brain injury and post-traumatic stress disorder, according to the Interior Department. US2 also provides support services for the U.S. Army Medical Command.

To perform all those jobs, US2 said it has relied on a constellation of subcontractors, including Summit Marketing Group, General Dynamics Information Technology, the nonprofit government contractor LMI and the public relations firm O'Keeffe and Co.

Hadley acknowledged that US2 does not have the experience in-house to do all the work. "We hire people to do that," he said.

Federal rules generally require that ANCs do at least 50 percent of the work on service contracts, but Army officials and Hadley said that US2 began meeting that threshold only in June.

Walker said no one expected the firm to do more than half the work immediately, because it is operating in a "business development program" at the Small Business Administration, which oversees the ANC program.

In a statement, the SBA said that under the type of contract US2 has with the Army, a firm "must have performed the applicable percentage of work (50%) with its own employees in the aggregate at any point in time."

"The fact that our use of subcontractors is diminishing and that by the end of the contract, we will have complied with all performance requirements shows that the program works as intended," Walker said.




Sunday, November 21, 2010

Guam Procurement Institute -- a proposal

This is a column I wrote, appearing today in the Marianas Business Journal.

Professionalizing procurement staff
Lawyers, accountants, teachers and real estate agents get education and continuous formal training to do their jobs. Procurement staff get ... what?

When Guam adopted the American Bar Association Model Procurement Code as the basis for its own Procurement Act, the legislature simply passed over the part that required the establishment of a procurement institute for both public and private sector procurement staff.

The comments to the ABA Code point out that "procurement is a complex process which experience has shown can only be adequately learned over a period of time. Thus training in procurement is vital for new government employees without prior knowledge in the field."

"In addition, training courses should be reasonably available to vendor personnel, university professors, students and others. Experience has shown that when a vendor or other person affected by the system (and I might mention senators and agency heads in this context) makes an unnecessary mistake through a lack of knowledge of the ground rules of procurement, it causes friction and expense to the government."

The ABA Code envisioned a local procurement institute to provide formal and continuous procurement education and training, research, and a library of procurement resource material.

A procurement institute is not bricks and mortar. It is a curriculum under the guidance of an administrator. It is both a formal vehicle for theoretical and profession education as well as a community outreach program to provide broad exposure to the "ground rules of procurement."

Hawaii is an ABA Model Procurement Code state, and it has established its Hawaii Procurement Institute under the supervision of a law professor in the University of Hawaii's Richardson School of Law. Procurement is only 20% to 25% law. The rest is logistics, purchasing management, public administration, contract management, audit and accounting.

It is my suggestion that UOG's School of Business and Public Administration would be an excellent choice of host for a Guam Procurement Institute.

The U.S. government spends multiple millions of dollars on procurement staffing and training because it recognizes the critical role procurement plays in effective government and delivery of services.

In the U.S. Air Force, contracting is a career path. Following the example of the Air Force, the U.S. Army established a "Contracting Command" and staffed it with contracting professionals.

The head of the Army's Contracting Command, Edward Harrington, was recently interviewed in the Washington Post. He said "contracting is a practice, a profession. It is similar to law or engineering, where you develop your expertise and skills over a number of years. . . . It takes time to get the training as well as to get the experience with all of the various contracting regulations. Those mid- and senior-level individuals are essential to coaching, counseling and mentoring our entry-level people coming onboard. We do regular ethics training with our contracting workforce. We focus on procurement integrity and ensuring that we have no undue influence on the process or the people in the process."

It is my belief that a better educated, trained and professional Guam procurement workforce will reduce the instances of blunder in the management of the procurement processes, saving government and industry money, time and aggravation, and delivering the whole of government from the appearance of a dysfunctional and self-interested system of patronage.

Building a quality procurement system is like building a quality hotel. You can have the best design, plans, specifications, tools, material and equipment, but, without the skilled workforce, all you have is a pile of rubble.

FOLLOW UP:

The Guam Pacific Daily News ran this Editorial November 30, 2010:
Institute: Procurement process needs enforcement, education to work

The government of Guam continues to violate its own procurement rules and regulations due to systemic problems that paves the way for abuse.

Elected officials need to revamp the GovGuam procurement process and implement measures to ensure procurement laws and regulations are followed. We must also hold accountable those who don't follow the law.

The Department of Public Works has been "artificially" splitting large contracts into smaller, lower-priced ones to circumvent the competitive bidding process. This practice is allowed to continue because there is no effective penalty against doing so.

GovGuam has a long history of violating procurement rules. Agencies split contracts to circumvent the rules or fail to follow regulations that result in bid protests and delays to important projects.

This has to stop because our community can't afford to allow it to continue. We need to be able to trust that government agencies and employees will follow their own procurement rules and regulations.

Elected officials need to implement tighter controls on agencies and employees to ensure the procurement process is administered properly.

Guam also needs a "Procurement Institute," to educate and train local government employees in the procurement process. The lack of training is the most enduring and systemic problem with the island's procurement process, according to local attorney John Thos. Brown, author of "A Guam Procurement Process Primer."

According to Brown, when the island adopted its procurement code, lawmakers omitted provisions that required a funded procurement institute to hold procurement training for public- and private-sector procurement participants.

The incoming administration must work with lawmakers to make these changes happen. Elected officials need to make it clear to directors and employees that they must follow procurement laws and regulations. It's also important that whenever procurement rules aren't followed, that GovGuam hold accountable those responsible.

Government officials can't turn a blind eye or cast blame on the system. When agencies and employees fail to follow rules and regulations, they must be held to task for that failure.

The price is not always right

Any statement of procurement law to the effect that the award goes to the lowest responsive and responsible bid must be read with some implied qualifications. It is not simply a low bid that wins, but a reasonably low bid.

In the same way that a sole bid response must be closely evaluated for price reasonableness, so must an abnormally low bid.


This seems to be the case around the world.

Abnormally low offers - too good to be true? (UK)
According to the press, the existing contract was worth around £34 million a year. When it came up for renewal, the challenger, Morrison Facilities Services Limited (MFS) submitted a bid of around £23 million. However, it was beaten by the £17 million bid of Connaught PLC. The MFS bid and the other bids received were all around 25 per cent to 33 per cent higher than the Connaught bid.

At the hearing, a witness for MFS deconstructed Connaught's prices to show that, in MFS' view, it was simply physically impossible for Connaught to actually deliver the requirement at that low price. There was also evidence that the Council itself had queried Connaught's price and had twice sought confirmation.

Regulation 30(6) of The Public Contracts Regulations 2006 gives contracting authorities a right (not an obligation) to reject an abnormally low bid, provided proper investigation has taken place.

Given the tough economic times, contracting authorities are likely to be receiving a greater number of low-priced bids from bidders desperate to get a foot in the door. This case shows that contracting authorities will do well to be on their guard; if a contracting authority intends to award a contract to a very low bidder, it should make sure that proper investigation does take place and that there are objectively reasonable reasons for the low-price of the bid.

Contractor's Opportunistic Bidding Behavior and Equilibrium Price Level in the Construction Market (Taiwan)
The competitive bidding system has been to blame for abnormally low bids, which are considered as one of the main causes of poor project quality. Previous studies have regarded the pricing of bidders as an optimum decision based on contractor's cost and market competition level. However, the sell to produce characteristic of construction projects may induce contractors to offer a low bid and then make up the amount initially sacrificed from beyond-contractual reward (BCR) gained through cutting corners and claims.

The price level for projects with a strict owner is remarkably higher than for those with relatively less strict owners. Improvement in the construction management system of projects is crucial to lower the possibility that contractors gain BCR and do opportunistic bidding, and to further enhance project quality.

Public Procurement - India (India)
32 What constitutes an 'abnormally low' bid?

'Abnormally low' bids are those that vary from the estimated rates by more than 25 per cent, even after updating the scheduled rates to match the prevailing cost index.

33 What is the required process for dealing with abnormally low tenders?

Abnormally low price may lead to a conclusion of an anti-competition move and this is a ground to order re-tendering. Factors have been prescribed to judge the reasonableness of price (though these are usually resorted to if price is found to be too high (and not abnormally low).

Procurement Procedures Amended to Stop Malicious Low Bids (Taiwan)
The Public Construction Commission (PCC) has revised the “Procedures for Handling Bids With a Total Bid Price Less Than 80% of the Government Estimate in Accordance With Article 58 of the Government Procurement Act” to require agencies handling lowest-tender procurement projects to demand explanations from companies that win bids with abnormally low tenders. The agencies can also refuse to allow such bidders to win bids by providing security. This new provision can stop companies from maliciously using low bids to win contracts, and upgrade the quality of contract performance.

To help agencies evaluate whether an explanation given by a bidder is reasonable or not, another new provision stipulates directions for such explanations—why the bid price is so low, and how the low bid will not impair the quality of execution. If the explanation provided by the bidder is unrelated to completion of the subject of the procurement, it will not be accepted.

Damage to Treasury: Abnormally Low Tenders in Public Construction Works (Turkey)
A detailed analysis of the submitted questionnaires revealed a number of reasons for Abnormally Low Tenders (ALTs) and their adverse effect on the construction industry. Staying in the business, miscalculation of bid price, work experience document, and inaccuracy of the conceptual cost were found to be the main reasons behind ALTs. A better database system for contractors on market unit prices, a better quality control assessment in construction and postconstruction phases, full complete design documents in tender packages, and a better evaluation system on the assessment of ALTs are recommended by the study.

Beware if the contractor bid is too low (California)
Do not automatically accept the lowest bid. In fact, you should beware of any bid that is substantially lower than the others. It probably indicates that the contractor made a mistake or is not including all the work quoted by his or her competitors. You may be headed for a dispute with your contractor if you accept an abnormally low bid. It is also possible that this contractor will cut corners or do substandard work in order to make a profit on the job.

Surete du Quebec dumps security firm contract (Canada)
On Monday, the Surete du Quebec announced it was cancelling its contract with Secur-Action to provide security at its headquarters on Parthenais St.

The same day, Quebec's public security ministry announced on its website that it would not finalize a deal with Secur-Action to provide security at Montreal's courthouse or the courthouse on Gouin Blvd., built to hold trials of organized crime figures and street gang members.

Questions surrounding the company's bids came to light this month when Montreal Mayor Gerald Tremblay asked for an investigation after learning that Secur-Action had submitted an "abnormally low bid" to provide security at Montreal police headquarters on St. Urbain St. The one-year contract was for $874,802, according to La Presse.

The bid was much lower than a similar bid submitted several years ago by the firm Cartier, which had stopped applying for the contract because it was not profitable enough.

Read more: http://www.montrealgazette.com/news/Surete+Quebec+dumps+security+firm+contract/3595011/story.html#ixzz15yRnvtwo

The Procurement Rules and Regulations of the Royal Government of Bhutan:
5.4.5 Abnormally Low Bid

5.4.5.1 Where the prices in a particular bid appear abnormally low or the bid appears seriously unbalanced, the Procuring Agency may reject it only after seeking written explanations from the bidder submitting the low or seriously unbalanced bid. In the case of a bid which appears seriously unbalanced, the procuring agency shall request from the bidder an analysis of rates of the relevant items.

5.4.5.2 The Procuring Agency may take into consideration explanations which are justified on objective grounds including:
a. The economy of the construction method or the method by which the goods or services are to be provided; or
b. The technical solutions chosen; or
c. The exceptionally favourable conditions available to the bidder for the execution of the contract; or
d. The originality of the work, product or service proposed by the bidder.
e. The internal consistency of those prices with the construction methods and schedule proposed.

5.4.5.3 If the Procuring Agency decides to accept the abnormally low bid or the bid with the seriously unbalanced rates after considering the above factors, the bidder shall be required to provide additional differential security equivalent to the difference between the estimated amount and the quoted price in addition to the performance security.

The situation in Sweden:
31 What constitutes an ‘abnormally low’ bid?

There is no general definition of an abnormally low bid in the PPA or UPA. The contracting authority or entity has to determine if a bid is abnormally low based on the circumstances of the procurement. There is no precedent in case law regarding what constitutes an abnormally low bid.

32 What is the required process for dealing with abnormally low tenders?

A contracting authority or entity may refuse tenders that it considers abnormally low. Such refusal must, however, be preceded by a written request for an explanation of the low tender value which has not been satisfactorily answered by the tenderer. A request for an explanation may relate to details such as the economics of the construction method, the manufacturing process or the services provided, technical solutions or any exceptionally favourable conditions available to the tenderer for the execution of the work, supplies or services, the originality of the tenderer’s proposal, compliance with the provisions relating to employment protection and the possibility of the tenderer obtaining state aid. The contracting authority or entity shall verify those constituent elements by consulting the tenderer, taking into account the evidence supplied.

UPDATE JUNE 2, 2016   For a recent (as of the date of this Update) view on this subject from the perspective of the UK, see  Abnormally Low Tenders posted on the CMS Law Now website.
The rules around tendering for public contracts have been updated recently and are set out in the Public Contracts Regulations 2015 (“PCR 2015”).  Regulation 69(1) of the PCR 2015 directs that a contracting authority shall require a tenderer to explain the price or costs proposed in the tender where a tender appears to be abnormally low.  However, while this mandatory requirement on contracting authorities may appear clear, there are surprisingly few examples of this Regulation (or its non-mandatory predecessor - Regulation 30(6) of the Public Contracts Regulations 2006 (“PCR 2006”)) coming under judicial scrutiny in the United Kingdom.  Elsewhere in the EU, award decisions are more often challenged on the ground of abnormally low or high prices and can be a fertile ground for court appointed experts.
The main area of confusion arises in relation to what is meant by “abnormally low”.  In other words there is no explanation of the “trigger point” included in the PCR 2015 at which the contracting authority should require the tenderer to explain its tender.  This gives rise to a slightly odd position that it is required only to ask questions of the tenderer if the tender appears to be abnormally low but unless it asks the questions the authority may not know if the tender is abnormally low in the first place.

Read More at the article's link above.



The procurement portal of the Republic of the Philippines

For those interested in the procurement processes or issues in the Philippines, this Government website may be a useful start:

Philippine Government Procurement

Bridging gaps and breaking walls for a better understanding of procurement reforms




A United Kingdom approach to procurement

I have happened upon the UK's official procurement website, or so it appears. It is the web home of the Office of Government Commerce (OGC). The Home Page is here.

It appears to offer a treasure trove of procurement advice and resource, not only restricted to the unique requirements of the United Kingdom and the European Union, but also framed in more universally recognized statements of procurement theory and principle.


For instance, it describes the procurement process in the manner I consider most appropriate to obtain effective procurement outcomes:
The procurement process spans the whole life cycle, from the identification of the need to purchase, through supplier selection and contracting, to the delivery of the required goods or services and (where relevant) the underlying policy outcome through to the disposal of the asset(s) or service closure or recompetition exercise. Its success can only be ultimately judged or measured when the product has been disposed of, or sold on, or when the service contract has been delivered in full.
Its Introduction to Public Procurement also details one of the cornerstones of effective procurement practice:
Pre-Procurement Planning

It is essential effective planning is carried out prior to a procurement. This planning should include :

> consultation with stakeholders about what is needed and the budget that is available to fulfil the need

> engagement with the market to understand the solutions that may be available and to get feedback on how the requirement may be best met

> establishment of effective governance arrangements and resourcing plans

> if necessary because the department does not have the necessary expertise, appointing advisers to help ensure novel or difficult projects are established on a sound footing

Developing Specifications

It is important to provide sufficient detail to allow the market to respond to requirements, whilst leaving room for innovation where appropriate.

Output- or outcome-based specifications should normally be used. These focus on what authorities want to achieve, not how a supplier is to provide it. This challenges suppliers and gives them the scope to develop innovative solutions.

In certain circumstances it will be essential to specify exactly what is required in detail (e.g. for specialised laboratory equipment).

Specifying an accepted industry standard for a technical solution is also good practice; specifying non-standard or ‘gold-plated’ solutions will always lead to higher costs.

While the website appears to be under re-construction, it nevertheless contains links and articles and other material that is sure, at some point, to offer valuable insight to any student or procurement practitioner, regardless of your particular procurement framework.

I encourage you to have a "sticky beak" (a look around).

Saturday, November 20, 2010

Procurement controversies -- Guyana

Public accounts head berates gov’t over procurement commission Published - Friday, November 19, 2010
Government’s failure to submit their nominees for the Public Procurement Commission (PPC) was cited again as the National Assembly yesterday adopted the report of the Public Accounts Committee (PAC) on the public accounts of Guyana for 2006.

Chairman of the PAC, Volda Lawrence noted that the PPC is an important body in securing and procuring items and must come into being. She pointed out that the Constitution – 10 years ago – says that there must be one.

Lawrence said that the government has shown no interest in bringing the PPC into being and this failure has stymied the work of the PAC. A problem arising out of the non-existence of the PPC is the non-compliance of Ministries and agencies at various levels with the public procurement Act and the breach of tender board procedures particularly the splitting of contracts, Lawrence said.

She noted that that many of the issues highlighted in the 2006 report have been overridden by time and events. Lawrence said that there continued to be various levels of non-compliance with the existing tender board regulations relating to the procurement of goods and services and undertaking of works, both capital and current, by some agencies. She cited that Ministry of Public Works, the Ministry of Education, the Ministry of Home Affairs, the Ministry of Health, the Ministry of Legal Affairs and Regions, Three, Seven and Ten as those who disregard the Public Procurement Act.

Another “perpetual problem” is overpayment to contractors, Lawrence said. “This practice continues unabated. We are yet to hear of any Ministry or agency receiving a successful judgment against a single contractor or any officer being surcharged or disciplined for making substantial advances or payment upfront to contractors”. She said that the PAC has concluded after interviewing several accounting officers and staff of various ministries and agencies that “there is collusion between staff and contractors to defraud the Guyanese people of large sums of money”. Reading from the report, she said that: “The PAC recommends that officers and consultants who affix their signatures of completion in which overpayments are found should be sanctioned or surcharged where necessary”.

Commentary: It might be noted that the Guam Procurement Policy Office is the central authority for GovGuam procurement policy matters, with sole power to promulgate procurement regulations. It was established in 1983 when the Procurement Act was first adopted. See 5 GCA § 5102.

To my knowledge the Policy Office has instigated only one policy act, being the initial adoption of the Procurement Regulations about 25 years ago. Since then, it appears that there has been no constitution of the Office and no further policy consideration or implementation, notwithstanding other significant developments to Guam procurement law.

Friday, November 19, 2010

The dilemma of "only one bid received"


The ABA Model Procurement Code, adopted in Guam at 5 GCA § 5001(b)(6), requires the government "to foster effective broad-based competition".

Regulations add specific requirements to the general obligation to foster effective competition, especially in regards to competitive sealed bidding.

Guam regulations require that bids "be mailed or otherwise furnished to a sufficient number of bidders for the purpose of securing competition". (2 GAR § 3109(f)(1)).

It is pretty clear from these emphatic requirements that the government's job is not to simply put a small ad in the paper with some vague description of a solicitation and then sit back and see what turns up. It must actually solicit.

So, assume it has done that. It has effectively solicited. And then ... only one bid is submitted. Does that bid win by default?

This is not a new issue. There is an interesting story that dates back to the infamous sinking of the US Battleship Maine in Havana Harbor, which touched off the Spanish-American War in 1898. As soon as the war was ended, there began calls to Raise the Maine from the bottom of the harbor. Evidently, the first thoughts were to simply remove the Maine, which was a hazard to harbor traffic, and a solicitation of bids was made.

The NY Times has a story from June 1903 that described the results of this solicitation. When the time came to open the bids for the removal of the wreckage, only one bid was submitted, from a prominent Cuban, who agreed to cut it up and remove it. Apparently "American metal concerns" objected that they would have bid had they been allowed to use dynamite. In the event, the committee of Treasury evaluators, after opening the bid, decided it was too vague to award. Fortuitously, for historians anyway, it was later decided to spend the money to actually raise the Maine intact.

Even before the Maine event, one-bid solicitations were creating a stir. Another NY Times story, reported in March 1878, concerned a solicitation for street cleaning services, which attracted only one bid. The Board of Police, which issued the solicitation, was concerned that the one bid showed a lack of competition and would not be in the best interests of the City to take the bid. They then passed the buck to legal counsel for an opinion whether they might be bound to accept the bid nevertheless.

But this is not a problem lost in history, as the following articles illustrate.

With only one bid on county home, there's even less reason for Jefferson County commissioners to rush to try to sell it before they leave office

After what happened last week, it's clear the Jefferson County Commission won't be able to sell the county's nursing home before commissioners leave office in a month. So, it's silly for commissioners to vote this week on a resolution expressing the county's intent to sell the home.

Last Tuesday, the commission had to put off opening bids on the county home after only one bid was received.

One bid received for planned demolition of Potsdam building
The single bid was opened Wednesday at the Potsdam Town Hall, 35 Market St., with Supervisor Marie C. Regan and councilmen Rollin A. Beattie and Harold D. Demick witnessing the opening. The group took no formal action; the full Town Council is expected to act on the bid Nov. 3.

Mr. Demick said it was important that town officials move quickly to raze the old fraternity house before winter sets in, because of growing worries that a teenager or college-age student could be hurt on the property.

Brockton gets 1 bid for audit
A committee formed to review bids on an audit of Brockton’s water department should know by the end of this week whether it will move forward with the lone proposal it received, or seek other candidates.

Michael Morris, Brockton’s chief procurement officer, said the non-financial details of the offer will be assessed in the next few days to see whether their technical elements meet minimum requirements. If so, the bid’s price, which has yet to be opened, will be reviewed, he said.

The US Department of Transportation, Federal Transit Administration, has considered many of the issues a one-bid solicitation poses, and offered guidance. It has said, for instance,
A. The FTA Procurement Circular 4220.1F at Ch. VI, Section 3.i.(1)(b)2, discusses the scenario of receiving only one bid after a competitive solicitation. You will need to review the specification used to determine if it was overly restrictive: i.e., if only one company could meet the requirements. If this is true, then you need to have a sole source justification approved before you can award the contract. If you determine that the specification was not restrictive, and other companies could have met the specification but chose not to bid for other reasons, then you need to document the file with your determination that the competition was adequate.

The FTA Circular also requires that some form of cost or price analysis be done in order to determine that the price is reasonable. We would not think the state contract price could be used as a benchmark since that price was not arrived at competitively. You should look at the Best Practices Procurement Manual, section 5.2 – Cost and Price Analysis, which has a number of suggestions for doing a price analysis. (Reviewed: July 2010)

A. If you have determined that your specification and other terms and conditions were not restrictive, and factors other than your solicitation were responsible for other suppliers not bidding, then competition was adequate and you may award this as a competitive award, with a price analysis to determine that the price is fair and reasonable. The situation of a single bid received after a competitive solicitation is addressed in the FTA Circular 4220.1F, at Ch. VI, Section 3.i.(1)(b)2. (Revised: July 2010)

A. If a single bid is received, you will have to determine if competition was adequate or inadequate. The situation of a single bid received after a competitive solicitation is addressed in the FTA Circular 4220.1F, at Ch. VI, Section 3.i.(1)(b)2. If you find that competition was inadequate because of a restrictive specification that only one offeror could meet, then you must process this as a sole source contract award and obtain the requisite agency approvals prior to award.
Q. Is competition or lack of competition defined by the number of quotes solicited or the number received? Presuming 3 responsible and capable firms are solicited and only one firm submits a quote, have the competition requirements been essentially met?
A. You will need to determine whether the competition was adequate by contacting the companies you solicited to find out why they did not submit bids. If there was a problem with the specification being restrictive, then you have inadequate competition and must fix the problem and re-solicit, or process the contract as a sole source award and obtain the necessary management approvals. The mere fact that only one bid was received does not automatically mean competition was inadequate since many unrelated factors could cause potential sources not to submit a bid or proposal. (Revised: July 2010)
The Federal Acquisition Regulations urge special caution when only one bid is received.
14.408-1(b) If less than three bids have been received, the contracting officer shall examine the situation to ascertain the reasons for the small number of responses. Award shall be made notwithstanding the limited number of bids. However, the contracting officer shall initiate, if appropriate, corrective action to increase competition in future solicitations for the same or similar items, and include a notation of such action in the records of the invitation for bids (see 14.204).

14.408-2 (a) The contracting officer shall determine that a prospective contractor is responsible (see Subpart 9.1) and that the prices offered are reasonable before awarding the contract. The price analysis techniques in 15.404-1(b) may be used as guidelines. In each case the determination shall be made in the light of all prevailing circumstances. Particular care must be taken in cases where only a single bid is received.

Frederick Marks, CPPO, VCO, a retired purchasing officer, has written a very useful guide, in the form of questions, addressing the question,

"Only one bid... now what?":
Personally I have never liked receiving one bid, as it really never told me anything. It's as bad as not receiving any bids. I felt it reflected on my professionalism, and nothing annoyed me more than not being able to say that a price is fair and reasonable.

There are reasons that you have received one bid, and before you decide whether to open it or not, you need more information.

Internal factors include the specifications. Were they written to allow multiple bidders, or were they targeted toward one bidder or product? Are they clear? Is your pricing formula fair and consistent with how the marketplace prices its product? Are you asking for something the marketplace cannot provide or that is too complicated? Are your terms and conditions unreasonable?

What research did you do prior to sending out the bid? Did you survey the marketplace? Are you dealing with a sole or proprietary source? Is the marketplace stable enough to give you a firm price? If not, do you have the appropriate price adjustment clause that will keep both you and the bidder whole during the term of the contract? What input, if any, did your end user give to you in producing the bid papers? Did they get it from independent research or from one outside vendor?

What research did you use to develop your bid list? Did you use the same bidders as last time or did you add new ones? Have you checked sources outside your local area? Did you contact a trade association to see if they have members that could assist you? Does the trade association have standard specifications that you could use instead of your home-grown specifications?

After you consider all this, and still decide to open the bid (if your procedures allow it), what are you going to do with the information? How will you verify that the prices are fair and reasonable?

The Guam Procurement Regulations (2 GAR § 3102(c)) state that where "only one responsive bid is received" (which could include a situation where more than one bid was received but the other bids were non-responsive), an award may be made to the single bidder if a finding is made "that the price submitted is fair and reasonable"; but if it determined that the need "continues" notwithstanding a price that is not fair and reasonable, the procurement may be conducted as a sole source or emergency procurement "as appropriate". A similar situation is allowed for only one proposal received in response to a Request for Proposals.


(NOTE: A newer post closely related to this subject is at One bid received vs one bid solicited, June 15, 2011.  And that post has been updated July 2019 with reference to a new FAR on the topic.)

(Also note, Do longer competitions bring better prices?, June 25, 2011)