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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, newer post related to this subject at One bid received vs one bid solicited, June 15, 2011.)

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

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