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Friday, July 19, 2013

Procurement controversies -- Estonia

Estonia has an interesting public procurement law, delegating almost all details to a regulatory scheme. See the unofficial English translation here. Read that (pretty short and sweet) and you too will know everything I know about the subject.

I do not write to explain or opine on Estonian or any other law, only to use factual situations, as they appear in the articles cited and then cut, paraphrased and rearranged to my liking, as "teachable moments" to compare and contrast Guam's ABA Model Procurement Code based laws and regulations. So, turning now to the controversy du jour,

Furniture maker accuses Tax Board of bias in public procurement
Estonian furniture maker AJ Tooted is disputing the public procurement for supplying furniture for the new main office of the Tax and Customs Board. AJ Tooted won the first procurement held in March submitting the cheapest offer of 800,000 euros.

Then, in May, the Tax Board’s work environment council inspected the existing working conditions and found that the workplaces of several employees did not comply with ergonomic requirements.

By the end of May, the Tax Board had cancelled the first procurement and announced a new call to tender. AJ Tooted has now disputed the decision to cancel the first procurement.

Last week the dispute panel of public procurement announced that the tender documents of the second tender were partly illegal because they were too specific. Among others, the Tax Board is demanding that the frame must be made of 12mm birch, that the seat must be exactly 700 mm wide and that the manufacturer must submit compliance certificates.

The only furniture maker that complies with such requirements is Estonian furniture giant Standard that, for instance, is the only one who has certificates required by the tax board. Other companies don’t have not obtained compliance certificates for tailor-made furniture. A representative of the tax authority said that such strict requirements were necessary so that all bidders can understand them in the same way.
I have to say I am a bit puzzled by the facts stated. Is AJ Tooted, for instance, complaining that the specifications were too narrowly drawn, prejudicing its bid or award? Or is the Tax Board saying it wants to rebid the contract because it got the specs all wrong to begin with? Either of these scenarios, or others that may be speculated, offer analytical exercises.

For purposes of this post, though, I just want to make a simple assumption, even if it is not the situation they're facing in Estonia. I will assume that AJ Toot, who won the award, is complaining about the cancellation of the bid because the furniture "giant" Standard is behind the cancellation of the award. And I will assume that its furniture did not in fact meet the meet the "ergonomic requirements" of the work environment council.

What I point to under this scenario is the difference between a solicitation dispute and a contract dispute, and of course, I discuss this in the context of Guam's law, not Estonia's. The basic rubric is, can a competing bidder complain, after award, that the winning bidder did not deliver the goods the solicitation documents specified?

Guam law would usually say no. It distinguishes between disputes concerning the method of source selection, the solicitation or the award of a contract (5 GCA § 5425) from a contract dispute (§ 5427). As a general rule, competing bidders may be aggrieved and protest the solicitation, but have no standing in a contract dispute. Thus, if the contractor did not provide precisely the thing that was specified, that is an issue between the government and the contractor alone, as the only two parties who are "privy" to the contract. Under contract law generally, the government has the right to accept the nonconforming goods, but in doing so reserves the right to claim damages arising from the nonconformity.

But the situation could be different if the facts are altered: it depends on the degree of non-conformance. If the goods the government accepts are materially "beyond the scope" of what was solicited, the acceptance of them relates back to the integrity of the process, and may be treated as a fault of the solicitation process. 

Here, AJ Toot was not prejudiced by the overly restrictive specifications, and it would be unfair to penalize it for providing, substantially, what it was the government ordered. 

If the government nevertheless decides that it cannot continue to use the equipment its own specifications required because of the ergonomic requirements, it should first elect to terminate the contract before rebidding, under the termination for convenience clause and procedure Guam law allows.  In that case, AJ Tooting would at least be compensated for certain damages, including some of the profit it was expecting, offset by any damages caused by nonconforming goods delivered (which I have only assumed in this scenario).

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