Georgia city is living in a material world

'Cause everybody's living in a material world

And I am a material girl

You know that we are living in a material world

And I am a material girl

Living in a material world

And I am a material girl

You know that we are living in a material world

And I am a material girl

-- Madonna, Material Girl (Source)

Again, the articles, cases and other materials cited in this blog are usually sliced and diced by me to render a teaching moment, not news. I omit parts, paraphrase and make other distortions and edits to suit the goal of this blog, to provide fact-based lessons concerning government contracting, what those of us in local government operating under the ABA Model Procurement Code call procurement. 

Please, click the article's title link and read the original article at the link for clarity and full understanding of the intent of the author of the article cited.

Bid defects pricey for taxpayers

A paperwork error may have cost Augusta taxpayers $1.3 million dollars. At issue before the Augusta Commission for two weeks has been a Butler, Ga., utility construction contractor’s challenge of being disqualified from a job moving massive amounts of earth at the city landfill for a paperwork error.

Angela Peed Lance told commissioners Tuesday that her father, Peed Bros. Inc. chairman Lester Peed, had signed a return mail receipt on the second addendum to the landfill bid package. The firm incorporated the addendum’s minor changes into its bid total, Lance said. “We did price it correctly; we failed to acknowledge in the bid addendum No. 2,” she said.

Peed’s base bid of $3.8 million was substantially lower than the next lowest, Cooper Barnette and Page, which bid $5.2 million. But Peed did not get the bid, and the City paid the next higher bidder another $1.3 million for the job.

The defects Procurement Director Geri Sams pointed to in disqualifying Peed were two: On a form signed by Lester Peed, a checkbox indicating receipt of each addenda was missing a check mark, and a bid bond form acknowledging receipt of each addenda hadn’t been dated. Sams told commissioners Peed’s lower bid stood apart from the “cluster” of higher bids, making it suspect and susceptible to change orders.

The omissions come despite compliance director Kellie Irving’s assertion that vendors are given detailed information during pre-bid meetings about the requirement, and the office makes itself available to answer any questions.

City officials maintain a decade-old strict “materiality” provision remains the best way for Augusta to avoid liability, whether it saves taxpayers or not. The city procurement department has historically been the target of litigation, including a spate of suits filed after the city made “materiality” a requirement of bids. The requirement means a bid can be disqualified for the slightest technical error, whether in the number of copies provided, a missing seal or blank or a notarization error.

Suits filed in 2008 and 2009 alleged the procurement office wasn’t holding firms to the same standards and some vendors were allowed to correct errors. Augusta lawyer Robert Mullins wrote a 2013 law journal article claiming the provision wasn’t truly objective and could be used to throw any vendor out.

More recently, the commission upheld a protest by a vendor who didn’t certify a good-faith effort to use a local small business to install office furniture. The same omission is costly to taxpayers in a bid award going before a city committee Tuesday.

Augusta procurement has streamlined several processes in recent years to make doing business with the city easier, but protects the city through its strict application of the rules, Environmental Services Director Mark Johnson said. “Procurement is consistent in how they applied the rules,” Johnson said. “That limits our liability and legal exposure.”

Commissioner Marion Williams said vendors should expect to go through multiple hoops to do business with the city, but added loopholes allow some existing contractors to bypass the procurement process altogether. “When you come to the government, you’ve got to go through a process because it’s taxpayers’ money,” Williams said.

I have to say, this is a rather blinkered way to conduct procurement. You have to stay on track, but you can take off the blinkers and still have a fair race.

The ABA Model Code and its regulations do not penalize every little error. Rather, errors are analyzed in terms of, first, when in the solicitation process did the error occur, second, how "big" they are, and, third, whether the error resulted in prejudice to other bidders. Only "big" errors that cause prejudice to other bidders are material enough to cause a bid to be rejected, on the basis that the bid is nonresponsive to the solicitation.

Guam regulations track the ABA Model Code. It's provision concerning "Mistakes" is found in 2 GAR § 3109(m), with particular reference to this situation in 3109(m)(B)(4). The General Rule for all mistakes is

Correction or withdrawal of a bid because of an inadvertent, nonjudgmental mistakes in
the bid requires careful consideration to protect the integrity of the competitive bidding system, and to assure fairness. If the mistake is attributable to an error in judgment, the bid may not be corrected. Bid correction or withdrawal by reason of a nonjudgmental mistake is permissible, but only to the extent it is not contrary to the interest of the territory or the fair treatment of other bidders.

The rule for Mistakes Discovered After Opening but Before Award, which is the situation in this article, is

Minor informalities are matters of form, rather than substance evident from the bid document, or insignificant mistakes that can be waived or corrected without prejudice to other bidders; that is, the effect on price, quantity, quality, delivery, or contractual conditions is negligible. The Procurement Officer shall waive such informalities or allow the bidder to correct them depending on which is in the best interest of the territory.

Examples include the failure of a bidder to: ... (3) acknowledge receipt of an amendment to the Invitation for Bids; but only if: (i) it is clear from the bid that the bidder received the amendment and intended to be bound by its terms; or (ii) the amendment involved had a negligible effect on price, quantity, quality, or delivery.

Not every little nonconformity is fatal to a bid. Only material nonconformities require a bid to be rejected. The government should not be boxed into paying a higher price to a bidder who was not prejudiced by the negligible error -- which is an error in which the effect on price, quantity, quality, delivery, or contractual conditions is negligible. 


In this regard, it is important to distinguish between contractual conditions and solicitation instructions. The requirement to acknowledge amendments is not exactly a contractual condition as an bid instruction. 

There are instances in which failure to acknowledge an amendment can result in a bidder's refusal to sign an awarded contract on the basis that the bidder never saw or agreed to the amended provision, to be sure. But not every failure to acknowledge can lead to that result if there are other facts or circumstances which would refute the refusal of a bidder to contract.

For more posts on this topic, click the "materiality" and "mistakes" and "bidder prejudice" label at the end of this post or in the header of the blog.

If you are living in an immaterial world, you don't sweat the small stuff.

Distinguishing bid defects from bidder instructions

This post concerns a recent decision by the Guam Public Auditor. I'll start with a rendition of the Decision (bearing in mind I selectively cut, paste, rearrange, paraphrase, etc., so read the Decision at the link to get the true version).

In the Appeal of J&B Modern Tech, OPA-PA-14-001.

J&B asserts in this appeal that JRN's failure to attend a December 10, 2013 site inspection of Southern High School rendered JRN a nomesponsive bidder who should have been disqualified from consideration of the IFB award. J&B asserts that it should be awarded the bid.

John Leon Guerrero of GDOE Facilities and Maintenance requested a cost proposal from JRN for duct work to be performed at Simon Sanchez High School, Southern High School, and Upi Elementary School. To prepare the requested cost proposal, JRN personnel conducted site inspections. Upon completing the site inspections at the three schools, JRN's Project Engineer informed Mr. Leon Guerrero that the scope of work for which the cost proposal was requested amounted to more than $100,000.00 and should be opened for bids.

GDOE issued GDOE IFB 005-2014. The IFB sought proposals for the furnishing and installation of Air Conditioning Exterior Duct System for four high schools.

The IFB stated that "The Contractor must conduct pre site inspections to determine existing conditions and any special needs/requirements for execution of the project. Site inspection and field verification of existing layout is mandatorv." The GDOE Supply Management Adminsitrator issued Amendment No. 1 advising bidders that a pre-bid coμference and site inspection would take place on December 6, 2013. The site inspection got to three of the four schools on that date, but the inspection of the 4th school was postponed. A JRN representative was present for the inspection on December 6 inspection, but did not attend the postponed inspection of the 4th school.

J&B and JRN submitted their bids on December 17. JRN's bid was about $95,000 lower than J&B's. Given the price discrepancy, GDOE confirmed (via email) with Dan Gomez of JRN that JRN conducted a site inspection of Southern High School prior to December 6, 2013, that JRN understood the scope of work at Southern High School, and that JRN confirmed its bid price. On February 5, 2014, GDOE issued a Bid Status notification to J&B stating that J&B was not selected due to higher price offered.

J&B filed its Protest to GDOE asserting that JRN's failure to attend the mandatory site inspection of Southern High School on December 10, 2013 rendered JRN's bid nonresponsive and disqualified from consideration for award.

JRN did conduct a pre site inspection of Southern High School to determine existing conditions and any special needs/requirements for execution of the project, albeit before the IFB was issued. Consistent with the IFB requirements, JRN assumed full responsibility to ensure that all proposed equipment meet or exceed existing quality and specifications, i.e., material specifications, dimensions, configuration, mechanical requirements, mounting and installation requirements, etc.

The manner and timing in which JRN conducted its site inspection of Southern High School did not prejudice J&B and is a minor informality which GDOE could and apparently did waive. Minor informalities are mistakes found in bids after opening but prior to award and are matters of form rather than substance that can be waived or corrected without prejudice to other bidders; that is, the effect on price, quantity, quality, delivery, or contractual conditions is negligible. (2 GAR § 3109(m)(4)(B).)

Irrespective of whether or not GDOE determined that JRN's pre-IFB issuance site inspection of Southern High School was a minor informality which was waived or not, the Public Auditor concludes that GDOE's determination, that the site inspections while deemed "mandatory" were not deemed conditions precedent for "responsiveness" of bids, was not in error. A "responsive bidder" is a person who submitted a bid which conforms in all material respects to the Invitation for Bids. 5 G.C.A. § 520 l(g). RN's bid was responsive to the requirements of the IFB.

A quick read of the Decision, with its focus on waiver of mistakes, might lead to the conclusion that this was the basis of the Decision. But it was not, and should not have been.  The decision did not find a minor informality in J&B's bid; it found that the bid was responsive.

The failure to attend a "mandatory" pre-bid conference and site inspection was not a mistaken element of JRN's bid.  Attendance was a procedural instruction to bidders to assure that all bidders were properly informed of the nature of the work, its scope, and what would be required of bidders to complete the installation of the duct work.

As the decision implied, the fault alleged in the bid process here was not material; it was not a condition precedent to being qualified to bid.  JRN's bid was responsive because it conformed in all material respects to the IFB.

The reference in the Decision to waiver of a minor mistake is a reference to a bid mistake, not a procedural requirement for consideration of a bid submission. The reference is to the regulation dealing with "Mistakes in Bids". (2 GAR § 3109(m).)  The regulation's subparts describe variously the consequences of mistakes in bids in general, mistakes made or discovered before bid opening, mistakes after opening but before award, and those after award. The waiver of a "minor informality" is in the subpart dealing with mistakes in a bid found after opening but before award. (§ 3109(m)(4)(B)).)

The decision discussed the nature of minor informalities, and then found that the bid was responsive.  It described both: a minor informality is one that is negligible therefore does not prejudice other bidders in terms of , and a responsive bid is one that is material in all respects.  Connecting the dots, the decision implies that, when analyzing responsiveness (which must conform in all material respects), an immaterial matter is one that does not prejudice other bidders because it does not affect price, quantity, quality, delivery, or contractual conditions.  (And note, "contractual" conditions are ones that are part of the ultimate awarded contract, not conditions of submitting a bid.)

The regulation on mistakes in bids actually refers to two distinct kinds of mistakes collectively called a "minor informality"; one mistake is a "matter of form", and the other is called an "insignificant mistake". "Minor informalities are matters of form, rather than substance evident from the bid document". On the other hand, "insignificant mistakes" are those mistakes "that can be waived or corrected without prejudice to other bidders; that is, the effect on price, quantity, quality, delivery, or contractual conditions is negligible."  This mistake is insignificant because, whatever its nature (even if it is denominated a "mandatory" requirement), the  failure does not cause prejudice to other bidders.

Thus, waivable insignificant mistakes go beyond mere matters of form. "Examples include the failure of a bidder to: (1) return the number of signed bids required by the Invitation for Bids; (2) sign the bid, but only if the unsigned bid is accompanied by other material indicating the bidder's intent to be bound; or (3) acknowledge receipt of an amendment to the Invitation for Bids; but only if: (i) it is clear from the bid that the bidder received the amendment and intended to be bound by its terms; or (ii) the amendment involved had a negligible effect on price, quantity, quality, or delivery."

The significant feature of this rule is that mistakes that do not prejudice other bidders can, and should if the state is not prejudiced, be waived. Further, the provision is significant because it describes what is meant by "prejudice other bidders".  

Finally, it becomes significant because it also bears on the question whether a nonconforming aspect in an IFB might be considered immaterial and therefore not rise to the level of a nonresponsive.  As the cases hold, not all nonconforming bids are nonresponsive.  Only a material nonconforming bid is nonresponsive.

An error by a bidder or in a bid does not prejudice other bidders if "the effect on price, quantity, quality, delivery, or contractual conditions is negligible." Failure to attend a site inspection does not prejudice or disadvantage another attending bidder, but it could certainly disadvantage the bidder who fails to attend. That is no concern of other bidders.

This is expressly allowed by Guam procurement law. "Correction or withdrawal of inadvertently erroneous bids before or after award ... shall be permitted in accordance with regulations.... After bid opening, no changes in bid prices or other provisions of bids prejudicial to the interest of the Territory or fair competition shall be permitted." (5 GCA § 5211(f).)

Although there is no specific law on Guam dealing with abnormally low bids, it is the usual case around the world that they are to be questioned (see, The price is not always right). The discrepancy in price here (nearly 25% lower than the other bidder) obviously raised that question, and GDOE is to be commended for confirming with the low bidder that it understood the scope of work and confirmed its bid price.

This case can stand for the proposition that not all matters in an IFB which are declared to be mandatory are material or prejudicial, and can be overlooked, or "waived". 

Where, as here, other bidders were not prejudiced by a waiver of a bid requirement ("that is, the effect on price, quantity, quality, delivery, or contractual conditions is negligible"), and the territory's concern to get a price that understood the requirements and risks are met (the fourth school had, in fact, been recently inspected for the very factors pertinent to the bid), even a so-called mandatory bid requirement is not really mandatory at all.

Responsive does not mean precise, but does require no bidder prejudice

Canada Allows Firms To Fix Bid Errors

The Canadian government has introduced a provision to allow defense firms to repair their bids on military equipment programs. The provision is an attempt to head off situations in which companies vying for a contract are disqualified over minor infractions.

Over the past two years, Canada has disqualified a number of bids for military programs because of a draconian system that prohibits any errors, even minor ones, in bid proposals. The disqualifications have delayed projects and have cost companies millions of dollars, industry sources say.

The new process would allow companies to submit more information to meet the bid requirements, even after bidding is closed.

A bid by Thales Canada was rejected because one official involved in the company’s proposal lacked the proper security clearance, according to government and industry representatives. The name of the individual, a health and safety officer, had been submitted in error and Thales asked Public Works to remove the name from its bid. Instead, Public Works refused and disqualified the bid. Public Works rejected another company’s bid for the project because information provided in two charts outlining spare parts acquisition did not exactly match up.

Tim Page, president of the Canadian Association of Defence and Security Industries, welcomed the change. “Any way for the government to exercise some reasonable discretion that doesn’t affect the reasonableness of a procurement is of value.”

But others say it opens up the bidding process to potential manipulation. “It could be used as a loophole to favor a company that should be disqualified and to give them a second chance at bidding,” said one defense industry executive. “I can see this as opening the way to potential abuse.”

Page said he doesn’t believe the change will allow abuse of the system. “If you’ve got knowledgeable and experienced procurement officers in the federal government who understand the business of procurement, then the risk of abuse will be significantly reduced,” he said.

Under the American Bar Association Model Procurement Code, and most if not all US jurisdictions whether or not they adopt the ABA MPC, a bid must be responsive to the Invitation for Bid, which includes specifications and contract requirements. A bid is responsive if it conforms in all material respects to the Invitation for Bids. Materiality is the operative standard, not conformity.

Ultimately, of course, materiality is a judgment call. In an ideal procurement world, judgment would be based on objectively verifiable criteria, not subjective ones. That is not often possible in the real procurement world. Some form of flexibility ("reasonable discretion" as mentioned above") is required when matching bids with IFBs to avoid absurd, slavish insistence on exact conformance to terms which are not always clear, let alone material.

To minimize the influence of extraneous, subjective factors, I think an appropriate balance of the principles of integrity and effectiveness should demand a robust determination process, and made accountable by written reports setting forth a rational rendition of facts and analysis supporting the determination and suppressing the suspicion of bias. Then, even a determination made in error will dispell the tainting suspicion that undermines faith in the system.

The ABA MPC sets out a comprehensive and elaborate framework to facilitate the flexibility required. It may not be perfect in application, or theory, but it is better than the elimination of all flexibility.

In the Guam regulations, the relevant model regulations are adopted in 2 GAR § 3109(m), and speak of the needed flexibility in terms of "mistake" and "informality" and distinguishes between an "error in judgment" and a "nonjudgmental mistake".

The general rule applicable in all circumstances is that

"Correction or withdrawal of a bid because of an inadvertent, nonjudgmental mistake[] in the bid requires careful consideration to protect the integrity of the competitive bidding system, and to assure fairness.  If the mistake is attributable to an error in judgment, the bid may not be corrected.  Bid correction or withdrawal by reason of a nonjudgmental mistake is permissible, but only to the extent it is not contrary to the interest of the territory or the fair treatment of other bidders."

To implement this general rule,

When the Procurement Officer knows or has reason to conclude that a mistake has been made, such officer should request the bidder to confirm the bid. Situations in which confirmation should be requested include obvious, apparent errors on the face of the bid or a bid unreasonably lower than the other bids submitted. If the bidder alleges mistake, the bid may be corrected or withdrawn [under certain prescribed conditions]."

Regulations also apply different rules, standards and procedures, depending on if a mistake is discovered before bid opening, after opening but before award, and after award. The rule for mistakes discovered after bid opening but before award are instructive as to what is meant by a bid that "materially conforms" to the IFB. It says a minor informality or insignificant mistake can be waived. It describes an insignificant mistake as one "that can be waived or corrected without prejudice to other bidders". Thus a only a nonconformity that does prejudice other bidders is material.

But what is it that is deemed to prejudice other bidders? 

Obviously another bidder is benefited by tossing out a lower bid, thus any mistake that is waived, in one sense, burdens the higher bidder.  But the regulation is not so broad as to equate benefit or burden with materiality. It specifically limits the scope of what is meant by "prejudice".  It says of prejudice,

 "Minor informalities ... or insignificant mistakes ... can be waived or corrected without prejudice to other bidders; that is, the effect on price, quantity, quality, delivery, or contractual conditions is negligible."

Thus, it is only those traditional "material" items of contract law -- "that is, ... price, quantity, quality, delivery or contractual condition" -- which are deemed to prejudice other bidders. Those are items which each bidder can and does specify in its race for the contract; when accepted, the bidder has determined these material terms.  

Allowing a bidder to modify any such material item, with knowledge of another's bid, is obviously unfair advantage.  But, allowing a bidder to modify other matters which are not under the control of the bidders is, to an extent, none of their business; it is the government's business. That extent, of course, is based in principle: the duty to maintain the integrity of the procurement law and to treat all bidders fairly and equitably.

Only material nonconformity is, under the ABA model, deemed sufficient to require that the bid be set aside as nonresponsive. And it is only those matters that affect bidder prejudice that are considered to be "material": price, quantity, quality, delivery or contractual condition.

Not all nonconforming bids are nonresponsive. Nor is bidder prejudice implied by any change of terms.


POST ADDITION:

And on the topic of bidder prejudice, note this case comment by Attorney Claude P. Goddard of lawfirm Husch Blackwell LLP, with its tip to making a successful protest (be able to show prejudice). The GAO case is BC Peabody Constr. Serv., Inc., B-408023 (May 10, 2013) and is reported here.
Without prejudice, procurement errors are not enough to sustain a protest

The GAO agreed the Corps’s action was procurement error. “Where multiple proposals propose the same contractor, once the agency becomes aware of that subcontractor’s experience . . . it cannot reasonably assign one proposal a higher score than another based on that experience.” GAO nevertheless denied the protest.

During the protest, it came to light that BC Peabody had failed to provide a required letter of commitment from Bauer, an omission that would have been deemed a deficiency. GAO concluded that BC Peabody could not show that it was prejudiced by the Corps’s improper evaluation. Even if the procurement error had been corrected, BC Peabody could not have won the contract because its proposal still would have been considered unacceptable.

A protester must be prepared to show that it would have had a substantial chance of receiving the award but for the agency’s improper actions. A fourth-ranked offeror, for example, must be able to show not only that it would have received a better technical evaluation score, but also that it would have beat out the second and third-ranked offerors and been in contention for the contract award.