On-demand seminar: Procurement - Fundamentals to forward thinking

Phuong:

Hi everyone. If you could please take a seat that would be great. I've been told we don't have a microphone so let us know, when we project, if you can hear us or not. Good morning everyone and welcome to Gowling WLG's Risk to Reward seminar series. Today's presentation will be on procurement issues and risks associated with procurement issues. On behalf of our Procurement Group I wanted to thank you for coming in today and taking the time to attend. Congratulations to those of you who were able to find this floor quickly through the maze of construction downstairs. I apologize for the state of the building. They tell us it should be done soon. We'll keep you posted.

I wanted to introduce you to our group, the Procurement Group in Ottawa. My name is Phuong Ngo, I'm the leader of the group. To my right is my colleague Graham Ragan. To my left, Stephanie Pearce and our newest member, Nick Hofley.

Today's overview of our presentation is going to talk about the risks associated with procurement processes generally. The way that we thought we would present it would be to show you the areas of risks from both sides of the coin. What we did was we approached the topics from both perspectives so that you can see the risks associated from different points of view and taking different types of approaches. The reason why we choose headlines, that is what you saw in the invitation, was because it's everywhere. Procurement related topics, articles, scandals, and articles appears regularly in newspapers. What we see as lawyers just isn't the story. We read these news topics and news articles and we're thinking, okay what are the legal issues? What are the problems? What are the risks? What are the ensuing actions and issues that flow from it. When we read the articles it's not quite the same. We wanted to go a little bit behind the headlines to identify the risks from both sides as part of our series today. What we do want to emphasize is the risks are ranging. It ranges from litigation risk. It ranges from organizational risk. It ranges to client relationship risk and reputational risk. What we wanted to do is start and throw out some different topics and headlines. This is intended to be interactive so if you have any questions don't hesitate to ask. We also do have a Q&A question at the end so it's not an issue at all. But please don't hesitate if you want to say anything or ask anything. Before we start I also wanted to express thanks to Allison and to Luke for their help organizing the series and to Nick who has tremendously helped us with respect to this presentation and with the slides.

With that we're going to start with conflict of interest. When you see these types of headlines nobody says conflict of interest, specifically, right? You'll see different types of topics and for St. Michael's it was a Toronto Hospital executive who was evaluating potential bidders but at the same time he was involved in a private real estate deal with the bidder that eventually won the contract. That has been investigated. In the context that the Infrastructure Ontario, who ran the bidding process, indicated that they had safeguards in place to make sure that conflicts of interest could be managed or at least identified. In that they indicated that they had declarations that participants are required to sign. There's a form and from a legal perspective you try to set out pretty exhaustively what you need to do to identify and declare that you are not in a conflict of interest. Now unfortunately in that case the executive actually didn't declare, or did not disclose, any conflicts. They relied on that and that's that headline.

The next one is a landfill tender where there were substantive objections with respect to the tender process. In that there was an allegation that one of the bidders had a last minute meeting between the winning bidder and the regional authority. No other bidders were notified and suddenly an amendment occurred that significantly changed the specifications of the RFP. That's being investigated as well.

With the Ottawa Hospital, which is the most recent one, there's an allegation that two former longtime directors, who were in charge of large budget projects, were conspiring with contractors to defraud the hospital. I'm citing this from the Statement of Claim. Where not going to go behind the merits of the case but what we want to do is identify how these present themselves in the press and then my colleagues will take it from both sides and both perspectives as it relates to these risks. On that I'm going to kind of just throw out there different types of definitions, or uses, of conflict of interest when you see them. You know on forms or on declarations and RFP's conflict of interest will be identified. You will, as a bidder, indicate if you have a conflict or not. Or internally the internal documents identify what a conflict of interest could be. Now there is a legal test for conflict of interest but the documentation doesn't necessarily go there. I've seen documents that range from saying this is, for example, a conflict. This list is not exhaustive. Or they try to identify if you have a relationship with xyz and try to identify that so that you can think as to whether or not there might be an issue of a conflict. On that Graham will be speaking on the perspective of conflict of interest from the owner's perspective and Stephanie will then take the bidder's perspective.

Graham:

Thanks Phuong. Well, obviously from an owner's perspective, a conflict of interest can be fatal. If it's discovered early on and not fixed it could be fatal. If it's discovered later on and not addressed it can be fatal. It's important for owners, their staff, their advisors, pretty much anybody who's worked on that procurement process, to be fully vetted for conflicts. That can include, also in addition to the relationships, any conduct that takes place during the procurement process. There shouldn't be any gift giving, any favour taking, you don't even want to be promoting products that could be potential suppliers in the procurement process. As Phuong mentioned the test isn't an actual conflict. It's an apparent conflict. It's even raising an issue that could be a conflict. For example, a personal relationship can lead to a conflict. We had a case where as part of a factual matrix of the case, and really one of the facts that lead the case off to litigation, was the disclosure of accrues that took place between someone who was drafting, and very instrumental in drafting the RFP, and the incumbent supplier who was no doubt going to bid again on the next contract. While they went on this cruise there was no evidence that they exchanged notes and sat down on the lido deck to draft the RFP, it was considered to be inappropriate and could have led to an apparent conflict. Now, in that case there were a whole host of other things that took place that actually overshadowed that particular issue. But in a smaller case, or a different case, that would have been enough to end the process. So, the key is to really take steps, all the steps you can, to prevent that. Tantamount to insuring each of your staff I think you have to have a lot language baked into the RFP to protect again conflicts. That will include disclosing requirements as well as a certification that each bidder needs to sign at the end to say, "I've read through the conflict provisions. I agree and I see no conflict." That's an important document because that will protect the owner in the event that a conflict is later discovered, particularly on the side of the bidder, and you can say, "Well, I have this certification." Now, that may not, depending on what the conflict is provide complete protection, but certainly will go a long way to ensuring that safeguards were in place. Obviously another important part is if you discover a conflict internally its putting up firewalls, making sure there are safeguards internally to keep those people who have the conflict from participating. Either in the preparation of the RFP or in the actual evaluation. Obviously, as I say, the best course is to ensure that the RFP is the protective document to keep those conflicts away. The risks are obvious. There was a case before the CITT. It had to do with a company where the spouse of one of the bidders was an owner of the company and an ADM. The complainant in that case said, "Well a relationship between the spouse and the ADM, the owner, creates a conflict." Now there was no information whatsoever that the owner and the spouse had any interaction on the procurement or any involvement in the evaluation. But that was enough of a relationship to, in this case it was the CITT complaint, to have the contract award set aside, a new process started and that was the end of the that for that particular procurement. For an owner that does not want to do multiple litigation re-tendering processes, ensuring that there's no conflict is a really key component of that task. And now I will turn it over to my colleague, Stephanie, who will deal with the bidder side.

Stephanie:

Thanks Graham. As Phuong and Graham said this morning, Graham and I will be switching back and forth talking about the perspective of an owner or a purchaser, and we'll use those terms interchangeably and I'll be speaking from the side of a bidder or a supplier. So somebody who's bidding, who's trying to provide services. You'll see common themes between the owner side and the bidder side because there are a lot of common risks but what we're just trying to highlight the different perspectives and certain things to think about, whether you are the person who's running the RFP and looking for the bids, or the person who is in fact preparing them.

As Graham said conflicts of interest or apparent conflicts of interest are going to be fatal. That's not just the case for the owner who's running the process and has that risk of having that process cancelled, having to re-run it, being subject to challenge but it's a real risk for the bidder, because you, as the bidder, also have the risk of being disqualified. Of having reputational risk to your organization. All it takes is for one of your competitors to start alleging conflict of interest on behalf of you, someone who works for you, another stake holder in the process. And that can do real damage. Both to your reputation in the community but also going forward bidding on further contracts. It can have the effect of putting you and your bid subject to further scrutiny, more scrutiny, having people really focus in on what those relationships are. That said, if you're someone who's interested in bidding on these contracts you're probably doing things like fostering relationships. You may have ongoing relationships with the purchaser. You might have existing contracts and you've been doing a lot of work to try to maintain and build that relationship. It is a very tricky thing as how to make sure you're building and maintaining relationships without getting caught in any of these conflict of interests types of situations.

We are seeing a change in the kinds of cases and language that we see around conflict of interest. You did hear a little bit of reference to accrues from this case. That cruise, what happened 15, 20 years ago. That's an old example. You'd be very, very hard pressed to find anybody in Ottawa, or across Canada today, involved in procurement that would take that kind of decision. The kinds of cases and media that you see around gift giving and hospitality, there has been a significant culture shift. People are very, very careful around hospitality, invitations, gift giving, in comparison to what you would have seen a decade or so ago. Now within Ottawa, both public servants and private sector employees, have a much better understanding of what those boundaries are and what policies are in place. The kinds of things that are giving rise to conflicts that we see today seem to relate more to relationships. So we've got the ongoing business relationships, the ongoing social relationships and it can be something as simple as the spouse of a person. What can you do as a bidder? Forward thinking. What are the things you can do to try to mitigate this and these risks? You hear Phuong and Graham both talk about certifications, the forms that need to be signed. This is something that you need to look at really at the outset of the procurement process. It's not a certification form that gets filled in in a pro forma way. At the end you distribute it to everyone on the team. You get it back. You throw it in the bid package and then it goes. It really is something that internally needs to be addressed and understood. What are the conflict of interest tests? Is it a real one? Is it apparent? Are there examples? You need to be making sure that everyone who is going to be involved in that bidding process is aware of it early on and is actually filling it out in a meaningful way. You're looking for your internal compliance. You're looking for proactive steps to really explain and identify where those risks might be.

In terms of those ongoing business relationships, other existing contracts you might have, you're really going to be looking for separation. You heard people talking about firewalls from the purchaser's side of things or removing a person from the process if there is an identified conflict. Same thing for the bidder. If you've got somebody that's got that ongoing or existing business relationship it might be best to keep them out of that procurement process. If they have to be part of the procurement process you really need to limit the kinds of communications that they're having with the purchaser. Those communications have to be solely about existing contracts and cannot be about ongoing procurement processes. It's so tempting to call up your contact within the organization to try to find out what's going on. Are they going to release the bid documents? Where are they in the evaluation process? Just do not do it. You have to be so careful to make sure that you are complying with whatever those communication rules are. Many, many tender documents are going to set them out and tell you every single question has to go to this person, at this phone number, by this email address, so just make sure that's being respected again by all members of the team. That's something internally you are really focusing your compliance over to try to avoid giving rise to any of those concerns. That's my spiel on conflicts of interest. We're going to go to our second topic this morning which is conducting a fair process.

Phuong:

And to kind of round the whole owner and bidder perspective, one of the things to bear in mind is that fact that when you're in a process, it's not just you as the bidder and it's not just you as the owner. A lot of people are watching this. The procurement processes are under a lot of scrutiny. You've got your own competitors, if you're bidding, to see and watch whether or not they think things have been done and conducted properly. You have the participants in the bid who are looking and reviewing the process itself and seeing how the process is being run. Because the stakes are quite high in a lot of these processes, contracts are for very long durations, or it's a marquee contract and it will be able to allow the company to springboard and move on to other projects, or it's their sole source of revenue. That the stakes are high that more and more and bidders, or unsuccessful bidders, are willing to litigate or to go to a complaint in order to try to reverse a decision. When we're talking about fairness you do see fairness appear a lot in newspaper headlines. Usually procurement related complaints saying the process wasn't fair. It wasn't fair or it wasn't conducted fairly. But fairness is actually, it encompasses a multitude of obligations. It's quite broad and it's quite significant. The duty of fairness is something that owners take very seriously, and we've seen now throughout the years of working on procurement processes, that owners are very, very cognizant of their duty of fairness. They know that they need to be fair. That again is a shift in understanding the different obligations that you have when you're running a process. Similarly, bidders are also very cognizant of that and they keep an eye out to see whether or not they're being treated fairly. More and more bidders are now much more sophisticated in being able to identify, even by reading an RFP, whether or not they think it's fair. When you see it in the headlines you can see different types of allegations especially when you deal with fairness. Some of these headlines, there's one that was recent, and it dealt with the supply of army tents and there were, out of the four bidders, two have complained to the Canadian International Trade Tribunal about how that procurement process was run. The contract has not yet been awarded but they're issues and some of them, especially indicating that there were technical requirements that were of concern, where some of the competitors may have had an advantage or an information edge. Again, that deals with the issue of fairness. This wasn't fair. He had more information than I did. Or this wasn't fair. The requirements were drafted with the leaning towards one person versus another. There's a case, and Graham will deal with it much more, but the Envoy Relocation case which had several allegations but on the issue of fairness the allegation was that the RFP was drafted in such a way as to favour the incumbent. That wasn't fair to people who already were not performing the work. In the Niagara Region procurement process, this is being reviewed because there were anomaly's in the evaluation process where they stopped. Bidders were then told to resubmit. There was an addendum done, and the issue of how the addendum was undertaken again, that was a problem and being criticized. In addition one of the consultants who worked on the RFP was a former employee of the winning bidder which then raises all the issue of conflict of interest. Again, conflict of interest, while we dealt with it as a subject can also be lumped into this wasn't fair. So on that to deal with the owner's side, Graham, I'll leave it to you.

Graham:

Sure. Thanks Phuong. I think it's key, you're not conducting a perfect process and that's not the standard. The standard is really fairness is about open and transparent process. With everyone given the same playing field. And again, that is open to interpretation, but that is the goal. It's not perfection. I think part of that, I think companies, whether they're small companies or public companies, are getting much more advanced in addressing what needs to go into a procurement process at the outset. There's a lot of internal policies that we've seen that are very advanced, even in smaller companies, that really are there to guide the process. So that somebody is not starting cold to know what conducting a fair open and transparent process is all about. Those can be often very good tools. They key is that they're right and that they're detailed enough. I have seen some that are very short and not very detailed, and obviously could lead to more confusion, but that's a good place to start to understand what the process should look like. They can be very good tools to guide and ensure consistency because that's another important tool, an important consideration, in conducting your procurement process is consistency. What you did in one process should mirror what you do in another. Obviously, overarching all the considerations for owners are, as Phuong mentioned, these duties of fairness and duty of good faith, which are common law principals, which will apply regardless if you're a public entity or a private entity, and they cover the beginning, the very idea of the procurement, all the way to the award. And it's through that entire process that these duties have to be respected. There's a number of them up here. I'm not going to go through all of them. The duty of good faith really is the overarching duty. It's the implied obligation on owners to treat all bidders fairly and equally. This means treating all proposals alike. Not using undisclosed bid evaluation criteria. Not to conduct bid shopping at the end when you finally see the prices. And obviously not to accept compliant bids. Some of those principals are invoked in some of the other criteria that we have up there. The duty to disclose material information is probably one of the more important ones. This was one that Phuong mentioned that was in that Envoy case where not all the bidders had the same information. In a case where it's a half billion dollar contract, that's a significant difference. In this case, I'm going to get to it in another couple slides, but it was a 42 million dollar difference. Which, obviously dramatically, affected the tender and it was information that the procuring entity should have known was available to the incumbent. Those kinds of things that can be relatively easily discovered by other bidders are going to sink the process. Obviously there's litigation risk and all the other risks that we've mentioned and it is something that can be easily corrected and easily fixed.

One other one that I wanted to mention, only because it came up recently in another project I was dealing with, is the tender deadlines. I saw a draft RFP which had has the due date "end of day". That is not sufficient. You really have to be very exact in terms of how the bid is to be dropped off. When it's to be dropped off and where it's to be dropped off. There's actually a case, it's a number of years ago now, it's an Ontario Court of Appeal case called Coco Paving. What had happened in that case was it was a 3:00 deadline and the bidder had submitted a bid and it was stuck in what the Court of Appeal called "an internet traffic jam". As a result it didn't actually, although it was sent and they had confirmation that it was sent, it wasn't actually received until about 3:28. So way past the timeline. At trial the Court actually accepted the argument that it was sent, there was good faith, all that stuff. The Court of Appeal said no. They reversed. They overturned. They said the bid was non-compliant and that tender deadlines need to be strictly enforced. They need to be strictly enforced because in this case, it was a construction case, and they could have got with that extra half an hour, there was an ability to potentially get maybe a subcontractor with a lower price, or something that could have affected the tender. It affected the fairness of all bidders. That level playing field is one of the key components of the fairness, of the duties of fairness and, as I say, it's a common law principal. It applies in all procurements right from beginning, right to the end. With that I'll turn it back to Stephanie.

Stephanie:

As a bidder the duty of fairness is obviously a good news story. They owe you something. They owe you the duty to treat you and all of the other bidders equally and on equal footing. So as Graham says that duty of good faith is going to be throughout the entire process. A couple of takeaways about duty of good faith or duty of fairness for bidders, one, it applies throughout the entire process and, two, you really have to be careful about the tender documents because even when it looks like there might not be a duty of fairness there may in fact be a duty of fairness to bidders.

So, if we're talking about the entire process and how the duty of a fairness can affect you as a bidder, it's from in fact the initial drafting of the documents. Those technical requirements that Phuong's speaking to that could potentially favour somebody over you, that could potentially favour one bidder, that is something that is important for you to be on top of and aware of from when you get those initial documents. From when it's first coming to market, if it's a request or expression of interest, if it's a request for a quotation, anything that might be baked in from the beginning that looks like it could be skewed towards one particular bidder, does trigger that duty of fairness. And you do have a right to ask questions about it. You do have a right to object to it and we'll talk about those in a section coming up. But just remember from the very, very outset that that duty does apply when we're dealing with procurement processes.

On the second point in terms of are those duties owed. Some people in this room may be familiar with the notation of Contract A, Contract B. So there's this notion that there is this existing Contract A, relationship between bidder and owner. And some procurement documents will be written in a way to try to avoid those obligations. To try to avoid owing the bidder's those duties of fairness and the duties that arise from Contract A. If you see a clause in a document that says something like, "No Contract A exists. We don't owe you any duties. There are no rights and obligations arising from this." That's not the end of the story. It could very well be in that document that there are other hallmarks of Contract A that exist. There are other elements that give rise to those duties of fairness. It isn't just a question of looking at that one clause and saying, "Okay, we're sunk" or, "Okay, this is one kind of process and I'm not owned anything further." There are going to be other factors that we as lawyers are looking at, that the Courts looking at, that the Tribunals are looking at to say, "No. There are further duties here. You are owed fairness. You are owed more than you would be in a normal contractual situation." We're looking for hallmarks of the process. That's something to be aware of as well. Just because you see that kind of clause as a bidder, or as an owner just because you're writing in that clause, that's not the end of the story. There's going to be other parts of the story that are important for us to look at.

In terms of a couple of the duties that as a bidder you want to be on top of or that are interesting to you, the duty tells us to disclose the rated criteria. You are looking for in the bid documents how are you going to be evaluated. You aren't necessarily allowed to see point by point breakdown but you are entitled to see what the evaluation criteria are, if there's some kind of waiting, what the methodology is going to be. In a recent CITT case DFATD decided to reserve discretion. To basically include any factor that they thought to be relevant in awarding a particular contract. The bidder went to the CITT and said that's simply unfair. It's opening the door to allow any other factor to come into play. It's opening the door to undisclosed criteria. The CITT agreed and said that is in fact a totally absurd, I'm paraphrasing, but a totally inappropriate evaluation criteria to introduce. The bidder you're out of time. You saw that at the beginning. You saw it in the RFP and you bid anyway and you agreed to be bound by those rules. You should have raised it at the beginning.

On the issue of tender deadlines being strictly enforced, Graham talked about Coco Paving and internet traffic, real life traffic also an issue. We have had cases where people can't get parking, can't get into the building in time. Where the courier goes to the wrong place. Things like that. In terms of tender deadlines being strictly enforced, by no means is Coco Paving the only case, it does happen. As a bidder, just being aware of those different kinds of environmental factors out there, building in enough safe guards so you have the time to get things there physically on time, electronically on time, whatever it may be, trying to mitigate those risks of disqualification.

Phuong:

To kind of sum up what Graham and Stephanie have talked about, when you're going through an entire process and you see issues of fairness occurring, whether you're a bidder, whether you're an owner, it doesn't mean that it's the end. As the owner, if you highlight or you identify an issue, you can mitigate the risk by addressing it, whether by amending the RFP to deal with certain aspects to right that and to make it more level, to make it more equal, or to address it in other ways and again, that's a discussion for another day. It's going to be a whole other topic but you do still have the ability to try to mitigate that risk. And then one of the issues would be as well, from the owners perspective, is there's such a significant error that it puts into question my process, that I might need to revisit this and start over. And again, those are all different types of things that you need to assess at it goes along. You can still deal with it. You can still try to correct an issue. From a bidder's perspective, keeping your eye out and identifying potential issues and potential areas of fairness, can give you the ability to write that as well. If a requirement looks like it's leaning unfavourably against you, and it may not be because it favours another person, it's just not going to be good for you, you still have ways to address within the process. You don't need to wait until the process concludes to deal with it. These are very interactive, very proactive things and steps that people should be mindful of. One of the pitfalls of proposal preparing is sometimes your deadlines and your timelines are so tight all you're doing is focusing just on responding and preparing a bid. But there are all these overarching issues that you could still deal with from a procedural perspective, to address these issues of fairness and so on. Those could be, like I said, amendments, complaints or lodging an objection with the Canadian International Trade Tribunal, or as a bidder asking a question to try to deal with the issue within the RFP itself.

Which leads to the next topic. As I'd indicated earlier there's been a very significant shift in the perspectives of owners and bidders. People are much more sophisticated now and understanding their duties and obligations, the duty of fairness. Bidders are quite aware of these things too. One thing that's still kind of in the background, and I think not fully appreciated, are Q&A's. A lot of the time it's viewed very much as an administrative type process but in fact it actually could be one of the most significant areas of risk in a procurement process. Both on the owner side and on the bidder side. We see a lot of cases on both sides, with our clients, when it deals with the Q&A process. But really, and this headline kind of deals with it, one of the issues that did lead to the litigation and did lead to the law suit and complaint, actually arose from a Q&A process as well. This is a common pitfall for both sides. There are strategic considerations as a bidder, and as well when you are the owner, and you're answering a question and answer, a lot of times from a procurement structure, legal doesn't generally get involved in every Q&A. Sometimes the answers go out and as legal counsel for the in house here and you look at the question that's gone out, a lot of times you think, "Wow. Why did that answer go out?" But at the same time you don't want to have every single question and answer being drafted go to you because that would never end. One of the things, that from a risk perspective when you're managing this, is to make sure people are sensitive with respect to the obligations and the legal risks as well as other types of risks associated with not a well thought out Q&A process when you're answering questions or when you are asking the questions. So, Graham.

Graham:

Sure. Well, I think what Phuong says is right. There's often a huge component in the Q&A process for owners that is technical. That is really clarifying some of the technical elements of the bid. It would probably be cumbersome and not cost effective to have legal counsel, God forbid external legal counsel, review those. But I think it is important because the level of sophistication has improved significantly and I think there are a lot of bidders asking, not just a technical question to clarify the width of the widget, but are trying to plant seeds to see, lob out things that may get responded to by the owner and will get circulated knowing that the other bidders will see it. Those can be very critical and they can change the scope of the process. They can take a process from being challenged to neutralizing.

The case that Phuong is talking about, the Envoy case, basically what had happened, this was for the integrated relocation program. This is the program that I'm assuming the two recent PMO people took advantage of. As you can see there's a lot of money involved in that program. In this case part of that program included a property management service. In the bid there were estimated volumes provided for what that service was over the length of the contract. As it turned out there were actual volumes used by the incumbent bidder in their bid. The Envoy, the bidder that we represented, asked a question of clarification to see whether they could use the estimated volumes or whether they could be provided actual volumes. The Crown responded and said, "No, No. Use the estimated volumes." The incumbent bid with the actual volumes and this was the 42 million dollar difference. Which shifted from them winning to losing. Ultimately the Court declared that that wasn't fair and mislead Envoy and declared them to be the winner of the procurement and they got significant damages. This all flows from the duty of fairness. It's all part of that package. But this was a process that I think the Q&A process, had the Crown simply said, "Here's the actual volumes and these are what you should be using." this case may have never seen the light of day. It's something as simple as that. It's a one line answer in a Q&A that turned out from 10 years of litigation and 50 million dollars in damages. I think from an owner perspective you want to take the Q&A process seriously. Make sure the answers are considered, particularly the ones that are process driven. Obviously critical to that, and this would apply to all answers, is that the information is accurate because bidders will rely on it. Part of ensuring that the process is fair is to take whatever the answers are and incorporating them through an addenda or amendment to the RFP. So that everyone's on the same page. Everyone's provided the same information. There's a host of cases there. I haven't seen one recently but there are earlier cases where some addenda are provided to some bidders and not to others. Obviously that's going to sink the process right there. It ensures equal playing field. It ensures everyone's on the same page. Because it becomes part of the RFP it also becomes just as binding as any of the other statements that are in the central document. With that, we'll see what the bidders have to say.

Phuong:

Bidder?

Stephanie:

From the bidder's perspective the Q&A process can be a really important opportunity to clarify and it's also a really important opportunity to take advantage of your rights. Because if you don't act on it at that time there's a real risk that you're not going to be able to act on it later. This notion of, well, I think this could be interpreted the way that I'm interpreting it, so I'm going to rely on it this way and take my chances. That's one business strategy but the fact is if you're wrong and you didn't ask the question you're unlikely to get a remedy after the fact. If you're questioning, if you're having a debate on your team, well it could be this or it could mean this, I'm not sure, err on the side of caution. Ask the question. Get some legal advice if you need to but really seriously consider asking the question because sitting on your rights, not asking the question, trying to take your chances after the fact and saying, "No, no. That was unclear. That was wrong. That's not what it meant." is not going to be a winning strategy most of the time.

One of the cases that we saw recently at the CITT was for the provision of military grade cable assemblies where the RFP contained a requirement for Canadian content. The bidder submitted the bid and was disqualified because their product did not contain the requisite amount of Canadian content. They said that the interpretation, the definition used by the purchaser, was unclear, didn't make sense and they were in fact compliant. The CITT turned them down. Said, "You're too late. You needed to ask that question before when you saw it in the RFP. You needed to complain before when you saw it in the RFP." If there is something that is confusing, that you're not sure about, err on the side of caution. Ask the question. Do remember that the answers will be circulated so there is obviously some strategic consideration that needs to go into what you are disclosing. Most processes will not allow for proprietary or sensitive questions to be kept confidential so you are at risk of disclosing that information to your competitors. Definitely there are ways to draft questions that are better than others. So again, consider seeking legal advice on the drafting of those questions. But definitely, if you take one message from this section, it's ask the question. Don't sit on your rights.

Just a note about sort of a separate Q&A process is the ability of the purchaser to ask questions after the bid has closed. When you see in the bid documents that there's an ability to clarify. When you are providing clarification information to the purchaser that's when you also have to be very careful about what you're being asked and what you're providing. There is a difference between clarifying your bid and engaging in bid repair. If you're providing information that is additional to what's in your original bid, if you're providing information that modifies your original bid, that's bid repair. That can get you disqualified. If you're providing something that clarifies your bid, that's pointing to this is how the formula applies, there's a discrepancy, this is the one that you need to use, you're pointing to another part of your proposal. All that's okay. It's information that the purchaser already has but you don't want to be engaging in bid repair where you're modifying or providing additional information. Using that clarification process appropriately and being very safe and careful, and again, potentially seeking advice before that answer goes in.

Phuong:

And, again, to kind of bring those two sides together, Q's&A's, and we had indicated this in the slides, amend the RFP. When there's a dispute with respect to the requirements, the Courts or the Tribunal, will use the Q's&A's to interpret what the meaning of the RFP requirements are, if there's a dispute about that. It means that the language that's used will be significant in how you interpret an RFP requirement or an obligation. In the Envoy case there was a series of Q's&A's that related to a payment structure and the Courts said that the Q's&A's actually not only did not clarify what the requirement was, it made it so much more confusing that he couldn't give it effect. He struck down that section. The risk from an owner's perspective, when you start looking at the Q's&A's and you're doing the construction of your RFP, factor in the time to be able to answer those questions you receive from bidders with sufficient time, and you're not under the gun and under a significant time pressure, and then you're just issuing out answers that may cause risk to the process. Another thing to bear in mind if you're running a procurement process and you're getting inundated with Q's&A's. It might be an indication to you that your RFP requirements might be poorly drafted and you might want to reconsider what's going on because you're either going to encounter procedural issues when you're evaluating. Meaning that you're evaluators might even have problems figuring out what's going on. Or, scope issues afterwards because you might not have responsive proposals and so on. The other thing is from a bidder's perspective is if you're sending in massive amounts of Q's&A's it also might highlight some problems that maybe the procuring the entity doesn't know what they're looking for. It might cause you some concerns or issues as well. Timing as well from a bidder's perspective, always look at the deadline to file submissions for your Q's&A's and work backwards to make sure that all of the issues that you need to address before you finalize that proposal have been addressed. Because once the clarification window closes you can't ask those questions and you're going in with a different set of risks.

Phuong:

Yes?

Audience:

May I?

Phuong:

Yes.

Audience:

While on this topic, I wonder if you can share your views, both from bidder and owner standpoint, with respect to receipt of confidential meetings as the process in this communication, not just Q's&A's. As for the benefits and risks … solicitation …

Graham:

From an owner perspective I think there is risk there. If it's confidential, and depends I guess on when in the process, but certainly as a part of the evaluation process that could be a pretty significant risk. Obviously there could be allegations of bid repair. What's the information exchanged? What are the questions that are being asked? I think you have to do those very carefully. I'm taking that to be different than a site visit or something that could be part, where it's open and there could be multiple parties, if you're going to have a one on one meeting with the bidder where there's not going to be a record of information exchanged, that's a pretty significant risk. I would probably, in most cases, advise against it as an owner. Even with some caveats built in I think you're still introducing a significant element of risk. Bidder?

Stephanie:

Yeah. I think the bidder perspective, obviously, you're going to be dictated in part by what the purchaser is looking for. If the purchaser is providing an opportunity then you have to seriously consider taking them up on that opportunity. For you, it's your own risk management in making sure you're coming to it with clean hands. Is everybody else being provided the exact same opportunity that you are? What does that look like? Making sure that you aren't being the only bidder that's invited to do this. Maybe you're an incumbent and that's why and so there really is a question of making sure yourself that you're mitigating your risk and putting yourself on the same playing field. When you're in that opportunity, when you're in that meeting, again, only providing the information that ought to be provided as part of that process and not going outside of that process. Again, coming with clean hands and managing your own process. Not to try to take undue advantage of that opportunity. Phuong, did you have?

Phuong:

I guess the other element is, if you're exchanging information in writing and you want to send in some information, or it's being canvassed of you, one of the risks that you have is that it will be disseminated so you should be looking at it from a bidder's perspective, is there a way that I can anonymize this? From the owner's perspective, if you receive commercially sensitive information you also have an obligation to make sure that you don't inadvertently disclose that out there too because there's risk against you for having disclosed commercial information to competitors. There's other elements of risk when you're dealing with that kind of data, as well, in the context of meetings or exchanges. That's why a lot of times what you'll normally see is like industry meetings where everybody gets to be there and then they all get to ask and discuss the same issues. If somebody wants to disclose information in the context of that meeting, then they've made that decision that's a way to get an exchange of information, while you can kind of still protect yourself. One of the headlines that we had discussed was the secret meeting with one bidder and not others. I don't know whether or not in that situation commercial information was exchanged but the fact that that meeting happened just with one bidder and nobody else was enough to cause a dispute and an investigation to be undertaken. It's not that it can't be done but it does increase the level of risk for both parties.

Audience:

It's definitely one of those high risk, potentially as I return … practices.

Phuong:

Potentially. Yes.

Audience:

Because it's hand and glove with the Q's&A's where you know you asked a question that all bidders want to see question and answer.

Phuong:

That's right.

Audience:

That doesn't necessarily help you build the best bid and as an owner doesn't help you build processed that will give you the best.

Phuong:

That's right. And that's the balance.

Audience:

… receive the answer because … it's giving them a chance to come forward so they can build a better bid which ultimately is in the owner's best interest.

Phuong:

It is. Especially when you have very sophisticated and intricate multi-factorial, it's not just I'm bidding a widget and I can just give you a price per unit. It's where you have very high level multi-factorial projects where you've got different interplays and things like that in order to be able to figure out well, in the this project what's the most important part for you? Or what's your project critical element? What can I bring to the table? The other element of this is pre-procurement because sometimes you have RFI's and you have just different kinds of consultation processes. That's another way to get information that doesn't necessarily bind you as an owner to get commercially sensitive information to help you draft your bid. That's another way to deal with it and mitigate your risk in also trying to design. It isn't necessarily confined to the RFP itself but to do the due diligence prior to that. You can, again, try to set up some safeguards to be able to get the information you want and as the bidder it's an opportunity to put forward this information and it's not going to be distributed necessarily.

Stephanie:

As well, it's managing the process so that after you've gathered that information you are taking a step back and looking at what ends up going into the specifications and making sure those specifications are still fair to your various bidders. Because what you're talking about, building a better process, providing an opportunity to build a better bid, there is a real risk for tailoring at that point after you've received certain information about products or specifications and so it really is taking that step back, maybe getting external review to make sure that you still do have equal opportunity for various competitors.

Phuong:

When we were talking about being fair and competitive, the headlines that seem to get more public attention or sense of indignation necessarily are the sole source contracts. The reason for that and why it seems to be more controversial, goes without saying, is because there was no competition. Somebody was just provided with the opportunity, or the contract, and the most significant questions that come out in this was, "Well, was it done properly? Was this a legitimate sole source?" And then, at the same time, you then question whether or not you do get best value for what you are obtaining because it hasn't been competed. You haven't had a number of people sharpen their pencils to see what is it that they could do in terms of the best offer. There are obviously some instances where you have to sole source. And the words sole source should not be a dirty bad four-letter word. It's okay to sole source. It's okay to be sole sourcing. It's okay to have sole sourced. But you have to be careful. Again, the reason for that is because it is risky. It is less risky, and Graham will explain, in certain context because depending on who you are you might have different types of restrictions. As a bidder, when you're being told, I'm going to sole source to you, you're not going to say no. At the same time though these headlines tend to be the most salacious. The sole source contracts are the ones that attract more press and they attract more public attention. The language that you see in those articles seem to be a little bit more on the what's the value or did they over pay for what it is that they have tried to justify in the sole source. The contracts that were at issue were the Ottawa Hospital case where the allegation was that tax payers paid an extra 1.1 million dollars, according to one of the bidders on the project that was quoted in the paper, but it was because there was a directive to use one contractor, or one particular product, over others. The Boeing Super Hornet and other contracts have been in the papers lately. There is as well more scrutiny from a dispute perspective. If it goes to the Canadian International Trade Tribunal you have to make a different form of justification but, again, you also have to be able to provide evidence to support this. One of the things that you have to bear in mind, if you're the owner and you want to sole source it, is that it has to be defensible. If you're subject to the trade agreements then it can be legally challenged to the Canadian International Trade Tribunal. If you are a bidder in a public process that sole source can be challenged from that perspective as well. Again, the reason for that is because you are a single supplier, it is directed in that sense. From the owner's perspective I'll let Graham describe that.

Graham:

Sure. I think first there is a huge, potentially huge, difference here between public owners and private owners. Public owners are subject to all kinds of legislation and trade agreements that are really designed to prohibit sole sourcing, save and except for specific cases. I think as a public entity obviously the scrutiny level is going to be much higher. All of the headlines that you've seen are public companies. As risky as the procurement process is to run fairly, to completely remove it and just to award a contract directly, everyone's going to be looking at that. Everyone in the industry. Internally you're probably even going to have some scrutiny in terms of the decision making process. It's a risky undertaking. But that, as I say, really only applies for the most part to public entities. I think private entities, there is an element, potentially, of risk and it's not going to be a significant legal risk but I think it could be a reputational risk. If it's a contract to a specific supplier, in a group of suppliers that you may engage later on, it may be a chill effect that could happen in a private company scenario. The typical exceptions in the public context for sole sourcing are where it's necessary to protect the IP rights. There could be a particular supplier who has an exclusive licence and you need to protect those rights. Or those patents or other kind of proprietary information that needs to be protected which justifies selecting one supplier only. Or for technical reasons. Perhaps there's only one supplier who actually does the service or make the good, and you canvass, maybe you held an RFI and only one supplier participated and there you go. Now you have to, you really have no choice. There are also, particularly at the Federal level but even at the smaller government level, there can be emergency reasons. That you need to go for, whatever the reason is, to get one particular supplier. Sometimes you've seen this in the medical context and the health context. But obviously those exceptions, themselves, are going to be scrutinized and certainly sole sourcing is not a convenience measure that you can use to pick a known supplier who you have a good business relationship with, maybe had a contract in the past, who you need the service or good from again. Circumventing the procurement process is a dangerous route. As I say, particularly for the public entity but even for a private entity. I think ultimately it's a question of fairness and it's a question of defensibility. As long as you vetted the rationale for the sole source, and if you're the public entity, meets the legislation and trade agreements, or if you're the private entity, meets the business practice, I think it can be used. Obviously in certain cases it has to be used and yes, it will be scrutinized. But it is avenue of contracting that is required, in certain cases, and as Phuong says, it's not a dirty word, but it needs to be approached carefully.

Stephanie:

There's not a ton to say about this from the bidder perspective. As Phuong says, if you are a bidder who is the recipient of a sole source contract, you are going to say yes. It is very unlikely that you are going to say no. Again, I go back to a comment I made a few minutes ago about coming to it with clean hands. As the bidder if the sole source contract gets challenged, it's not up to you to defend that it was subject to a certain exception. That there was an emergency. Or there are IP rights. Or you're the only one. It's up to the purchaser to defend that award. It's up to the purchaser to show why it fell within the certain exceptions. But, as the bidder, you're going to want to make sure that you have as clean a record as possible if you are going to be seeking intervener status at a Tribunal, for example, to say, "I should get to maintain my contract." or, "I'm intervening so that I get to keep on top of whatever this bid challenge is." If you're putting yourself forward as an intervener, if you're getting involved in the process, if the aware to you is going to be attacked in some way, you'd like to be able to defend yourself with a clean as record as possible. You're going to want to make sure that if there are risks that come up in that process, that you are discussing them internally, and questioning whether or not this is something you want to engage in. There are things, or opportunities, that come around where it looks like it might be an attempt to avoid complying with competitive requirements. You might have an example where you have a certain threshold for sole sources of $25,000.00 or less, but a bidder is getting two contracts or three contracts in a row for $24,999.00. If that's happening to you, if you're getting those kinds of repeat engagements, you need to really look at this situation and consider if this is something that you're willing to take on in terms of risk, in terms of there potentially being a challenge. If your contract is getting amended part way through and all of sudden it's for a bigger amount than was allowed under the initial sole source, again, that's something you want to look at from a risk management perspective, discuss it with legal, figure out is this something we can engage in safely. No one wants to turn down the contract. No one wants to turn down the work. It's just a question of being on top of the risks and making sure that, from your perspective, you're doing everything you can to keep your record clean. To make it seem like you are not the one who's trying to skirt guidelines or suggest these avoidance mechanisms. That you really do have a clean record if it gets challenged. If there are opportunities to challenge, as well, just because one of your competitors has been awarded a sole source doesn't mean that there's nothing you can do about it. There might have been, as Graham said, an RFI. There might have been an advance contract award notice that actually gives you the opportunity to say, "Hey. I can do this to. They're not the only ones." It's talking about looking at it from the front end of the procurement process and making sure you're aware of those opportunities and trying to participate. If it's after contract award there is an opportunity to challenge, potentially at the CITT, or at other ways through objection mechanisms or through the courts. Phuong and I had a case many, many years ago where there was a sole source happen under a provision of the Defense Act and as soon as the bid challenge went in, it turns out that the purchaser was relying on the wrong section and they immediately cancelled the sole source contract and it went back out to tender a second time. Do seek advice on those situations. Just because something has been awarded under a sole source with a particular piece of legislation, under a particular policy, it's not the end of the story. There may be an opportunity for challenge.

Phuong:

Oh, yes?

Audience:

Any comments on the difference between sole sourcing and unsolicited bids?

Graham:

Well, I think that depending on the circumstances there's not much of a difference there. It would depend on the process, I think, that with an solicited bid. I think you're running a little bit more risk than you would in a sole source because you're tending to accept something that may be not properly part of the process.

Stephanie:

An unsolicited bid is not something necessarily that you would have been looking for. A sole source is something that you know that you want and you're just saying, "I've identified my need and I've now analyzed this and only one person can do this." As opposed to an unsolicited bid carries higher risk because it's coming out randomly at you and it might not necessarily been part of your purchasing plan. I know that bidders and companies put forward unsolicited bids to government, for example, because they want to identify an opportunity but it does carry risk for the public entity.

Audience:

I agree. I think it's incumbent on owners to have a process for accepting, examining and working with an unsolicited bid but it's something that you hate to shut down just because it carries risk.

Stephanie:

That's right.

Audience:

If we do that we do nothing. I think it's another level of looking at your procurement process and allowing that route under certain strict guidelines. It's not always good ideas that get buried.

Stephanie:

It's a very fine line and there's attention there because a lot of times the companies that are out there, that are innovative and competitive, you know what you're doing. The owners may not necessarily be keeping up to speed on all of these changes and developments so how will else will they be informed of this?

Graham:

Yeah. I think, just to go back, I think it depends on what you do with it ultimately. If you do have a process in place, it may turn out that that bid may spark some ideas, you may end up doing an RFP anyway. Or you may say, "You know what? This is so innovative, we've never seen this before, why don't we just sole source directly from them?" It's going to open up a discussion. I think you're right. You need to have a process in place to be able to address it and how you address it is really going to be what's going to determine the day.

Audience:

If anybody ran the cost of what this … procurement process costs a small business person. So let's say you had intellectual property with written books, people really want your books, they know exactly what it is. Other people have got the book and they all like pocket tips, or whatever, you could have up to 12 different other companies out there who have to bid on that because they know what they want. They can't go directly to the innovator, the person who wrote it, there in my basement, I could send it out the door this afternoon and sometimes it will be 10, 12 other re-sellers so there's all this procurement that goes on. By the time you sell the book you're really not making any profit whatsoever. As well, as if you're really well known for doing something, you're innovative, because of the whole procurement system the cost of it is so exorbitant as well as the process takes such a long time that the circumstances can change. The other thing is, even if you win the procurement, that doesn't mean you get a day of business or anything. It doesn't mean anything. It would be interesting, and this is not a law firm's job, but if the government ever ran the numbers on what they cost businesses as a result of all of this, whereas prior to 10 or 12 years ago, if you were a good lawyer, or a good whatever, people could call you up and they knew for sure that they were going to get good work, cost efficient and in jig time. I wonder if the trend will change. I've been in business for 32 years. I wonder if by the time I'm year 40, if people will come to their senses and say, "You know, we know you do a good job. Why do we have to go through this elaborate process?"

Stephanie:

I take that because more and more what you see are a significant amount of resources being expended. Not just by the procuring entity but by the bidders to respond. It costs a lot in manpower. In lost productive time. They're not doing anything else and they're just focusing on this for a one in whatever chance to succeed. That's why the stakes are high. That's why we see a lot of disputes now because people are spending so much time and they're investing so much money and people time and resources to respond, that a lot of times just simply saying I'll wait for the next opportunity is no longer something that people say anymore. Especially when the contracts now, like I said earlier this morning, that the value of the contracts are of such a long duration and some of them are opportunities that you know once you get in it'll be one of those repetitive processes. We get to the end of this process and are people happy? No. We always get a call where it says, "The solicitation's just finished and we got the notices and we didn't win and we're not happy." Or, "This other person got the contract and something's wrong and it shouldn't have happened this way." or so on. As a young lawyer, when I first started, I would hear this, "It was rigged. Somebody was favoured over." and I used to think, "Really? Are you sure?" and then I became cynical very quickly and I did learn. The thing that I've learned over the years though is these mistakes or issues that happen are not necessarily done on purpose. I don't think people are willingly going out making these mistakes. There are some where you look at them and you think, "Okay, there is a judgment issue there." But a lot of times these are innocent mistakes. Because they don't understand, or they don't appreciate what the risks are, or had not canvassed it through, or just thought I could deal with this myself. There are a number of files where we dealt with where somebody decided that they would just not, they had a spider sense thing going, but they just decided not to have the dialogue.

We're at the end of the process now. You saw some headlines where people were…Yes.

Audience:

Speaking of transparency and fair processes, would it be considered reasonable to exclude a bidder from any previous law suits or anything that are … pending in the organization?

Stephanie:

I've seen RFP's that say that bidders who are engaged in litigation with the procuring entity are prohibited from bidding. There may be a lot of reasons for that. You would have to carefully draft that because you don't want to be seen to be excluding someone just because they've been involved in a law suit. Some law suits are legitimate. You can't preclude them just because you're not getting along. But if, for instance, you've had a bidder who has had a history of performance issues and you've had breaches and defaults in the past, that might be something. But just because you're involved in a law suit might not necessarily be the case. The other thing to consider to is your own policies and if you're a public entity, if you have other types of obligations, that type of exclusion could be viewed as discriminatory. You just need to take a look. It's not an absolute yes or no. It's an obvious lawyer's, "It depends" answer. But there is risk in doing that. But I have seen those types of clauses.

Phuong:

Yes?

Audience:

What if your situation requires that you put a lot of weight on references in the bid process? My organization has gone through this in the past where we took references for a bunch of different bidders and then after the process was closed and the selection remain, we found out, soft intelligence I'll say, that some of the references were not forthcoming. That they were just saying, "Oh yeah, this is a really great consultant, blah, blah, blah." They spoke highly of them and then afterwards they've been in a conversation outside of the procurement process, we got information that the reference just didn't do their due diligence in providing an honest reference. What do you do in those types of situations where after the process is closed you find out that your references are compromised?

Graham:

Part of what I was going to talk about in this slide is the ability, I think part of that is if you're going to have a reference heavy RFP process, that's going to have to be clearly spelled out in the RFP document itself. You're going to want the ability to conduct additional checks. Look for additional information outside of what's provided for the bidder. That's typical in those kinds of RFP's. I think you're well within your rights, if that's in the RFP, well within your rights to go and conduct those checks and verify that information. If that is discovered, obviously during the evaluation process, you can disqualify the bidder or score them down, whatever the case may be. The terms are set out in the RFP. If that's discovered after the fact I still think there should be terms, either in the RFP or in the contract depending on the timing, that will allow you to question, and/or, seek some kind of enforcement. Whether that's disqualification or cancelling the contract. Obviously you need to seek legal advice to make sure that was consistent with what the terms are. But that process is available. I think part of what owners should be doing in a bid process is making sure that they can go and either seek clarification from the bidder or conduct their own searches to verify the information. Doing that due diligence is important because, obviously once you sign the contract and now you're in the contract award stage, yes you can go and seek remedies and cancel contracts, but the costs can be significant. You're going to want to deal with that at the front end.

Phuong:

It'll depend on what your RFP says you can do. It's really important before you start a process to not only look at your requirements, because a lot of times you end up using a template, and you keep reusing it so it's very important to make sure that as an owner you've reserved enough rights and discretions. That rule book, as Graham has talked about, what it is that the RFP allows you to do. If it's not there then you may find yourself in a bind where you have fewer options than if you had reserved more rights or discretions for yourself. The drafting exercise from the owner's perspective, going into the RFP, is quite important. And from the bidder?

Stephanie:

From the bidder's perspective, just picking up on the question about references, bidders really can get into a lot of challenges dealing with references. If you are a bidder that has to submit references as part of the your bid package, of course you need to make sure, and I'm speaking from experience, you need to make sure you have your references. Contact information. You have a reliable way of getting a hold of them. You need to make sure the reference is aware that they're being submitted as part of that package and what the requirements are in that sort of thing. Bidders can run into difficulties when their references are contacted and the contact information is out of date, couldn't get a hold of them within the relevant time period. That could be part of your evaluation where you're marked down or disqualified.

From the bidder's perspective in terms of you've been selected as the winner, this is again a good news story. You're the winner. It's time for you to start negotiating the actual contract. Be aware of what you can and cannot negotiate. There will be elements of the RFP or of the documents that say that parts of it could be open to negotiation. A couple of takeaways for bidders as the winner, just remember you are bound by your bid terms. So that means you are going to have to deliver what you said you would deliver. Whether that's people, timeline, products, etcetera. Budget of course. If it's going to become the case that you can't deliver what you said you would deliver, manage that from the outset and work with the proper negotiations or amendments as necessary. From the loser perspective, if there has been a winner selected and you think it was done unfairly, maybe the duty of fairness wasn't respected. There was undisclosed criteria, something's come up, think about maybe the opportunity to seek a challenge and talk to somebody about what that challenge could look like. What grounds you might have. What route you might want to take. Remember you're timelines are often very, very tight. There is an onus on you to object. There is an onus on you to be moving forward with that quickly. So definitely get advice early and then take a look at this as proactively as you can.

Phuong:

On behalf of the group, thank you. I hope that you have a great day.