Procurement
May 26, 2012

Negotiated procurements: An alternative to high-risk, mediocre proposals

Procurement today is often like buying horses from Thomas Hobson in Cambridge England during the 1600s: you took the horse that was closest to the front door or nothing at all. There was no discussion and no negotiation. If you didn’t like the horse, too bad. You were stuck with what you got.

Government organizations often face a Hobson’s choice when trying to procure complex goods and services. Using the traditional procurement process, they issue an RFP under the usual rules and then evaluate every compliant proposal. Then, they either accept the highest scoring proposal or reject all of the proposals. No significant discussions or negotiations occur prior to awarding a contract. Often, they are forced to either accept the best of a bad lot or cancel the competition, an act that is often politically unacceptable and not always the best value for the public.

It is not procurement’s fault. The Supreme Court of Canada has said that for traditional RFPs there can be no negotiation. The Court’s rulings mean that any contract resulting from an RFP must substantially comply with the RFPs requirements. There is little room for modification of a proposal received in response to an RFP and no room to change any of the requirements.

So, rather than “taking a pass on the horse” or cancelling an RFP, a contract is often awarded to the firm that submitted the best proposal, even if it is far from excellent. The agency then uses change orders to get what it really needs – again, not always the most efficient or cost effective way of managing public resources.

However, the Supreme Court has never said that an agency can’t negotiate with one or more proponents; it has only said that when using a traditional RFP, there is no room to change the proposals as submitted.

These problems can be resolved by adopting a new form of procurement called the Negotiated Competitive Procurement (NCP). This new paradigm is constructed from two elements: negotiations and the submission of best and final offers.

Negotiation changes the process
There is great value in permitting negotiations with vendors after their proposals have been received. Negotiating can increase the number of high-scoring proposals, thus providing greater competition, reducing risk to both parties, saving money, improving quality and performance, identifying alternative solutions not initially apparent, clarifying requirements and proposals, creating better understanding and relationships between the parties, improving the contract and identifying opportunities for partnership.

However, the use of NCPs is one of the newest, most confusing and misunderstood areas of Canadian procurement law. NCPs are best employed for high value, complex procurements, when the actual approaches to be proposed are not known by the agency, and when procurement staff with negotiation skills exist.

Denis Chamberland is one of Canada’s leading lawyers specializing in public procurement issues. He is working extensively in this uncharted area and has identified several critical elements to keep in mind when issuing a document calling for a NCP process.

He notes that a public authority may not negotiate with bidders unless the possibility of negotiations has been expressly noted in the bid call document. Even where the possibility has been identified, a number of principles apply:

1.    There is no right to an open-ended negotiation; rather, it must focus on the strengths and weaknesses of each eligible proposal and any specific area that may have been identified by the public authority.
2.    Each proposal must be treated confidentially – one proponent may not use the information of another proponent to improve their position.
3.    All proponents are to be treated the same during the negotiation and any changes or modifications made to the requirements must be shared equally with all proponents still engaged in the competition.
4.    Any proponent eliminated from the negotiations must be eliminated on the basis of the published evaluation criteria.

At the end of the negotiation process, all proponents must be given an equal chance to submit final proposals in accordance with rules that apply.

So, how is this done?

Starting with your standard RFP, adjust the terms and conditions to permit negotiations and the submission of best and final offers. Go through the evaluation process as you would with a traditional RFP. Determine a short-list of vendors. Initiate discussion/negotiations with vendors to explain the process, discuss issues and concerns about the RFP and each specific proposal and, at the end, ask the vendors to submit best and final offers. Evaluate the revised proposals using the original evaluation process. Award the contract.

A bibliography of articles and policies used in preparing this column can be viewed at: www.rfpmentor.com/cms_pdfs/negotiations.doc. Denis Chamberland can be reached at Denis.Chamberland@bakermckenzie.com.

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