Court Derails Tainted Tender - 2018 Case of the Year -...
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Case of the Year Court Derails Tainted Tender Paul Emanuelli Managing Director The Procurement Office [email protected] 416-700-8528 www.procurementoffice.com
Transcript of Court Derails Tainted Tender - 2018 Case of the Year -...
Case of the YearCourt Derails
Tainted Tender
Paul EmanuelliManaging Director
The Procurement [email protected]
416-700-8528
www.procurementoffice.com
Copyright Notice
The following excerpts from GovernmentProcurement (copyright LexisNexis Butterworths2005, 2008, 2012 and 2017), The Laws ofPrecision Drafting (copyright Northern StandardPublishing 2009), Accelerating the Tendering Cycle(copyright Northern Standard Publishing 2012) andthe Procurement Law Update newsletter (copyrightPaul Emanuelli 2006-18) are reproduced withpermission. The further reproduction of thesematerials without the express written permission ofthe author is prohibited.
© Paul Emanuelli, 2018
For further information please contact:[email protected]
About the AuthorPaul Emanuelli is the General Counsel andManaging Director of the Procurement Office. Hewas recognized by Who’s Who Legal as one of thetop ten public procurement lawyers in the world.His portfolio includes advising on strategicgovernance in public purchasing and onnegotiating high-profile major procurementprojects. Paul has an extensive track record ofpublic speaking, publishing and training. He is theauthor of Government Procurement, The Laws ofPrecision Drafting, Accelerating the TenderingCycle and the Procurement Law Updatenewsletter. Paul hosts a monthly webinar seriesand has trained and presented to thousands ofprocurement professionals from hundreds ofinstitutions across North America through theProcurement Office and in collaboration withleading industry organizations including NIGP,SCMA, the University of the West Indies andOsgoode Hall Law School.
Case of the YearTainted Process Leads to Voided Contract
The July 2017 decision of the High Court of South Africa inPassenger Rail Agency of South Africa v. Swifambo RailAgency (Pty) Ltd. serves as a cautionary tale for all publicofficials about the risks of evaluation irregularities andbiased specifications. This presentation will highlight thefatal defects contained in the tainted train tender and offera series of guiding principles for implementing fairevaluations for your major projects.
Tainted Process Leads to Voided ContractPassenger Rail Agency of South Africa v. Swifambo Rail Agency (Pty) Ltd.
High Court of South AfricaIn its July 2017 decision in Passenger Rail Agency of South Africav. Swifambo Rail Agency (Pty) Ltd., the High Court of South Africastruck down a contract award after determining that the multipleirregularities in the tendering process were a manifestation ofcorruption, collusion or fraud. The case dealt with a contractaward for the sale of 70 train locomotives. The court found thatthe specifications were biased toward the winning bidder and thatthe contract terms were improperly changed from a lease to apurchase during the tendering process. The court also found thatthe winning bidder’s tender was non-compliant and wasinappropriately rescored to enable the tainted award.
Tainted Process Leads to Voided Contract1. Unclear Contract Scoping
The court found that the Passenger Rail Agency of South Africa(“PRASA”) failed to clearly communicate the contract options tobidders. More specifically, it found that the RFP only allowed forlease options for the train locomotives and failed to allow for theout-of-scope purchase option, which was ultimately awarded tothe winning bidder.
Tainted Process Leads to Voided Contract2. Irregular Communications
The court concluded that the winning bidder was unfairly providedinformation about the purchase option and that this gave thatbidder an unfair advantage over other bidders. While somebidders were apparently notified of the purchase option during apre-bid meeting, the court found that this information was notprovided to all bidders. In fact, the court found no evidence thatthe terms of the RFP were formally amended to allow for thepurchase option. It also found that existing PRASA staff onlybecame aware of the purchase option discussions betweenselect bidders and former PRASA staff during the subsequentlegal proceedings.
Tainted Process Leads to Voided Contract3. Inconsistent Application of Weightings
The court determined that the PRASA evaluators engaged in aninconsistent application of the scoring criteria. While the criteriawere weighted in the RFP according to their relative importance,the court determined that the evaluators failed to follow thesescoring rules in their actual evaluation process. Noting that “theweighting is critical to the proper assessment of bids”, the courtconcluded that the failure to properly apply the weighting asestablished in the RFP “resulted in an illogical evaluation”.
Tainted Process Leads to Voided Contract4. Biased Specifications
The court found that the RFP specifications were unfairly tailoredto benefit the winner. It cited numerous instances in which thespecifications were narrowly defined in ways that were irrelevantto overall functionality, but were uncannily aligned to the winningbidder. These biased specifications included specificrequirements for the number of engine cylinders, precise boreand spoke measurements, engine speed requirements set tospecific rotations per minute, and specific weight requirementsthat were an exact match to the weight of the winning bidder’slocomotives. The other bidders were unfairly evaluated againstthese biased specifications and were then disqualified for failingto meet the minimum technical scoring threshold.
Tainted Process Leads to Voided Contract5. Re-Scoring Irregularities and Non-Compliance
The court found that the winning bid was inappropriately rescoredafter it failed to meet the minimum technical scoring threshold.The court ruled that the re-scoring constituted an unfairmanipulation of the evaluation process to the benefit of thewinning bidder and to the prejudice of other bidders. The courtalso found that the winning bidder was non-compliant since itfailed to submit the required tax compliance certification.
Tainted Process Leads to Voided Contract6. Illegal Fronting
The court concluded that the winning bidding team was guilty ofillegal fronting since it named a South African company as thelead bidder to gain evaluation points, but the South Africancompany “was merely a token participant” that received monetarycompensation in exchange for the use of its local business rating.The court ruled that the local company had no substantialinvolvement in the performance of the contract and that theresulting contract award undermined the local empowermentobjectives contained in the relevant statutory provisions thatencouraged local supplier participation.
Tainted Process Leads to Voided Contract7. Material Deviations in Contract Award
The court found material deviations between the tender call andthe awarded contract since the winning bidder’s locomotivesexceeded the maximum height requirements in the RFP and thecontract was awarded based on a purchase option that was notcontained in the RFP. The court stated that the terms of anawarded contract “must fall within the parameters of thespecifications laid down” in the tender call. It concluded that theout-of-scope provisions rendered the contract award unlawful.
Tainted Process Leads to Voided Contract8. Flawed Approval Process
The court determined that the contract was awarded pursuant toa flawed approval process. The governing statute required thePRASA board to make a written submission to the NationalTreasury and obtain the approval of the Minister of Transport priorto awarding the contract. However, the court found no evidencethat the PRASA board met either statutory requirement before itawarded the contract.
Tainted Process Leads to Voided ContractThe Verdict: Corruption Calls for Serious Sanctions
The court concluded that “the irregularities raised in this casehave unearthed manifestations of corruption, collusion or fraud”and that “corruption, if allowed to go unchecked and unpunished,will pose a serious threat to our democratic community”. Indeciding to strike down the contract, the court stated that “there issimply no reason why the respondent should benefit from anunlawful award that was peppered with so many irregularities”and that “corruption will triumph if this court does not set asidethis tender.”
Guiding Principles for Fair Evaluations Six Guiding Principles
Whether it’s a formal bid protest, a public audit review or anewsreel report, government evaluators often find themselvesunder a spotlight of scrutiny over their evaluation and awarddecisions. Given the glare of second-guessing that follows thepublic tendering process, this discussion offers six guidingprinciples for lowering the temperature in evaluation rooms.
Guiding Principles for Fair Evaluations 1. No Volunteers
In almost all cases, evaluation groups are made up of individualswho are moonlighted from their day jobs and assigned toevaluation teams; however, notwithstanding this double duty,evaluators don’t get a free pass on meeting fairness standards.Claiming “We did our best with limited resources,” is not anadequate defense for failing to meet your due process duties.Evaluators need to set aside sufficient time to independentlyreview, evaluate and score each proposal. They also need toprioritize their participation in group evaluation sessions since“no-shows” are a no-go that cause rescheduling delays or triggerthe need to remove evaluators.
Guiding Principles for Fair Evaluations 2. No Freestyling
Defending a legal challenge is no substitute for doing thingsproperly the first time. The evaluation process is not a freestylecompetition or an opportunity to second-guess establishedevaluation rules and criteria. Embarking on procedural deviationsand employing hidden criteria can result in re-evaluation ordersor the nullification of a contract award. Evaluators shouldtherefore take the time to properly review the evaluation rulesand criteria and then stick to the script.
Guiding Principles for Fair Evaluations 3. No Conflicts or Bias
Conflicts of interest and bias are bad news for the defensibility ofan evaluation. Evaluators should have no personal or financialinterest in the result. Furthermore, while expert evaluators maycome to the table with past knowledge of the various suppliersvying for the contract award, they should also come to theevaluation process with an open mind regarding the merits ofeach competing proposal. Potential evaluators who are unable tomeet these impartiality standards should remove themselvesfrom an evaluation to avoid tainting the integrity of the process.
Guiding Principles for Fair Evaluations 4. No Records Means No Defence
Keeping inadequate records can result in re-evaluation ordersand voided contracts. The days of jotting down cryptic shorthandon sticky notes or showing up to evaluation meetings withincomplete work and hoping that someone else will prepare aconsolidated evaluation record are over. Evaluators are notanonymous in the public procurement process. Team membersare accountable for maintaining their own notes and scores andresponsible for recording why they made any changes to theirscores during group scoring sessions.
Guiding Principles for Fair Evaluations 5. Peer Review, Not Peer Pressure
Group scoring sessions should not be a forum for fudging resultsor pressuring evaluators into changing their scores. In fact,emerging enhanced consensus scoring procedures now typicallyinclude detailed protocols for ensuring that each group memberexercises independent judgment as part of the evaluation. Whilegroup scoring sessions should enable peer review anddiscussion, each evaluator is a potential witness in a legalchallenge and should therefore exercise unfettered judgmentand be ready to stand behind his or her individual score, evenunder cross-examination.
Guiding Principles for Fair Evaluations 6. No Executive Privilege
No-one involved in a government evaluation decision is abovethe law. When it comes to protecting the integrity of the tenderingprocess, there is no executive privilege. This means that seniorofficials cannot simultaneously delegate responsibility for theevaluation process and then reserve the right to arbitrarilysecond-guess and override an outcome they disagree with.Senior officials should therefore either formally delegate thepower to make evaluation and award decisions or they should beprepared to actively participate according to the same dueprocess standards that apply to everyone else.
Guiding Principles for Fair Evaluations Future Considerations
While your institution may have a long track record of takingliberties with the due process of its evaluation decisions and notbeing challenged, you should never confuse poor but untestedpast practice with proper practice. In the face of a legalchallenge, denial of the rules is not a winning defense. When itcomes to protecting the integrity of the evaluation process, it’snever too late to rectify your procedures to establish defensiblepractices.
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For more information please contact:
Paul EmanuelliManaging Director and General Counsel
Procurement [email protected]
416-700-8528
Marilyn BrownSenior Counsel
Procurement [email protected]
416-700-8531
Heather BakerSenior Procurement Advisor
Procurement [email protected]
416-700-8535
Julia MillsProcurement Advisor and Communications Specialist
Procurement [email protected]
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