United States: Understanding The Public Procurement Process

Many of you in the construction industry are more than familiar with the ins and outs of the procurement process on private construction projects. Frankly, you wonder if there is any process, or rather it is a case of who you know, not what you know. Truthfully, that is not far wrong. There is little protection for bidders in the private bidding arena, and the bidder's fate is in the hands of the architect, construction manager or the owner.

Things are not quite so simple in the public contract sector. There are laws and regulations which govern the method and manner of each phase of the bidding or acquisition process and the rights which each of the parties has during those phases. This section of the materials will attempt to introduce the reader to those rules and regulations and to explain the rights of the parties throughout the process.

The laws which affect public procurement change depending on whether the project is a state or federal project. The Commonwealth of Kentucky, as well as most other states, has adopted the Kentucky Model Procurement Code. This code was first developed by the American Bar Association in conjunction with many of the state attorneys general in the mid-70s. Since that time, it has been adopted by most of the states and provides a degree of conformity in the procurement process.

The Model Procurement Code is found in Kentucky at KRS 45A. This law sets out the purpose and policy intended to be accomplished through the law, and the steps which must be followed on projects which are funded through the state. Section 020 of the act states that the law shall be applicable to 'every expenditure of public funds by this Commonwealth under any contract or like business agreement'. There will be exceptions to that rule that certain agencies will invoke from time to time, so the bidder must be careful to ascertain whether the project falls within the purview of the Model Procurement Code. The Code does not apply to contracts between the Commonwealth and any political subdivision thereof. A careful reading of the Code must be made to become familiar with the various aspects which govern the solicitation. We will attempt to discuss some of them as this material is developed. The various provisions of the Code are implemented through the Kentucky Administrative Regulations (KAR). Chapter 200 of the KAR contains those regulations enacted to implement most of the provisions of the Model Procurement Code.

The acquisition of goods and services with the use of federal funds requires the application of the Federal Acquisition Regulations to the bidding and contracting process. These regulations grew out of an initiative by the federal government in the early >70s to streamline the acquisition process throughout the entire government sector. Each agency had its own regulations for the purchase of goods and services but there was little consistency between any of them. The Federal Acquisition Regulations were developed by an interagency committee which analyzed all of the existing regulations and developed a consistent set of rules for all of the agencies to follow.

The individual idiosyncracies of the various agencies were maintained through the agency FAR Supplements which allow the particular agency to tailor specific functions required by the FAR to the nuances of the agency. The Federal Acquisition Regulations System is established for the codification and publication of uniform policies and procedures for acquisition by all executive agencies. The Federal Acquisition Regulations System consists of the Federal Acquisition Regulation, which is the primary document, and agency acquisition regulations that implement or supplement the FAR. As an example, the Department of Defense is signatory to the FAR (DoD FAR Supplement), the Army (AFARS) and the Corps of Engineers (EFARS). Each has supplemented the FAR to implement the document within the agency.

So, when the FAR states that the agency must take some action or issue a decision on a bid protest or mistake in bid, the agency supplements set out who in the agency has the authority to render such decisions. The supplements may set out dollar limitations on certain actions or other limitations within the regulations which fit particular agency differences.

Each phase of the acquisition process is discussed in the FAR, including the requirement for acquisition advance planning, the types and methods of contracting (sealed bids vs. competitive negotiation), the manner of opening the bids, the handling of bid protests and mistakes in bid, the steps to be followed in analyzing bids and the award of contracts. Each of those aspects of procurement are deemed to be essential in maintaining the integrity of the bidding system. Those are the buzzwords which guide nearly all of the decisions which are made during bidding on public projects.

The integrity of the bidding system must be maintained at all costs. The underlying principal attached to that purpose requires that all reasonable steps be taken to ensure that once bids are opened, a new solicitation is not required unless absolutely necessary. Once bids have been opened and the bids are public, then each bidder is able to analyze the competition and any advantage may be taken away in a re-bid. The other underlying principal is that one bidder is not allowed to advance its position over other bidders through allegations of mistake or fraud. These issues will be discussed later in the material.

Bid Protests -- Two of the most commonly misunderstood areas of procurement are bid protests and mistakes in bid. These are two areas of protection for the bidder who feels that something has occurred during the process which has adversely affected its standing in the process. In the bid protest situation, the bidder believes that something has occurred which has either allowed another bidder an unfair advantage in receiving an award, or that has unduly prejudiced it and prevented it from receiving an award. In reality, a bid protest is an extremely difficult contest to win. However, generally, an experienced procurement specialist will know whether there is a chance of success in challenging a bid or award.

The Kentucky Model Procurement Code does not set out the particular steps which a bidder must follow to file a bid protest. Those steps are generally contained in the Instruction to bidders found with each individual solicitation. However, bidders must be careful because on many occasions no instructions will be provided to assist you in filing a bid protest on local public jobs. Public owners such as school boards and municipal agencies do not wish to encourage bid protests so they will make it difficult to learn the required steps. When the steps are given, they generally include a tight time frame which must be followed to lodge a protest. Most often, a protest must be filed within ten (10) days of bid opening but prior to award. In this manner, the parties will not be prejudiced through inordinate delay in resolving the protest.

The grounds for the protest should be stated at the time the protest is lodged, although in many cases only a bit of information is known at the time of the protest, and a more thorough review of the bid documents is necessary before all of the grounds of the protest are known for certain. An amendment to the protest should be made at that time. The question is always raised as to who is eligible to file a protest. Generally, on state projects you must be the second low bidder, or If you believe there are grounds to remove more than one bidder above your position, then you must be 'otherwise eligible for award' if the protest is successful.

Generically, bid protests fall into three categories; a challenge to the responsiveness of the bid; the responsibility of the bidder; or the terms of the solicitation. Responsiveness issues relate to the completeness of the bid form or the representations made by the bidder in the bid. Responsibility issues relate to the ability of the bidder to perform the contract. Finally, challenges to the solicitation go to the terms of the specifications, such as too restrictive or out of keeping with industry standards without justification.

The resolution of the protest is often determined by the relief sought by the protestor. This is simple reality. If the demand is made that the apparent low bidder should be removed, and the protestor awarded the contract, the owner might be reluctant to reward the protestor so handsomely. If the relief sought is to have the project re-bid, then the parties are seen to have an equal chance at the award. The chance of success in those circumstances seem to be a little better than those where an award of the contract is sought.

Federal Bid Protests--Bid protest under the federal system are far more structured. The federal system relies upon competition to achieve both low priced and high quality products and services. The protest process by which an unsuccessful offeror, or 'disappointed bidder', may challenge the award to another offeror is intended to ensure fairness in such competition. Accordingly, every offeror who submits a timely proposal generally has a right to have that proposal fairly evaluated. When a government action deprives an offeror of this right, that unsuccessful offeror may protest the award.

There are four (4) forums in which bid protests may be filed: the procuring agency itself; the General Accounting Office; the Court of Federal Claims; and federal district courts. The GAO has long been the most favored forum, but agency protests are highly attractive to protestors. The Court of Federal Claims was only recently added to the list of available forums.

Over the years, the GAO has developed a substantial body of law and standard procedures for considering bid protests. The process at GAO begins with the filing of a written protest. Unless the protest is dismissed because it is procedurally or substantively defecting (untimely), the contracting agency is required to file with the GAO an agency report responding to the protest and providing a copy of the report to the protestor. The protestor and other interested parties may be allowed to provide comments on the report. Conferences and hearings may be held to obtain additional information and clarification. A decision is then issued by the GAO.

Under the federal system, a protest can only be filed by an 'interested party' which means an actual or prospective bidder or offeror with direct economic interest in the procurement. (4 CFR 21.0(a)). An attorney is not required to file the protest although in some instances, an attorney may be necessary to view controversial corporate information. A potential supplier can file the protest if it can demonstrate that it had a 'direct economic interest' in the procurement.

Common Protest Grounds--The types of issues most often raised by protestors are:

1. Alleged defects in the specifications, e.g.

1. Unduly restrictive specifications
2. Omission of a required provision
3. Ambiguous evaluation factors
4. Inaccurate government estimates

2. Rejection or acceptance of a bid or proposal, e.g.

1. Failure to follow evaluation factors
2. Irrational or arbitrary decision
3. Lack of meaningful discussions
4. Unequal treatment of offerors
5. Violation of procurement statutes or regs.
6. Unbalanced pricing scheme of awardee

What May Not Be Protested--Matters which may not serve as grounds for protest are:

A. Matters of contract administration, including selection of procurement type, multiple-award task order contract, etc.

B. Status of small businesses or small disadvantaged businesses, which must be brought to attention of SBA.

Under the federal system an award may not be made until the protest has been resolved. This is the general rule, unless the agency is willing to declare that there is urgent and compelling need to award the contract in the face of the protest. Most agencies do not wish to take this step because it must be supported by adequate justification and must be defendable if challenged in court. If the protest is filed after the award, but within 10 days following award, a suspension of the contract will be required absent an urgent and compelling reason.

Mistakes in bid under the state system differ markedly from treatment under the federal system. The basic difference is that the federal system allows correction of a mistake in the bid. The state system only allows withdrawal of the bid. It would seem that the federal system is more in keeping with pure contract law, that if a mistake is actually made and proven, then the one making the mistake should not be punished. The state system is simply cleaner and it removes the risks inherent with upward adjustment in price following bid opening.

KRS 45A.035 and 45A.080 provide the generally framework under which mistakes in bid are handled. 200 KAR 5:306, Competitive Sealed Bidding, sets out the procedures for addressing the allegations of a mistake. Section 8, states that if a mistake in bid is claimed, and if the purchasing officer determines that the evidence is clear and convincing that a material mistake was made in the bid, and that due to such mistake, the bid submitted was not the bid intended, the bidder shall be permitted to withdraw his bid.

If the mistake is not found until after award, the penalty is far more harsh. If a mistake is alleged after award, the contractor shall be required to perform the contract, unless it can be proven that a mistake was made and the contractor will sustain a financial loss if required to complete the project. A reduction or diminution in profit margin shall not be deemed a financial loss under the regulation.

The federal system is governed by section 14.407 of the FAR. The section states that after bid opening the contracting officer shall examine all bids for mistakes. If it appears that a mistake may have been made, the contracting officer shall request a verification of the bid.

Apparent clerical errors may be corrected by the contracting officer. Such examples of a mistake are:

1. Obvious misplacement of a decimal point;
2. Obviously incorrect discounts:
3. Obvious reversal of the price f.o.b. destination and f.o.b. origin;
4. Obvious mistake in designation of a unit.

If a bidder alleges other types of mistakes, it may request that it be allowed to correct the mistake. In those cases, clear and convincing evidence must disclose both the existence of the mistake and the bid actually intended, the agency head may make a determination permitting the bidder to correct the mistake, The burden of proof grows to almost an insurmountable level if correction of the mistake would result in displacing one or more lower bids.

Mistakes alleged after award may be considered under the federal system. The mistake may be corrected by contract amendment if correcting the mistake would be favorable to the government. Agencies may make a determination to reform the contract to increase the price if the price as corrected, does not exceed that of the next lowest acceptable bid under the original invitation. The level of proof required to be met is the same whether the mistake is alleged before or after award.

In many cases, like those in the state system, withdrawal of the bid may be the most favorable course of action for both of the parties. The evidence may fall slightly short of that which the contracting officer may have preferred to see, but having a disgruntled bidder as a contractor may not be the best course either. In such cases, withdrawal may be the less of two evils.

After competitive bids have been opened and read, the awarding office must determine the low, responsive, responsible bid. It has been said that responsibility relates to the bidders's ability to satisfactorily perform the work whereas responsiveness of the bid relates to the form of the bid. Responsiveness is determined upon the openning of the bid, while responsibility relates to further evaluation.

A recent solicitation by the Kentucky Finance Cabinet stated that '(I)t is the intent of the Purchasing Officer to award a contract in due course and after a reasonable bid evaluation period to the lowest responsive bid by a responsible bidder provided the acceptable bid sum is within budgeted funds.' Such language gave the purchasing office great attitude in the time of the award, as to not being bound by an immediate necessity of award. FAR 14.408-1 states generally that the contracting officer shall make a contract award to that responsible bidder whose bid, conforming to the invitation, will be the most advantageous to the Government, considering only price and price-related factors included in the invitation. The contracting officer must determine that the bidder is responsible and is referred to section 9.1 for that determination.

FAR Section 9.104 sets forth the standards for that evaluation:

9.104-1 General standards.

To be determined responsible, a prospective contractor must--

1. Have adequate financial resources to perform the contract, or the ability to obtain them (see 9.104-3(a));
2. Be able to comply with the required or proposed delivery or performance schedule, taking into consideration all existing commercial and governmental business commitments;
3. Have a satisfactory performance record (see 9.104-3(b) and Subpart 42.15). A prospective contractor shall not be determined responsible or nonresponsible solely on the basis of a lack of relevant performance history, except as provided in 9.104-2;
4. Have a satisfactory record of integrity and business ethics;
5. Have the necessary organization, experience, accounting and operational controls, and technical skills, or the ability to obtain them (including, as appropriate, such elements as production control procedures, property control systems, quality assurance measures, and safety programs applicable to materials to be produced or services to be performed by the prospective contractor and subcontractors). (See 9.104-3(a).)
6. Have the necessary production, construction, and technical equipment and facilities, or the ability to obtain them (see 9.104-3(a)); and
7. Be otherwise qualified and eligible to receive an award under applicable laws and regulations.

Under both the federal and the state systems, irregularities in the bids may be waived without rejection of the bid. A short hand way to determine whether such irregularities may be determined to be minor is whether such irregularities affect price, quantity, quality or delivery. The state specifications often state that Minor or technical deficiencies or irregularities may be waived by the purchasing officer when all of the following circumstances are present:

1. The purchasing officer determines that it will be in the Owner's best interest;
2. the technicalities or irregularities are mere matters of form not affecting the material substance of a bid, represent an immaterial deviation from or variation in the precise requirements of the advertisement or invitation, and have no more than a trivial or negligible effect on price, quality, quantity or delivery or performance;
3. the correction or waiver of the technicality or irregularity will not affect the relative standing of, or prejudice, other bidders.

FAR 14.405 states basically the same thing:

'A minor informality or irregularity is one that is merely a matter of form and not of substance. It also pertains to some immaterial defect in a bid or variation of a bid from the exact requirements of the invitation that can be corrected or waived without being prejudicial to other bidders. The defect or variation is immaterial when the effect on price, quanity, quality, or delivery is negligible when contrasted with the total cost or scope of the supplies or services being acquired.'