"It seems clear to us that the pivotal issue before the trial court and in this appeal is whether the Lottery can treat the RFP process as little more than a ranking tool to determine a preferred provider and then negotiate a contract with that provider with little or no concern for the original proposal of that preferred provider." That's how a Florida appellate court characterized a Florida Lottery RFP process in 2001, thus declaring the contract null and void.

In the February-March edition of Go Pro, we covered the issue of responsiveness in RFPs at the time of proposal submission. This time, let's look at the other end of the process and address the permissibility of executing a final contract that changes requirements in the RFP or the proposal.

The Florida GTECH case

In the Florida case, at issue was a follow-on contract for computerized gaming services [Florida Department of Lottery v. GTECH, 816 So.2d 648 (Fla. App. 1 Dist. 2001)]. The Lottery issued the RFP in 1995, before the expiration of the existing contract, and awarded the contract to the incumbent, Automated Wagering International, Inc. (AWI). In 1996, GTECH filed a protest against the award, alleging material errors in the evaluation. In 1997, the Lottery adopted an administrative law judge's recommendation to reevaluate the proposals.

The Lottery and AWI executed the contract after the reevaluation. GTECH filed another court action challenging the award and claiming that the contract between the Lottery and AWI omitted or altered various material provisions required in the original RFP. The trial court sided with GTECH and declared the Lottery/AWI contract null and void.

The appellate court sustained the lower court's decision. The opinion accepted the trial court's finding of fact that "the negotiated contract was financially more favorable to AWI than was the proposal by which it became the winning bidder," without identifying the differences. The appellate court concluded that RFP language did not permit the Lottery to eliminate all but the most favorable bidder and then later privately negotiate the price and terms that bore "little resemblance to the proposal that earned AWI preferred provider status in the first instance."

The court rejected the Lottery's primary argument that the RFP language permitted exclusion of GTECH (the only other offeror), and thereafter the Lottery was no longer bound by the competitive bidding statutes. So the court avoided the issue of whether there was a "material difference" between the proposal (that incorporated RFP terms) and the executed contract.

The practical utility of the GTECH case may be limited by the court's narrow rationale for its decision, because the "material difference" test was never really applied. A more recent New Jersey case is more helpful in fleshing out an approach to evaluating the effect of post-award changes to proposal or RFP terms during contract execution.

New Jersey CFG Health Systems case

The GTECH case hinted that the executed contract could not be materially different from the RFP and proposal as finally evaluated. In 2010, a New Jersey court plainly said so. [CFG Health Systems, LLC v. County of Hudson, 994 A.2d 1045 (N.J. Super. Ct. App. Div. 2010)].

In CFG, the county issued a request for proposals before the expiration of the medical and mental health services contract for a county correction center. The RFP required a minimum of 1,653 hours of staffing per week.

CFG's proposed price was about 40 percent higher than the price of the incumbent. Both proposal amounts exceeded the county's budget expectations, and the county retained an expert to review the staffing requirements. Before the consultant had completed its report, the board of county commissions adopted a resolution approving the award to the incumbent (with the lower cost).

Eventually, after completion of the consultant's report, the staffing hours were reduced about 30 percent from the amounts specified in the RFP. The county commissions approved a resolution approving the amendment to the contract with the incumbent.

CFG then filed an action in court challenging the resolution. The trial court invalidated the county resolution approving the contract. CFG appealed that decision.

The appellate court agreed with the trial court that the post-award revisions to RFP requirements were not "minor or inconsequential" and the kind of minor irregularities (in sealed bids for example) that could be waived. Moreover, the court rejected the county's reliance on precedent in construction contracts that permitted contract amendments where unanticipated subsurface conditions are found. The court also rejected the argument that an RFP clause reserving the right "to alter or change the procurement process" provided the authority to materially reduce the staffing requirements in the final contract.

Laws vary by jurisdiction

Procurement law varies among the states, and most states have not considered this precise issue. Jurisdictions governed by the Model Procurement Code likely would reach a similar result.

Other jurisdictions' laws may permit RFPs to be treated more like professional services procurements; e.g., those for architects, engineers and attorneys. Those laws require award of professional services based on qualifications, with price negotiated with the best rated firm. Those laws permit significant give-and-take in the negotiation of the final contract. Other statutes and ordinances governing public works may have language explicitly authorizing discussions (even in sealed bids) to get costs within budget, thus permitting post-award, downward negotiation of price.

On the other hand, other laws may not contemplate communication exchanges and proposal revisions at all. In a sense, these laws permit best value award using a process that appears to be closer to sealed bidding, limiting communication exchanges to mere clarification of proposals. In jurisdictions with more restrictive laws, any revision to RFP boilerplate other than a minor clarification could be grounds for objection.

Some approaches to minimize risk

In states that permit communication exchanges, negotiation and proposal revision, there can be risk from changes in the proposal or RFP at the time of contract execution. Still, some formalization of terms almost always occurs, and it would be impractical to get "camera ready" executable contracts ready with all offerors in the competitive range (or "short list") at the time of final evaluation.

Here are some possible approaches. Discuss these approaches with your counsel as ways to minimize the risk that the post-award formalization of contract language could be challenged successfully.

  • Permit exceptions to terms and conditions to be taken in the RFP, evaluate them, and make them a topic of discussion before final evaluation. For example, boilerplate intellectual property rights clauses sometimes need some modification to fit an offeror's approach that involves use of third-party commercial software.
  • Include language in the RFP that addresses the fact that post-award formalization of the contract may include revisions to language that do not materially change the requirements, price, schedule, or risk to the government; that is, revisions that would not have affected the evaluation decision. In this regard, price increases may always be risky.
  • Consider reserving in the RFP the right to negotiate any changes that may be more favorable to the government where the effect would have been expected to affect all offerors similarly. Language similar to the construction "over budget" language used in some statutes might be a model.
  • Include language in the RFP model contract to address unanticipated changes. Contracts with well thought out changes clauses reduce the chances of protracted negotiations immediately after award. Contractors may try to drive all uncertainty out of the agreement if there is no other contract vehicle for dealing with unanticipated conditions that might warrant changes in price or schedule.
  • Use discussions and best and final offers to get as close as possible to the contours of agreement before the final evaluation. While intellectual property rights, warranties and liability allocation terms may never entirely escape legal scrutiny until contract execution (on either the government or contractor side), defining the contours of the agreement makes it easier to argue that post-award formalization is just that.

A thought about equity

RFPs do three essential things. They achieve clarity in terms and conditions. They enable governments to understand proposals fully so they can get a solution most advantageous to them. Finally, the RFP process is designed to ensure equity. Use clarifications, discussions and proposal revisions (e.g. BAFOs) to achieve enough clarity so only immaterial, post-award formalization is needed at the time of contract execution.

About the author

Richard Pennington, CPPO, C.P.M., J.D., LL.M. is an NIGP Individual Member. He served as an assistant attorney general (procurement and contract law and litigation) and State Purchasing Director for the State of Colorado.