"We cannot regard as unreasonable the City's apparent assessment that its duty to conduct discussions was satisfied ..."

What duty to conduct discussions? This Hawaii court language raises some questions. Is your agency required to conduct discussions in requests for proposals? Should you? This article looks at the information exchange that occurs from the time proposals are received and the government's obligations with respect to those exchanges.

In competitive sealed bidding, commonly called invitations for bid, there is little opportunity for information exchange between a bidder and the government about the bid before award. There may be very limited exchange related to mistakes by the bidder or clarification of minor informalities. However, except in very rare cases, the bid is not revised or prices changed.

This article looks at the other kind of competitive solicitation. The American Bar Association Model Procurement Code names this process "competitive sealed proposals." The title of the Federal Acquisition Regulations section on the request for proposal (RFP) process is "Contracting by Negotiation." Some states — Florida and California, for example — have separate statutory authority that permits competitive negotiation.

What characterizes this type of negotiation is the opportunity to have a give-and-take exchange of information. This exchange is significantly broader than permitted in sealed bidding. Ultimately, the exchange can lead to proposal revisions, often through a process called "best and final offers" (BAFO). But the process requires some oversight to ensure that the information exchange is fair to vendors.

Hawaii's analysis of meaningful discussions

A 2012 decision from the state of Hawaii illustrates the importance of fairness in discussions. [Bombardier Transportation (Holdings) USA, Inc. v. Director, Department of Budget and Fiscal Services, 289 P.3d 1049 (Haw. Ct. App. 2012)]. The city and county of Honolulu issued a request for proposal for a large design-build-operate-maintain contract for the Honolulu transit corridor. The solicitation terms and conditions limited contractor liability, but the clause specifically exempted liability arising out of a contractor indemnity provision in the contract.

In its proposal, Bombardier stated that it assumed that the indemnification exclusion from the limitation of liability cap was an inadvertent oversight, because the exclusion would defeat the purpose of the limitation of liability provision and essentially eliminate any cap on liability of the contractor. During discussions before award, Bombardier argued that the limitation of liability provision should be amended to eliminate the exception for indemnification liability.

The city orally warned Bombardier that a conditional proposal would be considered nonresponsive. The city issued a BAFO request and an RFP addendum, retaining the language excluding indemnification claims from the liability cap. Bombardier submitted a confidential question to the city, asking again that the terms of the limitation of liability provision be revised. The city declined to respond but issued a final RFP addendum stating that no changes would be made to the limitation of liability provision.

Bombardier then submitted its BAFO. Its proposal said that Bombardier was basing its proposal on the assumption that the indemnification exclusion would be deleted from the limitation of liability provision. The city notified Bombardier that it had submitted an impermissible conditional proposal and awarded the contract to a competitor.

Bombardier protested the award, which was denied, and eventually filed a lawsuit against the city. Bombardier alleged that the city had failed to engage in "meaningful discussions," a term well known in federal procurement law. Hawaii's procurement code is based in large part on the ABA Model Procurement Code (itself modeled on federal procurement law). Hawaii's statutes permit "discussions" with responsible offerors. Despite differences in language between the Federal Acquisition Regulation (FAR) and the Hawaii procurement code, the court considered federal precedent anyway regarding what constitutes "meaningful discussions."

Federal procurement law requires, once an agency elects to conduct discussions, that the agency ensure that discussions are "meaningful." That is, the agency is required to point out deficiencies or significant weaknesses in a proposal, or adverse past performance information, with enough specificity that the offeror is led into areas of its proposal which may require amplification or correction.

The court never articulated the standard for discussions under the Hawaii procurement law; it opted instead to address federal "meaningful discussions" standard argued by Bombardier. The court held that even under that more stringent federal standard, the city met its obligations regarding discussions. The court held also that the city was not required to conduct another round of BAFOs to permit Bombardier to revise its proposal to remove the conditional language. The court sustained the award.