True Competition
By Frederick Marks, CPPO, VCO
The perception of propriety and integrity in awarding public contracts is critical to a public body’s ability to maintain public confidence and support. Reports in the media reveal where questionable procurement practices have led to embarrassment of a public body. Such reports undermine any attempt to raise an entity’s revenue base by increasing taxes, tolls, or other user fees.
Fortunately, the way to achieve both the desired perception and reality is no mystery. Competition and contracting integrity are synonymous. Open bidding among qualified contractors by itself, however, satisfies only the most basic element of a competitive purchase. As part of that process, one of the necessary elements is the assurance to public entities that a bidder will have the ability to provide the item or service they require.
Communication–Key to Contracts
Prudence dictates that bidders be required to submit information to the entity for review and analysis. This is generally accomplished in a section of the solicitation document called “Papers Accompanying the Proposal” or “Qualification Information” that includes financial information, statements of work on hand, banking information, corporate information, insurance, and personnel issues, such as who will work on the project and who will supervise.
These documents are designed to create a comfort zone about the bidder selected to provide products or services. The entity should consider reserving the right to give oral or written notice to the bidder to furnish information and to meet with representatives of the organization to discuss its qualifications and ability to fulfill its obligations under the contract. The requested information should be submitted no later than three business days after notifying the bidder.
The bidder also should be advised in the “Information for Bidders” portion of the solicitation document that the giving of any of the notices to a bidder, the submission of materials by a bidder, any meeting held with the bidder, nor anything stated by either party in any meeting shall be construed or alleged to be constructed as an acceptance of said bidder’s bid.
The bidder should recognize that it may be required to demonstrate to the entity’s satisfaction that it can, in fact, perform its obligations as called for in the contract and that it may be required to substantiate the warranties and representations set forth and the statements and assurances it may be required to give.
Corporate information about the bidder helps the entity determine the bidder’s status and ranking in the business community. If the bidder is a corporation, it should provide a copy of Certificate of Incorporation with a written declaration signed by the secretary of the corporation and having the affixed corporate seal, stating that the copy furnished is a true copy of the Certificate of Incorporation as of the date of the opening of the bid. If the bidder is not incorporated under the laws of the state in which the service is to be performed, then a certificate from that state evidencing the bidder’s legal qualifications to do business in that state should be required.
A public body needs assurance that the bidder has the financial capacity to fund a contract in the approximate size and scope. The bidder should be required to dem-
onstrate that it is financially capable of performing this contract, and the determination of the bidder’s financial qualifications will be made by solely by the entity. The bidder should submit such financial and other relevant information as may be required by the entity from time to time.
If the public body deems it important to have the bidder’s banking information, these records should be required as part of the financial information: the name and address of the bidder’s banking institution; chief banking representative handling the bidder’s account; the bidder’s Federal Employer Identification Number (i.e., the number assigned to firms by the federal government for tax purposes); the bidder’s Dun and Bradstreet number; and the name of any credit service to which the bidder furnished information, and the number assigned by such service to the bidder’s account.
To evaluate its potential order against work the bidder currently is performing, the entity should have on hand a statement of the bidder’s other work, including any work on which a bid has been submitted, containing a description of the work, the annual dollar value, the location by city and state, the current percentage of completion, the expected date for completion, and the contact information of an individual most familiar with the bidder’s work on these jobs.
It is important to know who will be in charge once the entity and bidder enter into an agreement, including the names of the bidder’s personnel who will be in charge of the contract, those who will be exclusively assigned to supervise the contract, and their specific roles. The entity also should require the number of years of experience of each person and in which functions and capacities.
Liquidated damages are another form of assurances available to the buyer as part of the solicitation document. When the parties to a contract agree to the payment of a certain sum as a fixed and agreed-upon satisfaction for not doing certain things particularly mentioned in the agreement by either party, the sum is called liquidated damages–the amount of money specified in a contract to be awarded in the event that the agreement is violated, and the fixed amount that a party to an agreement promises to pay to the other in case he or she shall not fulfill some primary or principal engagement into which he or she has entered by the same agreement.
The use of the words “penalty” or “forfeiture” should be avoided, as they are monetary payments for nonperformance. Liquidated damages must be included and agreed to by the bidders prior to an award. They can be based on any aspect of the proposed agreement, such as delivery time, delivery quantities, portions of work, etc. Also, they must be based in reality.
Previous performance of the bidder is an additional assurance. It relates not only to the public body, but to others as well. The entity’s internal records should show if there have been problems with the bidder on previous orders, and the documentation should address what was resolved. Absence of sufficient documentation poses a real problem. If there is no record of corrective action on previous contracts, the bidder can claim its performance was satisfactory. The earlier comment regarding “Bidders Current Work” can be reviewed for contracts with other governmental organizations, using the same size and scope as the entity’s contract as a guide, and investigated as to how the bidder performed for others. If the entity’s investigation and review finds a less-than-satisfactory performance from the bidder on previous work, it may reserve the right to give notice to the bidder to furnish information demonstrating that its work was, in fact, satisfactory or that circumstances that gave rise to the unsatisfactory performance have changed or will not apply to the performance.
Expectation of Performance
A public entity is entitled to a reasonable expectation of performance by the bidder, along with these assurances, and it is the obligation of the bidder to demonstrate to the entity’s satisfaction that it can, in fact, perform the work in a satisfactory manner.
As William Shakespeare wrote in his play All’s Well That Ends Well (Act II, Scene 1): “Oft expectation fails, and most oft there where most it promises; and oft it hits where hope is coldest, and despair most fits.” (My thanks to David Dise for reminding me of this quotation. I hate when engineers can quote Shakespeare as well as English majors).
Another tool that public entities can use to ensure performance by the bidder is the often quoted, rarely defined, concept of “Reasonable Expectation of Performance.” Here is part of the Uniform Commercial Code citation:
2-609. Right to Adequate Assurance of Performance.
A contract for sale imposes an obligation on each party that the other’s expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.
Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards.
Acceptance of any improper delivery or payment does not prejudice the aggieved party’s right to demand adequate assurance of future performance.
After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract.
In their book Business Law, Purver, Tinsley, Farber, and Bjorklund discuss in Chapter 6 the duty to exercise “reasonable care” as a matter of negligence and contractual liability as it relates to reasonable expectations of manufacturers, service providers and professionals. In Chapter 22 the authors address remedies for breach of performance, including discussion of UCC 2-609, 2-610, and others regarding anticipatory repudiation and assurance of reasonable performance, citing numerous illustrative cases.
These are valuable tools for your use. They go a long way to both assure and protect public entities against less-than-qualified contractors and vendors.
Editor’s Note: Frederick Marks, CPPO, VCO (Virginia Contracting Officer), is a retired purchasing officer who formerly held positions as a Supervising Buyer for the Port Authority of New York and New Jersey, as well as Director of Materiel Management for Northern Virginia Community College. His education includes an undergraduate degree in English Literature. Marks has written numerous procurement courses and also is a master instructor for the National Institute of Governmental Purchasing (NIGP). Contact Marks via e-mail at [email protected].
