What the latest judgement on unfair tendering means for procurement practice

A recent landmark High Court decision overturned a tendering decision made by the Ministry of Health. The judge highlighted breaches of government procurement rules, serious flaws in the tender evaluation methodology, and inadequate handling of conflicts of interest among the evaluation panel members.

The applicant – the Problem Gambling Foundation – was awarded full costs and the tender evaluation decision was set aside.

Because few suppliers have the courage or the resources to challenge tendering decisions, this is a landmark case. It fires a severe warning shot for government clients who are unaware or dismissive of their legal obligations for fair tender evaluation processes.

So, what did the Ministry do wrong? Some very significant errors were made, including:

  1. Introducing new sub-criteria for evaluation and changing weightings after the responses were received
  2. Not dealing appropriately with (in this case, eliminating) conflicts of interest. Five of the seven panel members identified conflicts; and the review identified that these should have been dealt with more diligently
  3. Changing panel members’ omitted scores to zero scores (and thereby decreasing the average)
  4. Not agreeing scoring standards before panel members completed individual evaluations (resulting in scores ranging from the minimum to the maximum possible scores
  5. Introducing a new process – moderation – into the evaluation without notifying respondents. (This process – involving balancing the mix of regional and local suppliers’ offers across the contract – changed the award decision away from the highest ranked bidders)
  6. Allowing one panel member to potentially have disproportionate influence over the process of achieving consensus
  7. Marking down some suppliers for not providing evidence which had not been clearly asked for (but was provided in their competitors’ proposals).

This case provides hope for those organisations who have been faced with what they perceive as unfair procurement practices. It also provides sobering lessons for government organisations in relation to procurement.

It is the most notable case involving unfair tendering practices in recent years, highlighting the importance of robust and equitable tender processes.

The key messages that clients need to take away from this are simple:

  1. Do not deviate from what you say you will do in the RFx document. Don’t introduce new criteria; don’t score responses based on information that you haven’t directly asked for; and don’t introduce new sub-processes that have not been fully described in the tender documents.
  2. Pay attention to actual and perceived conflicts of interest. These are common in the small NZ market; and they need to be managed in a manner that ensures suppliers’ responses are treated fairly. The judge discussed the ‘personal knowledge exclusion rule’.

This rule is aimed to eliminate the effect of personal knowledge of the bidders from tendering decisions, so that only the written evidence is scored. In practice, it could be difficult if not impossible for tender evaluators not only to put aside that personal knowledge from their conscious decisions, but also from their unconscious minds.

The safest course of action is to eliminate conflicts of interest by not using tender evaluators with previous working relationships or close personal knowledge of any of the suppliers bidding the contract.

  1. Agree how you will score the responses first. Put in place clear, objective scoring scales and brief your evaluators on how to apply them, before sending them away to assess the responses. The huge divergence in scoring prompted the evaluation chair to retrospectively influence the scoring of the panel members. If the scoring system had been well prepared, fully explained and agreed amongst the panel before any scoring took place (and ideally before the RFx was released), then the majority of the flaws that were found in the evaluation methodology would have been prevented.
  2. Make sure your procurement staff are fully aware of the Government’s five Principles of Procurement and the Rules of Sourcing and their impact on real situations that they may encounter when preparing RFx documents and evaluating tenders.

If you are a procurement professional working for a government organisation, the last thing you need is to have to face a legal challenge to your tendering process or decisions.

The full judgement is available here.